MLM Math

[icerat]

"Today, and especially with the growth of the internet, it is possible for consumer to get about whatever they want at competitive prices."

blah blah blah

Yes, this is why all retail stores have closed down and everyone buys on the internet.

Seriously, do you even think about what you write?

 

[Joecool]

I'm an authorised Microsoft reseller. I've never sold any Microsoft software. I have no store selling software. I have no website selling software. I have no staff selling software.

xjx388, why on earth do you think I have a business selling Microsoft software and should be making money from it?

Did Microsoft recruit you with illusions of untold wealth, retiring in 2-5 years and walking the beaches of the world (which you flew to in your private jet) while money is rolling in?

Secondly, why are you an authorized dealer when you apparently haven't made a commitment to selling any software? Does Microsoft tell you that it's vital for you to buy cds and attend seminars to learn to sell their software?

 

[xjx388]

Let's give you the benefit of the doubt, Icerat. Let's allow that only the people who actively work the system make any money.

Amway says that only 46% of all IBOs are active and that they make an average of $202. And that's for all active IBOs and only fractions of 1% actually make the big bucks. That's still a lot of active IBOs with no income. So even with those numbers, MLM still isn't a great opportunity -except for those at the top.

 

[Joecool]

Let's give you the benefit of the doubt, Icerat. Let's allow that only the people who actively work the system make any money.

Amway says that only 46% of all IBOs are active and that they make an average of $202. And that's for all active IBOs and only fractions of 1% actually make the big bucks. That's still a lot of active IBOs with no income. So even with those numbers, MLM still isn't a great opportunity -except for those at the top.

Let me predict Icerat's next excuse:

To be active means you just have to "attempt" to sell a product. If you ask your brother just once, if he wants to buy some XS energy drinks, and he says no, you can get $202 a month.

Then the discussion will be all the people who only signed up so they could received a (phony) discount on Amway products.

<Sarcasm on>
Basically, if you can disregard all the lazy IBO's or those who didn't work the plan to a "T", then your success rate would be near 100% and the average income is over $100,000 a year. <Sarcasm off>

What's scary is that the $202 average for active IBO's includes people who might make over a million dollars a month.

 

[marplots]

I would like to know what protections are in place so I don't get screwed by my upline. Do I have a contractual relationship with my sponsor or just the parent company?

I assume, since this has been framed as similar to a traditional business distribution network, my dealings are with whoever is above me in the chain? After all, I wouldn't go directly to Coke if I had a problem, I'd go to the fellow I'm buying the Coke from...

 

[maximara]

Yes, this is why all retail stores have closed down and everyone buys on the internet.

Seriously, do you even think about what you write?

Look at the current battle in the US Congress and tell me that internet selling is not a problem with regards to bricks and mortar stores. If it wasn't there wouldn't be a debate on the issue now would there?

Seriously, do you even think about what you write? Oh wait a minute as demonstrated by your rambling that over on wikipedia Cruz and was not peer reviewed and that Robert Kiyosaki's books were by "recognized publishing companies and not self-published" (neither of which was true) you don't.


Internet selling is a time-cost trade off. That is not true of MLM selling. With some MLM (like DS-Max) you don't even have a constant product to provide.

Even pro-MLM people accept the 99+% failure rate as they try to explain it.

Bricks and mortar retail has a 25% failure rate (SBA) and over the course of their lifetime all bricks and mortar businesses 39% are profitable, 30% break even, and 30% lose money (NFIB) In MLM at best 10% are profitable.

 

[maximara]

I would like to know what protections are in place so I don't get screwed by my upline. Do I have a contractual relationship with my sponsor or just the parent company?

I assume, since this has been framed as similar to a traditional business distribution network, my dealings are with whoever is above me in the chain? After all, I wouldn't go directly to Coke if I had a problem, I'd go to the fellow I'm buying the Coke from...

There is NO standard set up on how the chain functions. Remember MLMs are on par with patent medicines of the 19th century-little if any regulation.

 

[icerat]

I would like to know what protections are in place so I don't get screwed by my upline. Do I have a contractual relationship with my sponsor or just the parent company?

I assume, since this has been framed as similar to a traditional business distribution network, my dealings are with whoever is above me in the chain? After all, I wouldn't go directly to Coke if I had a problem, I'd go to the fellow I'm buying the Coke from...

That was a "historical" background remember. While the commissions are still calculated and paid out in the same way, these days direct fulfillment of both product at bonuses means it's usual to deal directly with the MLM company.

In the past, yes, there were lots of problems with distributors paying their downline and checks bouncing, or products not supplied etc etc etc.

Let's give you the benefit of the doubt, Icerat. Let's allow that only the people who actively work the system make any money.

Amway says that only 46% of all IBOs are active and that they make an average of $202. And that's for all active IBOs and only fractions of 1% actually make the big bucks. That's still a lot of active IBOs with no income. So even with those numbers, MLM still isn't a great opportunity -except for those at the top.

Did you look at the definition used for "active"?

U.S. IBOs were considered “active” in months in 2010 when they attempted to make a retail sale, or presented the Amway IBO
Compensation Plan, or received bonus money, or attended an Amway or IBO meeting.

Under that definition in 2010 in the US I was considered "active" because I bought enough products one month to earn a bonus. I haven't even been in the US since 2002, I made zero attempts to build a business.

Aside from that, it's a useless statistic. The sample is extremely non-homogenous, including people who've been registered for a month and done nothing but attended a meeting, through to people who have been developing businesses for 40+ years. "Average" is not a valid statistic for that kind of sample. Even median is problematic. It's reported because of the 1979 FTC case and is essentially there to say "see, we didn't exaggerate the income potential!"

Look at the current battle in the US Congress and tell me that internet selling is not a problem with regards to bricks and mortar stores. If it wasn't there wouldn't be a debate on the issue now would there?

I never said it wasn't a problem. The fact remains that the vast majority of retailing is not conducted on the internet.

Most MLMs actually do conduct their operations via the internet. While once upon a time their role was as "distributors" as well as marketing, now it's almost entirely marketing. This role is arguably even more important with ecommerce.

Seriously, do you even think about what you write? Oh wait a minute as demonstrated by your rambling that over on wikipedia Cruz and was not peer reviewed and that Robert Kiyosaki's books were by "recognized publishing companies and not self-published" (neither of which was true) you don't.

And you are still rambling about a debate on wikipedia from 4 years ago. Despite your obsession Cruz remains a conference paper, which means it hasn't gone through the usual peer-review process so is not a particularly good source, and Kiyosaki also remains a poor source but has been published by mainstream publishers, not just his own company.

Not that you'll let a little thing like facts get in the way of your obsession

Internet selling is a time-cost trade off. That is not true of MLM selling. With some MLM (like DS-Max) you don't even have a constant product to provide.

I've no idea what you're trying to say here. Never heard of DS-Max. A quick google finds very little real information, a complete non-player in the world of MLM, appears to be an obvious scam. Not a Top 100 company, not a DSA member. You may as well support a claim that restaurants are scams because of some guy selling dog meat as prime beef.

Even pro-MLM people accept the 99+% failure rate as they try to explain it.

Oh good grief, the guy is some no-name trying to sell a lead generation scam. I saw some stuff from David Icke the other day that I agree with. Does that mean the Queen is an alien reptile?

Bricks and mortar retail has a 25% failure rate (SBA) and over the course of their lifetime all bricks and mortar businesses 39% are profitable, 30% break even, and 30% lose money (NFIB) In MLM at best 10% are profitable.

I would suggest that if you take a sample of MLMers with legitimate companies who put as much time in to their businesses (not to mention capital) as bricks and morter retailers, the profitability rate is well over 90%.

There is NO standard set up on how the chain functions. Remember MLMs are on par with patent medicines of the 19th century-little if any regulation.

There are specific MLM laws in many US states, as well as countries around the world. When the FTC proposed their new "business opportunity rule" they investigated MLMs and stated any issues with fraud were well covered by existing laws.

 

[maximara]

I would suggest that if you take a sample of MLMers with legitimate companies who put as much time in to their businesses (not to mention capital) as bricks and morter retailers, the profitability rate is well over 90%

As pointed out Amway using figures from one of your own blog posts has a 97.15% "real" failure rate to make Platinum.

Bradley Orner doesn't show anything different

It seems that only by engaging in Enron style math can MLMs be made to look good compared to the standard Small Business.

 

[AdMan]

I would say that despite all your bluster you're not very convincing at all, icerat. And I'm really coming to the topic as a mostly disinterested observer.

I'm curious as to why you so forcefully try to defend MLMs in virtually every thread the topic pops up.

Makes me think hmm...

 

[icerat]

As pointed out Amway using figures from one of your own blog posts has a 97.15% "real" failure rate to make Platinum.

You apparently didn't read it very closely. Much like the many other citations you quote -

The “odds” of your success vary dramatically based on a number of factors. The first factor is, of course, determining precisely what “success” is for you. For example, in their investigation into a proposed new business opportunity rule, the FTC said that MLM company Shaklee reports 85% of folk who join that company do so purely to receive products at distributor pricing. “Success” for a such a person would be placing an order and receiving it successfully!

Bradley Orner doesn't show anything different

Bradley makes that same error, amongst others,

I would say that despite all your bluster you're not very convincing at all, icerat. And I'm really coming to the topic as a mostly disinterested observer.

I'm just providing facts. Up to you whether you want to believe them or not.

I'm curious as to why you so forcefully try to defend MLMs in virtually every thread the topic pops up.

I have a deal of expertise in this field (something which is rare) having researched and written about it for many years. Look around the board, you'll find people with expertise calling out BS all over the place.

I'm curious adman, if you're a "disinterested observer", why haven't you called out maximara when he's blatantly and obviously misquoted or mischaracterised sources?

 

[marplots]

You apparently didn't read it very closely. Much like the many other citations you quote -

The “odds” of your success vary dramatically based on a number of factors. The first factor is, of course, determining precisely what “success” is for you. For example, in their investigation into a proposed new business opportunity rule, the FTC said that MLM company Shaklee reports 85% of folk who join that company do so purely to receive products at distributor pricing. “Success” for a such a person would be placing an order and receiving it successfully!

So I'm a success at Sam's Club? Woot!

 

[AdMan]

I'm just providing facts. Up to you whether you want to believe them or not.

I have a deal of expertise in this field (something which is rare) having researched and written about it for many years. Look around the board, you'll find people with expertise calling out BS all over the place.

Yeah, you're an MLM apologist. We get that. Are you an MLM shill? Who knows. You certainly come across that way.

I don't really care one way or the other. I know MLMs are mostly scams, that most people should stay well clear from.

 

[icerat]

Yeah, you're an MLM apologist. We get that. Are you an MLM shill? Who knows. You certainly come across that way.

I don't really care one way or the other. I know MLMs are mostly scams, that most people should stay well clear from.

I'm merely "defending" a business model that has been in depth investigated and cleared by numerous countries around the world again and again.

I'm merely "defending" a business model that is the subject of hundreds of books and academic papers, the vast majority of which accept it as a legitimate business model.

Yet I'm a shill and apologist? And guys like Joecool, who posts clear troll posts on JREF, averages an anti-MLM blog post a day over his multiple anti-MLM blogs, plus posts thousands of comments around the internet, including fake ones, yeah he is perfectly acceptable. And guys like maximara, who on this very thread has been posting false and out of context quotes from academic papers - yup, no problem.

But someone who goes to the trouble of sourcing and citing academic papers and official statistics and data? Must be a shill.

But then, what should I expect from the guy who one post before said he was a "disinterested observer" and then states categorically "I know MLMs are mostly scams".

I return to the quote I gave earlier from Multilevel (network) marketing: An objective view where Professor Gerald Albaum and Professor Robert Petersen -

.... the critics of multilevel marketing, whose wide-ranging assertions are merely opinions rather than scientifically based conclusions.
​

I suggest, Adman, that you may want to consider the Sagan quote in your sig line.

 

[xjx388]

Let's grant that MLM is not a pyramid scheme.

Surely, we can say that it's a marketing scheme that benefits early entrants more than later entrants. In other words, the first few people who enter a successful scheme will get the largest share of profits. The later one enters the scheme, the less likely profits are. The problem is that one has no information to judge the point where they are entering the scheme.

So if you really like an MLMs products:
1. Look at your local stores for equivalents. Chances are you will find a cheaper but equal product.
2. If you simply must have an MLMs product. Then go ahead a join for the discount. But don't be fooled imto thinking that you are participating in a business opportunity that you have a chance of making real money at -the numbers don't lie.

 

[icerat]

Let's grant that MLM is not a pyramid scheme.

xjx388, you start by saying "grant that MLM is not a pyramid scheme" and then proceed to indicate you believe it is ...

Surely, we can say that it's a marketing scheme that benefits early entrants more than later entrants.

To several decimals, no, this is not true. It is "true" only in the way that if someone opens a tire store in Sydney tomorrow, and I open one in Stockholm on Thursday, he has a "benefit" because the potential market for his products is one person bigger than for me (ie he could sell to me until I became a distributor too).

This kind of misconception got dismissed more than 35 years ago, xjx388, by the FTC vs Amway case. Why do you still believe it?

In other words, the first few people who enter a successful scheme will get the largest share of profits.

Completely false. You're talking about pyramid schemes, not multilevel marketing. Even a relatively cursory understanding of MLM compensation plans makes that obvious. So, indeed, does reality - the oldest MLM is Amway. You could join Amway tomorrow and make more money than anyone who joined before you. I already mentioned how none of the top 20 Amway businesses in the world were amongst the "first few people" who entered.

May I ask why you made a statement that has already been shown to be inconsistent with reality?

The later one enters the scheme, the less likely profits are. The problem is that one has no information to judge the point where they are entering the scheme.

As per above, the difference in "likelihood" is so tiny as to be microscopically insignificant and is no different to that of "traditional" business.

 

[xjx388]

xjx388, you start by saying "grant that MLM is not a pyramid scheme" and then proceed to indicate you believe it is ...

Well you seem to object to calling it a pyramid scheme. But even if it walks and quacks like a duck I'm willing to grant that it might not be a duck. So if not a pyramid scheme then what?

To several decimals, no, this is not true. It is "true" only in the way that if someone opens a tire store in Sydney tomorrow, and I open one in Stockholm on Thursday, he has a "benefit" because the potential market for his products is one person bigger than for me (ie he could sell to me until I became a distributor too).

No. You've got it all wrong. Think of it this way: Would it make sense to make every potential customer of Bob's Widget Shop a distributor of Bob's Widgets? Only if you are Bob and his first few distributors. If you are a later distributor, then your customer pool is severely diminished. Think of the last potential Widget customer: would it make sense to become a distributor?

This kind of misconception got dismissed more than 35 years ago, xjx388, by the FTC vs Amway case. Why do you still believe it?

The only thing In re Amway cleared up was the idea that Amway wasn't breaking any laws -except for price fixing and misrepresenting earnings. And those practices are still in place today just thinly disguised. Amway doesn't condone that stuff but 1)in practice you can't sell for less than retail because of pressure from your upline to keep prices and 2)the Opportunity is sold by using examples of lifestyle and earnings that are unrealistic. I know; I've had several people try to entice me into Amway, AdvoCare, Herbalife, etc.

Completely false. You're talking about pyramid schemes, not multilevel marketing.

Ducks and such. Multi level implies that there are several levels of earnings with a few earning the big bucks at the top and the vast majority making zero or close to it at the bottom.

Even a relatively cursory understanding of MLM compensation plans makes that obvious.

The Plan makes it obvious that the real way to make money is by recruiting a downline. Retail sales won't make anyone rich in a MLM.

So, indeed, does reality - the oldest MLM is Amway. You could join Amway tomorrow and make more money than anyone who joined before you. I already mentioned how none of the top 20 Amway businesses in the world were amongst the "first few people" who entered.

Mentioned but did not prove. And who are the ones at the top? Why it's DeVoss and Sons along with The Van Andel Estate, the guys who started the whole thing in 1959!

May I ask why you made a statement that has already been shown to be inconsistent with reality?

My statements have conformed with reality just fine.

As per above, the difference in "likelihood" is so tiny as to be microscopically insignificant and is no different to that of "traditional" business.

Speaking of confirming with reality....

 

[icerat]

Well you seem to object to calling it a pyramid scheme. But even if it walks and quacks like a duck I'm willing to grant that it might not be a duck. So if not a pyramid scheme then what?

Well, I have no idea what definition of "pyramid scheme" you are using. I've learned people seem to have their own.

Legally, the sine qua non of a pyramid scheme is what's known as the second element of the Koscot Test - you get paid for recruiting people.

That doesn't happen in legitimate MLM

No. You've got it all wrong. Think of it this way: Would it make sense to make every potential customer of Bob's Widget Shop a distributor of Bob's Widgets? Only if you are Bob and his first few distributors. If you are a later distributor, then your customer pool is severely diminished. Think of the last potential Widget customer: would it make sense to become a distributor?

What's the purpose of this line of questioning? It makes as much sense for everyone to be a distributor of a particular MLM product as it does for everyone to be a distributor of Bob's widgets.

So what's your point?

Amway doesn't condone that stuff but 1)in practice you can't sell for less than retail because of pressure from your upline to keep prices

Rubbish. When I built an Amway business neither Amway nor my upline even knew what price I sold products for, and didn't ask either. In the US I have some friends who buy some stuff occasionally off the personal website there, I've given them discount pricing and neither Amway nor my upline have ever said a word.

You're just making stuff up.

and 2)the Opportunity is sold by using examples of lifestyle and earnings that are unrealistic. I know; I've had several people try to entice me into Amway, AdvoCare, Herbalife, etc.

Right. So we have pages of people claiming that the information Amway provides proves you can't make any money with Amway, and now you're claiming they give "unrealistic" earnings.

Which is it?

Ducks and such. Multi level implies that there are several levels of earnings with a few earning the big bucks at the top and the vast majority making zero or close to it at the bottom.

non sequitur.

The Plan makes it obvious that the real way to make money is by recruiting a downline. Retail sales won't make anyone rich in a MLM.

Focusing purely on retail sales is a tough way to get rich in any industry. That's why people start businesses and employ others to increase their volumes.

Mentioned but did not prove.

Have you actually ever looked at the Amway compensation plan? It's self evident.

And who are the ones at the top? Why it's DeVoss and Sons along with The Van Andel Estate, the guys who started the whole thing in 1959!

DeVos and Van Andel are not at the top of the Amway heirarchy. They brought their Nutrilite upline over with them when they began Amway, there are several distributorships upline of JaRi Corporation, which is the DeVos/Van Andel Amway distributorship. JaRi itself is a relatively small distributorship, there are many, many Amway distributorships that have surpassed it in size.

My statements have conformed with reality just fine.

No they don't. Here's an article in the WSJ on Holly Chen - "the single largest Amway Corp. distributor in the world".

You'll note she was only 15 when Amway was founded. Apparently you think she's "at the top".

Seriously, study the Amway compensation plan, you'll find it quite obvious that it doesn't operate the way you believe.

 

[Joecool]

This kind of misconception got dismissed more than 35 years ago, xjx388, by the FTC vs Amway case. Why do you still believe it?

Because the reasons Amway got off the hook, do not necessarily apply today.

Funny how Amway defenders like icerat dismiss dated studies or testimony but cling to the 1979 FTC ruling for dear life when defending it.

 

[carlitos]

That link to the posts about Amway toothpaste costing more (but it's OK because the hole in the end of the tube is smaller) was pure gold. Thanks for that.