Thursday, December 16, 2010

Multi-level Marketing: The math doesn't work

This is an interesting topic to handle but since it is the holiday season and my wife is getting more and more invites to "parties", I thought I'd discuss, quickly, multi-level/network marketing.

Some of the most known multi-level marketing schemes (look up 'scheme' before you wrongly suggest that I'm poisoning the well) include Amway, Mary Kay, Qixtar, Tupperware, Avon, Herbalife, etc. Some of the newer/more recent ones that you might have heard about (or are hearing about) include: Arbonne (Cosmetics), Stampin Up, Tahitian Noni Juice, etc.

Most network/multi-level marketing organizations rely on recruitment to build an income. It is thinly veiled in the idea of selling a product and earning an income from that but sales, alone, don't allow for a real profit (unsustainable, at the very least).

For the most part, people are sold on the idea that they often buy many of the products that the particular MLM company is selling and "why not make money while using and selling the products you're going to buy anyway?" A simple and compelling concept - if it were true. They add in the idea of recruiting a few friends or family members who, like you, are also using these products in their homes. If they get a few people under them, too, and you're making commissions on their purchases and their sales, you can be making "thousands of dollars a week" or "conservatively, a couple thousand dollars a month" (these quotes directly from someone who was trying to get me to attend a "sales presentation" on Qixtar).

Without speaking about a specific multi-level/network marketing company, let us consider the simple math.

If they suggest profits based on having 5 people "directly below" you, that seems like a simple number to achieve. You have 5 friends or family members. They only need to get 5 people below them (each) - surely they know 5 people who'd be interested. If they each get 5 and that group, too, gets 5, and that group another 5 and you, along with them, sell $500/week (easy, huh, you'll spend $100 a week yourself and the people below you will as well.. all the way down the line) - you'll make $2000/month.

5 levels of 5 people - 3905 people
10 levels of 5 people - 12 million people
15 levels of 5 people - 5-6 full planets of people

Schemes like this can't simply work - there are not enough people on the planet to sustain them. Sure, the few people at the "top" might make a bunch of money (for a short time) but would you be comfortable with knowingly screwing your family and friends to make a bit of money in the short term?

Even if it only required 3 people - 363, 88572, 1/3 of everyone on the planet.

The companies selling the products/services are often selling over-priced items/services so not only are you not making money, you're spending more than you should on a product or service of similar quality/benefit. The net result is that you have better odds of making money at a casino than you do with any recruitment driven (no matter how much they try to hide that) method of earning/paying.

No comments: