Why Most People In Multi-Level-Marketing Schemes Lose Money

This chart shows how a typical Multi-Level-Marketing (MLM) operation sustains itself by ripping off the entry-level salespeople. Most of each of sales commission flows upwards, or to the “uplinks.” Additionally, there may be entry costs, like Cutco reps who have to buy their $150 demo kit.

Even if you’re making $600 a week, that breaks down to less than minimum wage once you factor in spending half the day selling, and then rest in hype meetings and hanging out with other the other MLM heads from the “office.”

Why then do the grunts keep toiling? They’re told that if they prove themselves and start bringing in more recruits, one day they’ll move up to manager and someday be allowed to open their own office, and victimize a whole new batch of suckers.

Unlike a straight pyramid scheme, MLM is a smart virus. It keeps the host alive enough to continue drawing blood and replenish itself. — BEN POPKEN

[Image via Discover Vancouver]

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  1. OnceWasCool says:

    I worked with a guy last year that got into that “Prepaid Legal” MLM. He drove everyone crazy about it.

  2. SaveMeJeebus says:

    I remember one guy I worked with had the office over to his house for some boxing PPV. After we arrived we were inundated by his wife to buy Pampered Chef stuff for our wives. The only thing I got was a free egg holder and an orange peeler for being there. He never lived it down and couldn’t get people to go back to his house for a year.

  3. DjSnipSnip says:

    If anyone curious about the scripts between parenthesis, under phase 16: Its Arabic script that translate roughly to “Fulfillment Stage”.

  4. roche says:

    600 a week is less than minimum wage? That comes out to 15 dollars an hour according to my math.

  5. Hawk07 says:

    Reminds me of the people that peddle that Advocare crap. If you have a good product, people will buy it without the need for MLM schemes.

    Does anyone remember which episode of The Office had Michael involved in a pyramid scheme, but didn’t believe it until Jim pointed it out? Thanks!

  6. LindaJoy says:

    There is an excellent website that addresses the problems with multi-level marketing schemes: MLM Watch: The Skeptical Guide to Multi-Level Marketing at http://www.mlmwatch.org/

  7. VeryFancyBunny says:

    @Hawk07: That’s in “Michael’s Birthday” from season 2. Just watched that one over the weekend. Totally brilliant cold open.

  8. markwm says:

    @roche: The article states “less than minimum wage” once you take into account the hours plus the unpaid times in seminars and meetings. MLM can easily eat up 80+ hours a week for people.

  9. Venkman says:

    About this whole MLM thing, I’ve worked internally for one of these companies (for the corporate entity, not as a sales person) and while I think much of my employer, I have to say that they were on the up and up– it was the field distributors who were pulling questionable stuff… It’s pretty easy to tell which MLMs are legit and which ones are inventory loading BS, but if you want help sorting them out, check out the wealth of (free) information at DSA.org. The MLMs that are actually members of the DSA (and there are a lot of companies who claim to be, who are not) have to comply with DSA’s code of ethics which guarantees a 98% buyback policy for those people who want out without significant risk of financial loss.

    Direct selling can be a viable source of income, MLM can work, but you’ve got to do your homework. Check a company out thoroughly before signing up, contact DSA and check on their credentials, and seriously consider where the profits are coming from for the people who are trying to recruit you… If the money is being made from recruiting, run away AS FAST AS POSSIBLE! If the money that is being made is coming from the actual sales of product, then you’re in good shape.

    BTW– making promises or guaranteeing earnings (ie, if you are told unequivocally how much you are going to make) is a crime. How much you make selling in an MLM is, at best, up to you.

  10. orielbean says:

    My friend got suckered into the Kirby vaccuum MLM selling. I was wary of it when he started talking about it and wanted to help him. I called his sales group and requested him to do a demo. They place ads in the classifieds to do a free home cleaning – that’s how they normally get leads instead of cold calling. But they don’t clean your house – they usually just shampoo one rug and do some light vaccuuming.

    So he came over the house with the vaccuum and explained the demo parts. One part has the salesperson scaring you with the dust mites in your mattress. The next part compares your busted old vaccuum against the new Kirby, and the final sales pitch has the salesperson working out a “deal” with the manager, with extra extra emphasis on selling the product TODAY TODAY TODAY.

    If I was an easily-scared housewife that worried about germs, I would have been screwed to the wall with this nonsense.

    When I pointed out the MLM scheme (you as the salesperson must buy one of the vaccuums, which is almost 1500.00!), he got disgusted at being tricked and told them to shove it. They tried to charge him a repackaging fee for the demo unit that he performed for me, but he got belligerent and they relented.

    The funny thing – I liked the vaccuum, so I bought a used one on ebay for about 250.00. It kicks ass. Not 1500.00 worth of ass, but still better than those Dysons I see everywhere. BEWARE the free house cleaning!!!

  11. @orielbean: I would rephrase your last sentence. Beware the free, full stop.

    No such thing as a free lunch.

  12. oldhat says:

    That chart looks like every org chart in every business I’ve ever seen.

    And every business works in a very similar way:

    CEO is at the top making something obscene, like $3000 per hour, not sure if golfing and dinner meetings count.

    Workers at the bottom doing the grunt work for peanuts, shit benefits, no security, first ones to take a hit.

    Folks in the middle better paid, but usually doing even more work and getting more shafted.

    Guys at the top get paid no matter how the company performs. People in the middle bust their asses hoping to make it to the top but none of them ever do, but they still try usually by fucking over the folks at the bottom. Chumps at the bottom get screwed but everyone agrees that they deserve it since they haven’t paid their dues…

    Sounds like good, sound business principles that you learn for an MBA.

  13. jeffj-nj says:

    Wait, so… what you’re telling us is… pyramid schemes and other pyramid-like structures are bad? Well, wow. Thanks for the tip. ;)

    On a more serious note, though, a guy at work went out on a date with someone who tried to sell him on some kind of marketing thing which screamed pyramid scheme. He got up and left, and isn’t even entirely sure how the girl got home that night. We assume she called a friend.

    Anyway, point is, for a system that thrives on getting as many people to work under you as possible, her approach seemed brilliant. She probably lines up dates (oh, did I mention this was from an internet dating service? Yeah, I should’ve said that, because it’s sort of important to the story) as often as several a day. Even if she strikes out often, and probably does, the number of attempts she makes must compensate for that. I’m sure she’s quite successful. And, in the case of a failed business acquisition, she probably gets free meals more often than not.

  14. cindel says:

    No shit! Quixtar is one and it’s huge among the Deaf community in Washington D.C.

    My friends got their “leader” to pitch the “business” to me and when I asked them how much their made in a week, they didn’t answer despite the fact that one of them quit their job to work at this “business” full time. As far as I know, they’re not making any money but they sure are spending it.

  15. etmorpi says:

    RE: elrefai -

    In Farsi it translates more like ‘Saturation’ than ‘Fulfillment’, which I think has a slightly different nuance.

  16. cgmaetc says:

    @oldhat: yes, but who would admit as much?

  17. Shadowman615 says:

    When I was in college I bartended at a corporate restaurant. One guy who had just started out as a manager there (he lasted less than one month) was talking with me and found out I was in school for Computer Science and had done some web dev work on the side.

    So he told me he had a small web business and ‘wanted some help with it.’ My understanding when talking to him was that he needed some assistance with technical stuff, etc. Anyway, he said he’d bring in a CD for me to look at. I was thinking he meant a data CD with his website, or whatever.

    So he shows up the next day with with a quixtar ‘inspirational/marking’ CD for me to listen to. I hadn’t heard of quixtar, but I knew almost instantly what it was. I politely took the CD and listened to about 5 minutes of it to be sure, and then brought it back the next day with a ‘thanks, but no thanks.’

    Boy was I pissed, though. It really lessened my opinion of the guy. He even called me at home the night he gave me the CD to ask me what I thought — that was a little creepy.

    This corporate restaurant I was working for had really strict rules about Managers not fraternizing with employees outside of work also. This guy was willing to even totally disregard all of that just to try to recruit for Quixtar. Like I said, he only was there for less than one month.

  18. Lula Mae Broadway says:

    I’ve got a friend who is deeply involved in an MLM called “World Financial.” Does anyone know anything about them? I did some research at the time when I had to sit through his boss’s sales pitch (he was training), and they seemed benign. I’m so torn b/c on the one hand, my friend is a natural born salesman, he’s already recruited a lot of underlings, and he really believes he’s helping people get out of debt and start sound financial lives through his “financial products.” But they whole thing just creeps me out and screams WARNING! DANGER!

  19. tdave365 says:

    Why are articles and many like them even necessary? Who needs it explained to them that opportunities screaming about “easy money” and “owning your own business” are completely baseless. Like, there are so many of these that ARE legit that we need to sit back and analyze which are and aren’t? LOL To be fair, I have encountered personalities that take the potential of this stuff seriously, but they are so anomalous to me in terms of common sense that I almost don’t feel sorry for them for getting themselves involved. I mean, if that part of your brain that tells you when something is a cheezy money-making scheme is missing, too bad.

    You know. it’s like those who take pride in beating telemarketers. Have you ever met someone who professes to know *exactly* what to tell a telemarketer when they call to piss them off or get “back” at them for interrupting your time. What’s up with that? How about using a simple answering machine to screen calls? That’s my technique and it works 100 percent of the time.

    Dave

  20. zolielo says:

    Ben can you set the record straight on Primerica; if it is an MLM / pyramid scheme?

  21. Chaosium says:

    “That chart looks like every org chart in every business I’ve ever seen.

    And every business works in a very similar way:

    CEO is at the top making something obscene, like $3000 per hour, not sure if golfing and dinner meetings count.

    Workers at the bottom doing the grunt work for peanuts, shit benefits, no security, first ones to take a hit.

    Folks in the middle better paid, but usually doing even more work and getting more shafted.

    Guys at the top get paid no matter how the company performs. People in the middle bust their asses hoping to make it to the top but none of them ever do, but they still try usually by fucking over the folks at the bottom. Chumps at the bottom get screwed but everyone agrees that they deserve it since they haven’t paid their dues…

    Sounds like good, sound business principles that you learn for an MBA.”

    So how long have you been working for Amway/Quixtar? You sound like you’ve just joined and have less than a year under your belt, not like someone who has a massive amount of experience with pyramid schemes or MLM chicanery.

  22. lonelymaytagguy says:

    I had a friend who seemed to fall for every one of these (though I don’t know if he made money or not).

    Once he invited me over for dinner and made me watch a 30 minute infomercial for blue-green algae or whatever that stuff is called.

    Another time he called excitedly and said he had something for me. He showed up with a video for some MLM scheme. It talked so much about up-lines, down-lines, and sub-sub-sub-agents, that I never figured out what, if any, product an agent was supposed to sell. Maybe it was the ultimate MLM, no product, just hype.

    Please note the second word at the top of this comment.

  23. zibby says:

    Ha! Had some people move in a couple doors down when I was a kid and got to be friends with their son. Eventually, his parents invited my parents out for dinner…after 10 minutes or so in the car, my father asks where they’re going. The answer? “It’s a surprise!” Pretty creepy at this point…anyhow, the big treat ended up being an Amway recruitment hype-athon at some Marriot eight towns away. The dinner was strictly buffet.

  24. cindel says:

    Consumerist should go undercover; You know you want too!

  25. oldhat says:

    @Chaosium: haha…no, I’m shitting on both “legitimate” types of businesses.

    See, Bob says Dick is bad. I point out similarites between Bob and Dick, making Bob look like a total Dick. If Bob wants to defend himself, he has to admit that he sort of likes Dick, and that Dick ain’t so bad after all.

    Then I say “HAHA” and call Bob totally gay and a bunch of middle school kids provide the laugh track.

    Morale of the story? What good for the goose is good for the gander. And don’t be a Dick.

  26. curlyheatherg says:

    @lonelymaytagguy: Ah! Blue-green algae!! That brings me back. There was a time in the early ’90s when my normally intelligent mother would fall for every MLM scam that had a holistic healing bent: super-vitamins, theraputic magnets, and for the longest time blue-green algae. We would listen to the motivational tapes in the car. I was about ten and I had the feeling it wasn’t legit.

    She eventually wised up, or so I thought: earlier this year she called me on the brink of buying into an MLM that sold stickers to put on your cellphone to block the radiation!! I explained the million reasons this could not work, the impossible science of it, and finally had to call in other relatives to stop her. She was convinced these people wanted to save us from radiation poisoning; that this was some technology “they” (Scientists? The Government? The Man?) didn’t want us to have.

    I think that particular health-conspiracy line works wonders on too many people. Next we’ll hear about the libido-boosting powers of the duck umbrellas “they” don’t want us to have!

  27. Anonymous says:

    I have an uncle who has fallen for every MLM/pyramid scheme out there, from NuSkin back in the late 80’s to Herbalife in the late 90’s.

    Herbalife basically destroyed his marriage.

    I once got invited to a “party” that was actually sales pitch for Prepaid Legal. I figured out what I was in for about five seconds after the host started queueing up the the DVD player. The only reason I stuck around for the whole meeting was because the snacks the host had out were so damned tasty.

  28. zolielo says:

    @curlyheatherg: Ah, the man! Always keeping me down. ;)

  29. Chaosium says:

    “I have an uncle who has fallen for every MLM/pyramid scheme out there, from NuSkin back in the late 80’s to Herbalife in the late 90’s.

    Herbalife basically destroyed his marriage.”

    I think MLMs are symptomatic of people who make poor decisions in general, just as flipping didn’t turn Casey Serin into a terrible husband. If it wasn’t for them, it’d be something else.

    “I once got invited to a “party” that was actually sales pitch for Prepaid Legal. I figured out what I was in for about five seconds after the host started queueing up the the DVD player. The only reason I stuck around for the whole meeting was because the snacks the host had out were so damned tasty.”

    Yeah, I’ve gotten dragged to those, the worst are the ones who serve drinks, because it’s even harder to put up with a lousy pitch when you’re intoxicated :)

  30. Perspex says:

    @zolielo: Primerica seems like a pyramid scheme to me. Just a month ago I was tricked into attending a “job interview” at Primerica. The guy “interviewing” me flat out told me that he wanted to recruit people so that he wouldn’t have to work anymore. I called him on the pyramid scheme, and his only defense was something like, “Well, the manager of a Walmart makes more money than any cashier does, right?”

    My response: If the manager isn’t doing anything to help the company, that manager is fired. You however, want me to work for you without you doing anything to help the company. No thank you.

    The paranoid part of me thinks that the bastard took my e-mail off of my resume and sold it to a bunch of spam mailers.

  31. zolielo says:

    @Perspex: Thanks for the story. I am not sure about them at all. They seem so fishy…

  32. trixare4kids says:


    Alas, my father has been involved with Amway/Quixtar for a number of years. Honestly, from what I can tell, it’s not about the products anymore, it’s mostly a scheme for the people upstream to sell motivational tapes and books to the suckers..er.. I mean people downstream. My father isn’t required but “strongly encouraged” to buy the materials weekly if “he’s serious about making money.”

    My father also pays a lot of money to go to these weekend seminar/brain washing conventions that sound and look like an evangelical crusade.

    I pretty sure he’s never made any money off it and I feel bad for him. He’s tried to get me involved a number of times, but I won’t have anything to do with it. Yuck!