You Can't Cheat an Honest Man - James Walsh [88]
There’s no doubt that technology has made MLM more appealing to potential recruits who would otherwise be reluctant to handle the chores of sales, recruiting, inventory, deliveries and recordkeeping. In the age of Windows, these things can be managed in ten minutes a week, using any of numerous $99 software packages.
But the economic motives are more powerful. “We’re seeing a much more highly educated group of people coming in,” said Neil Offen, president of the Direct Selling Association, an MLM lobbying group. “We’re seeing a lot of middle-management executives who’ve been laid off because of corporate downsizing. The American reality of ‘you work hard, play by the rules and your talent will get you to the top’ is not true anymore in the corporate world.”
But not all of the growth is simple economics. People recruiting MLM distributors know who’s most likely to join. “When you’re unemployed, you’re most vulnerable,” said Jim Lyons, a financial investigator for the Florida Attorney General’s office.
As experienced managers are downsized or forced to take early retirement, they take with them tidy retirement packages. They also have expanded networks of business acquaintances and friends...and the entrepreneurial determination never to be downsized again.
A caveat: According to the DSA, 90 percent of MLM distributors earn less than $5,000 a year.
Another—bigger—caveat: MLM is a ripe hunting ground for Ponzi perps. The lines of demarcation between legitimate MLM and illegitimate pyramid schemes have always been...and remain...fuzzy.
The Tempting Mechanics of an MLM Program
MLM companies sell products into the distributor system at a discount deep enough to make the products or services inexpensive, compared to competing products. But this usually leaves enough margin to fund the commissions and bonuses that drive the system.
The company will also fund the commissions and bonuses by charging new distributors a nominal amount—usually less than $500—as a franchise fee for joining.
Not only does the MLM distributor receive accumulated commission on the sales made from his or her recruits, but also from the commission on the sales made by each recruit’s recruits—and on down the line.
An often-made analogy is to a family tree, with roots extending down six—and sometimes nine or 10—multiple levels. You recruit five distributors, who recruit five distributors, who recruit five distributors....
A few percentage points of override commission on the sales made by everyone below you in the scheme can result in some big monthly sales commissions.
But the fat-check math that drives most MLM schemes is often calculated selectively to make the strongest impression. Consider another, disinterested, calculation: If one person recruits six distributors, each of whom recruits six others, the total number of people in the program is 43 by the third level. It’s 9,331 by the fifth. And more than 10 million by the ninth.
That’s the exploding hunger of geometric progression. It’s the same thing that makes all Ponzi schemes eventually fail.
To overcome the hard numbers, most MLM programs appeal to recruits’ hearts rather than their brains. Informational and motivational meetings are one of the most common methods for introducing potential recruits to an MLM program. This is where the evangelism comes into play. The meetings use many of the same motivation devices that religious revival meetings use.
Meetings often include songs and testimonials, stressing dedication to the business. Some companies go further, encouraging their distributors to follow an approved way of life. For some people, “MLM is close to religion,” says Thomas Hayes, an expert on multi-level marketing and chairman of the marketing department at Xavier University in Cincinnati. “They want to believe in something. They are looking for a reason to believe in something. And here it is. It says, ‘I, too, can be wealthy.’”
Most distributors—particularly