Typical MLM Misrepresentations

John Taylor, MBA, PhD.

Law-enforcement agencies do not require honest disclosure of essential information to MLM prospects. I have examined the compensation plans of more than 250 leading MLMs and found that virtually all hide the near-zero odds of making a profit. Here are the typical ways they exaggerate to new recruits.

Misrepresentations

The naked truth

A great “income opportunity,” with huge incomes reported for many.

Nearly all new recruits lose money. A few at the top of a pyramid of participants are enriched at the expense of the many downline participants, at least 99% of whom lose money.

Everyone can do this and earn a good income. Holding up top earners as examples of what others can do is deceptive. It is unfair to sell tickets when—for nearly everyone—the ship has left the port.
"Average earnings" statements on official reports may make MLM's appear highly profitable. Such reports are full of deceptions.
Products can purchased wholesale and be resold at retail prices for a handsome profit. The actual retail market is likely to be small. Products are high-priced and sold primarily to recruits rather than to consumers who are outside of the distributor network.
This is a legitimate business—not a pyramid scheme Product-based schemes are the most extreme type of pyramid scheme, with the highest loss rates approximately 99.9%— far worse than most games of chance in casinos.
Work for only an hour or two a day, and build up a "residual income" that will allow you the "time freedom" to quit your job and spend more time with your family or do whatever you want. Recruiting MLMs are multi-level marketing programs that reward aggressive recruitment far more than direct sales of products to legitimate customers. To profit in a recruiting MLM, one must work long hours and be willing to continue to recruit to replace dropouts. One must also be willing to deceive large numbers of recruits into believing it is a legitimate income opportunity. Recruits primarily fatten upline commissions.
The job market is not secure. The stock market is even shakier. MLM offers a much more secure and permanent (residual) income. Quite the contrary. MLM is far more risky than either the stock market or the job market. It even makes gambling look like a safe investment by comparison. Very few recruits will sell enough to generate residual income.
Standard jobs are not rewarded fairly. In MLM, you can set your own standard for earnings. Fair? Most MLM compensation plans are weighted heavily towards those who got in early or who frantically scrambled to the top of a pyramid of participants.
If not legal, the program would have been shut down long ago. MLM's have survived legal challenges. The fact that they are still around tells you they are legitimate. Consumer protection officials are reactive, not proactive. Since victims rarely file complaints, law enforcement seldom acts against even the worst schemes. Victims don't complain because they blame themselves, and they fear self-incrimination or consequences from or to their upline or downline.
If you fail at this program, it is because you failed to properly "work the system." The system itself is inherently flawed, requiring an endless chain recruitment of participants as primary customers. The vast majority will always lose money.
In any business, one must invest time and money to be successful. Committed MLM participants may continue investing thousands, and even tens of thousands of dollars, over many years before running out of money or giving up. The more invested, the greater the loss, unless you are willing to deceive enough people to rise to the top of a pyramid of victims. In legitimate companies, salespeople are not expected to stock up on inventory or subscribe to monthly purchases. But in recruiting MLM's, incentivized purchases (required to participate in commissions and/or advancement) usually turn out to be disguised or laundered investments in a pyramid scheme.
MLM is the wave of the future. In fact, ours is experiencing phenomenal world-wide growth. So get in on the ground floor of this great opportunity. MLM'rs have been saying this for twenty years, but MLM still accounts for less than 1/2 of 1% of consumer purchases—even though MLM companies have numbered in the thousands. MLM's come and go, as do new recruits, 99.9% of whom drop out. Long-term MLM growth is a myth.
Saturation never happens. Turnover, as in any business, is a reality that assures an ample supply of available prospects. With few real customers, MLM products are sold by recruiting a revolving door of new “distributors” who buy products to “do the business.” And since people perceive the opportunity as dwindling with each new “distributor,” market saturation requires promoters to recruit elsewhere. So MLM’s quickly evolve into Ponzi schemes that require new markets and/or new product divisions to repay earlier investors. It’s not turnover, but continuous churning of new recruits to replace dropouts

The demand for these MLM products is growing at a rapid rate. They literally sell themselves.

The sale of products is distributor-driven, not market driven. Most products are sold to new participants to get in on this “ground floor opportunity.”

It takes time to build any business. This is not a get-rich-quick scheme, but a "get-rich-slow" program. Don’t expect instant success.

Promoters tell recruits that their programs as a business, but defend it to authorities as a direct selling opportunity. However, in legitimate direct sales programs, salespeople earn commissions right away and don’t have to wait months or years for them to exceed expenses.

Take advantage of momentum and windows of opportunity.

This kind of appeal has been used for twenty years. In any endless chain scheme, the momentum cannot continue indefinitely, leaving those who come in later in a loss position.

In this new (MLM) program, you can be the master of your destiny.

You will be a slave to the phone, to meeting the qualifications for commissions and bonuses, and to continual pressure to recruit new participants to replace dropouts. You will also be caught in a money trap of hyper-consumption.

Unlike franchises, business startups, or sales of existing businesses, you can start an MLM business with very little capital.

MLM’s typically urge new recruits to buy products on a subscription basis, invest in sales materials, and pay for ongoing training until they run out of money or give up.

The fear of losing potential income by not recruiting aggressively is a great motivator.

If participants understood what was happening to them, they would fear accumulating further losses by continuing to invest in the MLM.

You will belong to a great support team. In MLM, you have a whole network of people willing to help you succeed and be your friends.

Some MLMs operate like a cult with an us vs. them mentality. Watch how quickly the team ostracizes you if you quit or discover contrary information about the legitimacy of the program.

You will be offering people you care about the very best products available for promoting their health and well being.

No matter how high the quality of the products, investment in products for which you do not have orders in hand is the hallmark of a product-based pyramid scheme.

Our products are unique and consumable—perfect for repeat business.

MLM products are typically potions and lotions. Their purported uniqueness is an attempt to conceal the fact that they are priced too high to compete in standard markets.

Products are less expensive through MLM because you cut out the middleman.

MLM creates thousands of middlemen, with few real customers outside a bloated network of distributors, agents, consultants, and demonstrators, The products are typically expensive and not priced competitively.

Build your business by duplication. Buy five of these business in a box packages now, sell them to five people, and ask each to do the same, etc. Be a product of the products by signing up for monthly shipment of these items. Soon you will be reaping huge commission checks.

This is how recruiting MLMs earn fortunes for their top recruiters. Commissions from initial and ongoing purchases by new distributors (in hopes of profiting) is the life blood of their business. The promised rewards never come, except to those who recruit their way to the top of a pyramid of participants. Take away inducements for participant purchases and these companies would collapse like a house of cards.

Our tools for success are unbeatable. Sign up for our seminars and conferences, and buy our books and tapes to assure your success in this business.

In at least one major MLM, the tools business is a pyramid within a pyramid. Hardly anyone makes money selling products, so a lucrative source of income for those at the top is the sale of success tools to supposedly assure the success of their downline – who are in fact only further victimized when they buy these motivational items.

MLM is like insurance, investing, inventing, acting, and writing in that hard work at the outset yields residual income for the rest of your life. This is done be leveraging the efforts of your downline. So you can retire early, travel, etc.

MLM is more like gambling than legitimate residual income. It appeals to the something for nothing mentality. MLM addiction has been observed in some true believers. The large residual incomes reported are more the result of time of entry and willingness to deceive prospective recruits than of payoff for hard work. To succeed in MLM, one must leverage one’s deceptive recruiting through others who can be persuaded to do the same..

Some very reputable people are involved in MLM. This credibility argument is used with many scams. Notables can be bought.
Some MLM companies invest in very worthy (and visible) causes.

The mafia supported local charities. If a bank robber donates some of his take to charity, does that excuse the robbery?

You will be helping your friends and family by recruiting them into your downline.

For potential personal gain, you would be exploiting those you care about the most. In other words you would be squandering your social capital.


Dr. Taylor is president of the Consumer Awareness Institute. He has taught college classes on entrepreneurship, ethics, and communications and founded more than 40 home businesses, focusing on sales and marketing. His experience in MLM; communications with top MLM executives, law enforcement, and thousands of inquirers; consumer advocacy; and wide-ranging research on MLM/network marketing make him a premier consultant and expert witness on chain-selling and product-based pyramid schemes. His Web site contains a wealth of material about MLM pitfalls and deceptions.

This article was revised on January 25, 2008.

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