MLM Math

Seriously Adman, I don't get the logic of advice that says you shouldn't even consider something because if you don't do it you'll "fail".

How does that make sense?

[not speaking for Adman]

It is in threads like this that I do consider it. I know, for example, that playing the lottery has some chance of success and I might win. So I evaluate the odds and make a decision.

If the only way to get into business was through an MLM, I might take a shot. But that's not the case, is it? It's not like I have to do MLM or nothing. If there are other business opportunities available, why would I go for the one with the long odds?

The deal killer for me is the amount of work it takes to even understand the model. The complexities put me at a serious disadvantage and set me up to being victimized. Even if there were "good" MLM's to join, I wouldn't be able to find them because the "bad" ones appear the same to my novice eyes.

What might be useful is a kind of free internship/mentoring with actual involvement in the MLM on offer. This would have to include complete transparency of course.
 
Untrue.

Higgs, Philip and Jane Smith (2007) Rethinking Our World by Juta Academic (South Africa’s leading provider of trusted legal and regulatory information and the largest local publisher of quality student textbooks in the fields of Commerce, Accounting, Communications, Social Science, Health, Education and the Law.) accepts MLM Watch website as well as Fitzpatrick as reliable references and say that ALL MLMs are deceptive scams with odds worse then with pyramid schemes. So even though it is a Philosophy book its comments regarding law were peer-reviewed by a publisher of legal and regulatory information.

wow. just wow. The book takes a quote from an anti-MLM page, then asks students to discuss it. It DOES NOT use it as a "reference". It DOES NOT say anything at all about MLMs. In another section of the book they cite a large passage from a book that promotes the idea that European Colonialism was a good thing for Africa, and then ask students to discuss it. Does that mean the book supports the idea that colonialism was a good thing?

You haven't even looked at the book have you, outside of finding them referencing FitzPatrick? Or are you just hoping to deceive people and they won't check the source themselves?

Never mind nobody can even agree on when MLMs started (indicating that there is no really hard and fast definition of the thing making regulation hard at the best of times): Business students focus on ethics that claims the 1920s, while Western Journal of Communication presents 1940s as the start, but Articles in Journal of Small Business Management say lat 1960s, and finally an article in International Journal of Service Industry Management points to the 1970s. It a game of pick that decade. If it is clear what MLMs are then why in the name of sanity is the starting point 50 year range?

Your game appears to be "cherry pick the source". I suppose you're a climate change denier as well? The vast majority of sources agree that the first MLM compensation plan was developed by Mytinger & Casselberry, Inc. in or about 1945 when they become official distributors for Nutrilite.

Given Amway's history from foundation in 1959 is extremely well documented. The fact your still giving credence to sources that are so obviously wrong just goes to show how your mind operates.

No they don't. Furthermore in 1998 China outlawed all direct selling (which includes MLMs) only legalizing direct selling (but NOT MLMs) in 2005.

Yup, they banned all direct sales, for a while. Then they re-licenced legitimate companies like Amway. Contrary to your claims, a multi-level compensation still exists, the government simply requires agents to obtain business licences and registered as "authorized agents" before they can be compensated for sales by their team.

Your characterization of the situation in China is either ignorant or dishonest.

In 2010 MLMs were illegal in Singapore (The Multi-level Marketing and Pyramid Selling (Prohibition) Act).

Not quite. For the purposes of the act MLM and pyramid selling are defined as the same thing. There is then a separate part of the law, Multi-level Marketing and Pyramid Selling (Excluded Schemes and Arrangements),which you are either ignorant of or chosen to deceptively ignore, which provides exclusions. I cite the Singapore Ministry of Trade and Industry -

Not all multi-level marketing techniques are undesirable. There are legitimate businesses using innovative sales tactics, and should not be lumped together with pyramid schemes​

Your characterization of the situation in Singapore is either ignorant or dishonest.

And even those areas where MLMs are legal the vast majority of them are in reality disguised ILLEGAL pyramid schemes.

As I said, this is arguably true. I've neither conducted research to ascertain this, nor have I seen any research to support this claim.

If you have, please supply it.

"MLM program is a highly leveraged product-based pyramid scheme in concept, structure, and effects. Nowadays, MLM industry is so well-entrenched in our society that effective laws for protecting consumers may be next to impossible without massive public support and clamor for change - which is not likely to happen, In fact, opposite is more likely - participants in all types of pyramid schemes will fight to defend a scheme until they have had their opportunity to "cash out"." (Sam-Hyun Chun, (2008) 방문ㆍ다단계판매의 판단기준에 관한 비교법적 고찰 "A Comparative Legal Review on Definition of Door-To-Door Sales and multilevel marketing" English abstract)

You want me to believe you can read Korean?

I don't believe that. You don't have the source and are relying entirely on an abstract found on the 'net.

I have however no problem believing their are anti-mlm critics in Korea who mischaracterize the business model in the same way anti-mlm critics do in the US. Meanwhile, companies like Amway flourish, even coming near the top in surveys of admired foreign companies in the country.

The claim of a huge conspiracy could be used to explain the failure of Prohibition in the 1920s or the Drug War today and it just as silly. Apathy towards what laws are on the books is all that is needed-no huge conspiracy needed.

Except your beliefs require a worldwide conspiracy.

No it isn't.

"It is considered that 99% of NMOs’ distributors lose profits because the costs associated with building the business exceed the returns." (Cruz, Joan Paola; Camilo Olaya (2008) "A System Dynamics Model for Studying the Structure of Network Marketing Organizations")

Again you are being dishonest! In that statement they are citing un-peer reviewed unscientific claims by anti-mlm zealot Jon Taylor, based on anecdotal evidence and a thorough ignorance of even most basic statistical methods.

"Day after day, however, many Americans and others around the world fall prey to a similar type of deception—supposed “business opportunities” in which 99.9 percent of investors lose money." (Pareja, Sergio, (2008) "Sales Gone Wild: Will the FTC's Business Opportunity Rule Put an End to Pyramid Marketing Schemes?" McGeorge Law Review, Vol. 39, No. 83.)

Again, you are being dishonest. This paper also cites Taylor's anecdotal un-peer reviewed unscientific claims. In this case h's citing claims that Taylor made to the FTC when they were reviewing new business opportunity legislation. The FTC rejected Taylor's position.

Jon Taylor is the Anthony Watts of the MLM world.
 
If the only way to get into business was through an MLM, I might take a shot. But that's not the case, is it? It's not like I have to do MLM or nothing. If there are other business opportunities available, why would I go for the one with the long odds?

The issue is that the "long odds" are based on people not building an MLM business. My own personal experience, plus the experience of people I know, plus other data I have shows that the vast majority of people who actually work at building a legitimate MLM business actually make money.

Here's a current situation for me, just happened this past week or so. I've started and sold lots of businesses over the years. I have several in process at the moment. Our life is good and money has generally not been a problem. However, we've just encountered a situation (a family members illness) where we are going to end up in significant debt to pay for her treatment.

Some of the businesses I'm involved with may end up generating a lot of money. There's only one business I'm aware of where if I follow certain steps I know that I'm virtually guaranteed of getting the result we need to clear the debt fast.

So I'm starting an Amway business again, because from everything I've seen, both in personal experience more than a decade ago, as well as studying the industry for the past 10 years, success is highly predictable and I don't know of any other business opportunity like that. It's going to take time and an awful lot of work, but I've zero doubt about it.

This reality is contrary to what anti-mlm critics would have you believe. Anti-mlmers have this utterly bizarre view that anyone who simply signs a registration form is suddenly out their working hard, building a business, and failing. This belief is -

(a) simply not true
(b) contrary to the evidence
(c) completely contrary to normal human behaviour.

It's like claiming a particularly pain killer doesn't work because all the people who didn't take it failed to get pain relief. Or that dieting and exercise don't help you lsoe weight because all the people who signed up for a weight loss program then didn't do it didn't lose weight.

It's absurd, and what's almost absurd is how many otherwise rational skeptics follow this line of thought!

The deal killer for me is the amount of work it takes to even understand the model. The complexities put me at a serious disadvantage and set me up to being victimized. Even if there were "good" MLM's to join, I wouldn't be able to find them because the "bad" ones appear the same to my novice eyes.

Stick with DSA members and you're generally fine. I agree there's some ridiculously complicated plans out there though. I'd avoid them too.

What might be useful is a kind of free internship/mentoring with actual involvement in the MLM on offer. This would have to include complete transparency of course.

This is pretty much on offer for any MLM I've ever encountered. While not everything is free, all offer money back guarantees for anywhere from 30 days to 12 months, so there is little financial risk. Indeed it's exactly how the group I work with promotes it. Try it out for a few months and see if it's for you. Worst than can happen is you'll spend some time, maybe a little cash, but learn a lot.
 
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Not true.

Yes it is. The 25% failure rate for normal business (University of Tennessee Research) and 99%+ failure rate for MLM are well documented. (Bloch, Brian (1996) "Multilevel marketing: what's the catch?" Journal of Consumer Marketing 13:4 pp. 18-26.; Carl, Walter J. (2004) "The Interactional Business of Doing Business: Managing Legitimacy and Co-constructing Entrepreneurial Identities in E-Commerce Multilevel Marketing Discourse" Western Journal of Communication, Vol. 68.; Berkowitz, Bill (Jan 28, 2009). "Republican Benefactor Launches Comeback". Inter press service.)

Another dodge MLM do is trying to hide their pyramid structure by confusing it with a normal business hierarchy.

The thing is a normal business hierarchy is limited by expected profits. MLMs on the other hand say that every customer is potential employee. But this adds more levels to the whole structure and eventually you get to the point where the next level requires more people then exist on the planet and there is no way for that level to succeed.

Worse you talk to these people in the US about FICA (OASDI and HI), FIT, SIT or 8109 and they look at you like your are speaking Greek. Not knowing what these are and why they are important will really hurt you if you are messing around with a MLM in the US.

Another problem with MLMs is they make you look at only as the cash coming in and try to keep you from looking at the cash going out. A friend of my bragged about his $1000/month MLM until the day he couldn’t put gas in his car; turns out that he was spending $1100 to make that $1000 ie loosing $100 a month. Simply put, he wasn’t making a PROFIT.
 
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Yes it is. The 25% failure rate for normal business (University of Tennessee Research)

Source? It's in a few places online, but those stats reports 25% failure rate in the first year. I'm unable to find the actual study.

Again, I ask you to provide the study you are citing! (and, again, I expect you'll fail to do so)

and 99%+ failure rate for MLM are well documented. (Bloch, Brian (1996) "Multilevel marketing: what's the catch?" Journal of Consumer Marketing 13:4 pp. 18-26.;

Again you outright lie! That paper presents NO research in to failure and doesn't even mention a 99%+ failure rate.

Carl, Walter J. (2004) "The Interactional Business of Doing Business: Managing Legitimacy and Co-constructing Entrepreneurial Identities in E-Commerce Multilevel Marketing Discourse" Western Journal of Communication, Vol. 68.;

Again you outright lie! That paper presents NO research in to failure rates and doesn't even mention a 99%+ failure rate.

Berkowitz, Bill (Jan 28, 2009). "Republican Benefactor Launches Comeback". Inter press service.

A political opinion piece, citing a guy who was suing Amway (and lost and had to publicly apologise to Amway) who makes false claims about a court course is not "well documented" data.

The thing is a normal business hierarchy is limited by expected profits. MLMs on the other hand say that every customer is potential employee.

MLM agents are (a) not employees and (b) their success is ... limited by profits! duh!

But this adds more levels to the whole structure and eventually you get to the point where the next level requires more people then exist on the planet and there is no way for that level to succeed.

Wrong, you're talking about pyramid schemes, not MLM. Your argument makes as much sense as saying McDonalds is going to collapse because if they succeed eventually everyone will be buying more McDonalds and there'll be no customers left

Worse you talk to these people in the US about FICA (OASDI and HI), FIT, SIT or 8109 and they look at you like your are speaking Greek. Not knowing what these are and why they are important will really hurt you if you are messing around with a MLM in the US.

Oh right, and like most people starting a business are experts in that. I majority-owned a (traditional) company based in the US and your sentence was greek to me too. That's what accountants are for.

Another problem with MLMs is they make you look at only as the cash coming in and try to keep you from looking at the cash going out.

A friend of my bragged about his $1000/month MLM until the day he couldn’t put gas in his car; turns out that he was spending $1100 to make that $1000 ie loosing $100 a month. Simply put, he wasn’t making a PROFIT.

For some reason it doesn't surprise me that you have a friend who is an idiot :rolleyes:

I was just listening to an introductory CD with the group I'm now working with, and they explicitly talk about expenses and your first goal is to reach break even.
 
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The issue is that the "long odds" are based on people not building an MLM business. My own personal experience, plus the experience of people I know, plus other data I have shows that the vast majority of people who actually work at building a legitimate MLM business actually make money.

Here's a current situation for me, just happened this past week or so. I've started and sold lots of businesses over the years. I have several in process at the moment. Our life is good and money has generally not been a problem. However, we've just encountered a situation (a family members illness) where we are going to end up in significant debt to pay for her treatment.

Some of the businesses I'm involved with may end up generating a lot of money. There's only one business I'm aware of where if I follow certain steps I know that I'm virtually guaranteed of getting the result we need to clear the debt fast.

So I'm starting an Amway business again, because from everything I've seen, both in personal experience more than a decade ago, as well as studying the industry for the past 10 years, success is highly predictable and I don't know of any other business opportunity like that. It's going to take time and an awful lot of work, but I've zero doubt about it.

Considering the fact that you are the biggest Amway/MLM advocate on the internet for the last ten years or more, what evidence and/or personal testimony can you provide to show that MLM actually works? The only evidence I can find about your success is a link showing you did 100 PV and got about $10 from Amway.

A 99% failure rate in MLM is generous. I believe the number is more like 99.75% failure.

MLM advocates like to exclude the failures in MLM and then claim that nearly 100% succeed. (i.e. don't count those who do little or nothing and quit)
 
Not to mention "success" is usually still dwarfed by a McD's paycheck, for several times the effort.
 
Not to mention "success" is usually still dwarfed by a McD's paycheck, for several times the effort.

Only if you don't care about things like, oh facts.

Seriously, where do you get your info? From websites like Jokefool's? That's like getting info on the odds of alien life from Above Top Secret
 
Only if you don't care about things like, oh facts.

Seriously, where do you get your info? From websites like Jokefool's? That's like getting info on the odds of alien life from Above Top Secret

Icerat, correct me if I'm wrong, but didn't you say that many of the participants are using it like a buying club and not to make money?

How is that segment of the membership separated out when we want to determine success or failure of an MLM?
 
Icerat, correct me if I'm wrong, but didn't you say that many of the participants are using it like a buying club and not to make money?

How is that segment of the membership separated out when we want to determine success or failure of an MLM?

Icerat/IBOFightback/Insider and other MLM advocates use that defense to try and justify the horrific MLM failure rate. If someone enrolls in high school or college and quits, does the school get to exclude that student from the grauation rates? If someone saw a presentation and signed up as a business owner and did not make money, is that not a failure?

They say that many/most MLMer's are actually wholesale customers. Thus they aren't failures. They'll also say that these folks are on and off again, switching between a business builder and a wholesale customer. It is a way spin doctor the success/failure rates.

That defense raises other issues to my way of thinking. I don't believe icerat and he's got no evidence to support his claim. But if it were true, then you essentially have a pyramid where sales are primarily to the people who participate in the scheme and not to actual customers. (Koscot).
 
I don't get the point of shilling here. People gullible enough to get into MLM aren't going to get any further than the first hundred or so Google results of "I was skeptical at first, but then I looked into it and it totally isn't a scam!" anyway. Is it about the challenge, or something?
 
Icerat, correct me if I'm wrong, but didn't you say that many of the participants are using it like a buying club and not to make money?

Yes, I've been an example of this for more than 10 years.

How is that segment of the membership separated out when we want to determine success or failure of an MLM?

Critics like Joecool think they shouldn't be separated out (I'm assuming he's said as much). Indeed, oft-quoted mlm critic Jon Taylor goes so far as to consider product purchases for personal use to be business expenses. (which would be considered tax fraud if taken seriously)

Most MLM companies attempt to separate out "active" and "inactive" agents in some way, and they all do it differently. It's virtually impossible to do in some statistically useful way, as people can and do move between being active and not active (and back). Amway's income disclosure for example considers someone "active" if they "attempt" to make a sale at least once in the year, or attend one meeting, or earn any bonus (even from personal use). Clearly that's not even remotely what say, the IRS would consider "active" for determining if someone was running a business.

The income disclosure statements companies supply are themselves compromises been marketers who want to make an opportunity look good, and legal departments who want to make it look as bad as possible so as not to get in trouble for over-selling, so they have to be taken with a large grain of salt.

Independent surveys, court documents, industry statistics etc do all tend to converge on similar figures for activity though. Only around 15-20% of people who register put in any kind of serious activity, even for a short period of time. (This, not incidentally, matches well with the well known pareto principle). Even fewer maintain consistent effort over time (typically only 1% or less)

Of the 15-20% "active" a survey reported by Coughlin & Grayson (1998) in the International Journal of Research in Marketing found the "average" distributor spent 34 hrs a month on their business and earned around $418 ($12/hr) - 2.5 times what Stomatopoda's McDonald's job would have paid at the time.

Top distributors worked, on average, 4 times as much and earned 6 times as much. There was huge variability in the top earning group though, with some working as little as 11hrs/mth and one reporting 500hrs/mth (!). I'm guessing this reflects some relatively "new" distributors working extremely hard to develop an income quickly and the more "mature" businesses that generate significant incomes for less ongoing time investment. Average is a very unreliable statistic for groups like this.
 
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Critics like Joecool think they shouldn't be separated out (I'm assuming he's said as much). Indeed, oft-quoted mlm critic Jon Taylor goes so far as to consider product purchases for personal use to be business expenses. (which would be considered tax fraud if taken seriously)

Most MLM companies attempt to separate out "active" and "inactive" agents in some way, and they all do it differently. It's virtually impossible to do in some statistically useful way, as people can and do move between being active and not active (and back). Amway's income disclosure for example considers someone "active" if they "attempt" to make a sale at least once in the year, or attend one meeting, or earn any bonus (even from personal use). Clearly that's not even remotely what say, the IRS would consider "active" for determining if someone was running a business.

My claim is that these folks, whether business builders or not, signed up to be business owners who distribute products. Icerat wants to spin doctor it and claim that most people sign up just to buy the products.

The fact is that Icerat doesn't know how many of these folks exist and is using it to try to soften the reality that the vast majority of people in MLM make nothing or lose money. If a school enrolled students and then excluded drop outs, they would have a 100% graduation rate. That's how Icerat wants to spin the issue.

As I said earlier, if MLM was really just a buyer's club, then why aren't they promoted that way. I don't have to buy a costco to shop there. But that's how MLM's are apparently run. Also, there are legal issues when there aren't sales to people not involved in the business.
 
I don't get the point of shilling here. People gullible enough to get into MLM aren't going to get any further than the first hundred or so Google results of "I was skeptical at first, but then I looked into it and it totally isn't a scam!" anyway. Is it about the challenge, or something?

That would be enough for me, but then again, I'm pretty hard headed.
 
Critics like Joecool think they shouldn't be separated out (I'm assuming he's said as much). Indeed, oft-quoted mlm critic Jon Taylor goes so far as to consider product purchases for personal use to be business expenses. (which would be considered tax fraud if taken seriously)

Most MLM companies attempt to separate out "active" and "inactive" agents in some way, and they all do it differently. It's virtually impossible to do in some statistically useful way, as people can and do move between being active and not active (and back). Amway's income disclosure for example considers someone "active" if they "attempt" to make a sale at least once in the year, or attend one meeting, or earn any bonus (even from personal use). Clearly that's not even remotely what say, the IRS would consider "active" for determining if someone was running a business.

(rest snipped, but good points)

My problem would then be the same. If I am not interested in becoming a customer, I don't have enough facts to evaluate the business opportunity as a business opportunity.

I think you make a good case for being a wholesale buyer more than an "owner" (or whatever language would distinguish the two objectives).
 
My problem would then be the same. If I am not interested in becoming a customer, I don't have enough facts to evaluate the business opportunity as a business opportunity.

I wouldn't suggest buying in to any business opportunity simply based on what you can read on the internet, from me or anyone else :)

Even then, I don't think you can evaluate a business opportunity purely on "facts" - it needs also to be a fit for you, and that can only be established by giving it a try and researching "from the inside".

There's a reason why many "traditional" franchisors require prospective franchisees to work in an existing outlet before they buy in. Pretty much the same approach is recommend with evaluating an MLM. Get on the bike and give it a spin. Might fit, might not.
 
I wouldn't suggest buying in to any business opportunity simply based on what you can read on the internet, from me or anyone else :)

Even then, I don't think you can evaluate a business opportunity purely on "facts" - it needs also to be a fit for you, and that can only be established by giving it a try and researching "from the inside".

There's a reason why many "traditional" franchisors require prospective franchisees to work in an existing outlet before they buy in. Pretty much the same approach is recommend with evaluating an MLM. Get on the bike and give it a spin. Might fit, might not.

Well, one measure that doesn't seem available in the MLM model has to do with third-party interests. Unless I'm mistaken, no one is being financed here. I know that in a traditional business set-up, the start-up capital is often predicated on a financial institution or investor evaluating the proposition (business plan, marketing research and so on).

Now that I think of it, that would be an excellent way to legitimize an MLM. Have the new recruit financed against future earnings by an existing member. It wouldn't work in the buyer's club bit, but would if I thought someone was eventually going to make money at it. I'd be happy to grub stake someone in a business I believed in, provided I also thought well of the candidate.
 
Hmm, let me see. MLM is based on ... buy stuff at one price, sell it at another, make a profit.
Wrong. That's the principle behind regular retail.

MLM relies on creating an ever increasing downstream. Profits are made by getting a share of downstream sales as well as a share of your own profits (less the portion that has to be paid upstream).

It promises money for nothing just as PPMs promise free energy.
 
Well, one measure that doesn't seem available in the MLM model has to do with third-party interests. Unless I'm mistaken, no one is being financed here. I know that in a traditional business set-up, the start-up capital is often predicated on a financial institution or investor evaluating the proposition (business plan, marketing research and so on).

I had a downline once who lived in a state that had a program offering a base monthly income for people who were starting a new business. She applied for it, went and showed them the business plan, and got it.

Now that I think of it, that would be an excellent way to legitimize an MLM. Have the new recruit financed against future earnings by an existing member.

Given we know 8 out of 10 recruits won't do anything, why on earth would you finance them!

Having said that, this is exactly what legitimate MLMs do, but at a company level, not members, through their buyback policies.

It wouldn't work in the buyer's club bit, but would if I thought someone was eventually going to make money at it. I'd be happy to grub stake someone in a business I believed in, provided I also thought well of the candidate.

Despite what I said about the 8 in 10 not doing anything issue, sponsors/upline might not finance the whole thing, but they certainly finance a lot for those who show the interest. Most new recruits are lent all the initial training and recruiting materials. Most upline supply the product used for initial launches. It's not unusual to purchase a seminar ticket for a high quality prospect (backed also by a satisfaction guarantee, so no real risk). And uplines of course also invest their time free of charge.
 
Wrong. That's the principle behind regular retail.

It's also the principle behind MLM.

MLM relies on creating an ever increasing downstream. Profits are made by getting a share of downstream sales as well as a share of your own profits (less the portion that has to be paid upstream).

You only make a profit on downstream sales if you've bought the stuff (ie "the portion paid upstream") cheaper than you sold it to them. In other words, buy stuff at one price, sell it at a higher price.

It promises money for nothing just as PPMs promise free energy.

Right. Developing new customers and earning profit from it is "money for nothing". :rolleyes:
 
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