Network Marketing/ social selling/ Multi Level Marketing (MLM), whatever you want to call it will never work. What I mean by ‘will never work’, is that MLMs will always cause people who join up to lose money, cause social isolation and will lose people their relationships. They will never be acceptable business models where people can earn an actual income.
MLM critics have often been accused of tarring MLMs with the same brush.
“They’re not all bad”.
“My MLM isn’t like the others”. How often has this been said?
“You haven’t studied every single company, so you don’t know that mine is bad”.
“I make a lot of money so I know mine isn’t a scam”.
Some people think that with a few improvements, MLM could be a good business model. It is tempting to think that for a little effort, you could earn a lot of money by earning off a team underneath you. After a superficial look at the issues, it might seem that the model could be tweaked to be a good, ethical and legitimate way of making money.
Let me tell you why I tar all MLMs with the same brush and why the MLM model can never be improved upon to make it a fair and acceptable income opportunity.
1. The products will have a massive mark up.
The products have to be marked up unnaturally high so that the people up the chain can be paid their slice. MLMs claim that the premium added to the product’s price is instead of the costs associated with marketing, advertising, and selling the products. If this was true, you wouldn’t have the situation where the exact same product costs more in MLM form than through more traditional methods. Take a look at Forever Living and their bottled water that can be bought much cheaper elsewhere.
12 bottles for £14.76 = £1.23 for each bottle of water with Forever Living
24 bottles for £12.72 = 53p for each bottle from a traditional outlet.
It is the exact same water. This shows that the price is not inflated because it includes the cost of marketing.
So the first problem we have with MLMs is that the prices are unnaturally inflated, making the products less desirable and reducing the real customer base. This brings us onto problem 2.
2. MLMs depend on friends and family purchasing the products.
Because the products are overpriced it is difficult to sell them to a genuine market. The products are essentially unsellable. The MLM model relies on people selling products to friends, family and others in their network. Hence the term ‘Network Marketing’. The products are bought by people in these networks out of a misguided attempt at supporting the seller or through a pity purchase.
This can lead to a few sales in the beginning, but this soon tails off as the customer becomes wise to the situation. The poor person trying to sell the products will initially feel bolstered by the sales and feel a sense of achievement, giving them a false sense that the model can work.
There are, of course, the professional MLMers. Their networks are made of followers who join under their newest MLM and provide an instant downline. The people buying these products in this situation will not be buying it because they want it. It will be just part of trying to play the system. They will be making minimum purchases in order to get the bonuses. In this situation, it will not be family being hounded. however, point number 1 still stands. The product is still worthless and is only being bought to generate bonuses.
When friends and family no longer buy the products, the person in the MLM will need to purchase the products themselves. An MLM will say that they don’t have a minimum amount that people have to spend. This may be true, but usually they have to bring in a certain amount of money to qualify for bonuses. It is these bonuses that actually make up most of any pay, not money from sales.
3. The vast majority of people will lose money.
Just take a look at some of the income statements for the few companies that provide them. They show that a very few people at the top rungs of the organisation actually earn decent money. The figures given will not take into account the expenses that will have been incurred. Often the small print will say something like-
As if it isn’t bad enough that the average earnings are $227, the small print reveals that the operating expenses could cost several hundred thousand dollars annually. For more income disclosure statements, have look at this blog where they list them alphabetically or Bot Watch Blog’s Directory lists a few.
This is information that is provided by the MLMs themselves. Some companies don’t even provide these statements, even in Canada where it is the law. You have to ask yourself, why would they not give this information? Could it be because their members hardly earn anything? Some produce statements that are quite deceptive and you need to check exactly what is being omitted and how the data are being presented. Have a read of this blog post on ‘MLM The American dream made nightmare’ that looks at an analysis of Herbalife‘s recent figures.
For a thorough analysis of earning potentials in MLMs, have a read of Dr John Taylor’s work. In a nutshell, he researched extensively and found that 99.7% of participants lose money in these schemes.
People in MLMs counter this argument with the assertion that most people don’t want to earn money. They are happy to just join up and enjoy the products. This is not the reality I have observed in real life. People join up, rave about it, try really hard to make money, and then move on to another MLM, exclaiming they never made money in their last one.
4. Lack of skills and experience
Anyone can join an MLM. Members are keen to recruit because they can then start earning off them. Some people claim to screen their applicants for suitable downlines, but I suspect the vast majority will be happy to take on anyone. There are many cases of people with anxiety, depression, women who have just had babies, people with health conditions that would make them unsuitable for the gruelling world of MLM. This military blog examines how military families are targeted for these schemes due to their unique vulnerabilities.
Because anyone can join, this means anyone an recruit and find themselves being a leader. People are recruiting, managing, advising and interacting with the public selling products without any relevant training or experience. They have no Human Resources qualifications so they are unaware of rules about recruiting or how to match a person to a job. They will believe that anyone can do it. When the upline comes up against difficulties with their team member, they will not be able to act professionally, and within the relevant laws. This opens them up to acting illegally. The upline tells the downline what to do, sometimes regarding tax issues, advertising, recruiting, marketing, health claims, and generally tries to control what they do. They in turn will be controlled by their upline. The whole industry is filled with people who don’t know what they are doing, telling others what to do.
Where you get a situation where people with no training can suddenly be thrust into a ‘boss’ role, and where the activities of the recruits can affect the boss’s income, you get the potential for a lot of bullying. There are no safeguards to protect people, like an HR department, training, unions, annual appraisals, governance. There is often no support from colleagues because your team members may well be your competition.
If a new MLM decided to improve on the model and only appoint suitably qualified people, and then train them appropriately, with the support of HR, accounts, a marketing and advertising department, it wouldn’t be MLM anymore. It would be a normal business model.
Because the people in these schemes are clearly defined by the companies as independent contractors, the company is distancing themselves from them. When the individuals break advertising rules or break the law when they start advising their product can cure illnesses, the responsibility falls entirely on the contractor’s head. People are told by their uplines to do things, they do it, because they know no better.
Obviously, if people are running their own ‘business’, they should know all the rules and not break the law. First of all, they are not ‘Independent Business Owners’ ( See ‘You are not an independent business owner‘ for a tongue-in-cheek look at the definition.).
Secondly, they are encouraged to just get on with it and to just get started, even though they don’t understand everything yet. They are encouraged to copy the people at the top and just follow what they are told to do. After all, “this is the way things are done around here” is a very compelling way to behave. When starting a new job, we are shown what to do by someone already in the job.
Sadly, for the offending ‘business owner’, even though they are doing what they thought was right, and what they were told to do, they could get in trouble with the authorities. The company itself will just wash their hands of the offending person and say they have a compliance department to deal with such people.
This aspect could not be changed in a new and improved type of MLM. They would be very unlikely to take responsibility for all the actions of each person. They could do it if they controlled every advert and every interaction and closely supervised people. But then the people would not be independent contractors would they? They would have even less control over their actions than they already do.
6. The Law of Attraction
At first glance this theory is harmless and morale boosting, but in reality, it is pretty sinister. The basic premise is that if you want something, you act like you have it already. Assume that you can have anything you want. This feeling can be quite empowering. It is a useful strategy if you are feeling nervous about asking for a pay rise. All you do is act as though you are confident, assume you will get the pay rise and you will then be more likely to actually achieve it.
The Law of Attraction (LOA) assumes that everyone attracts things to themselves based on if they are ‘positive’ or ‘negative’. So if someone is always thinking positively, they will have great things happen to them. If they allow themselves to have a negative mindset, bad things will happen to them. If a plane crashes, it is because the people on the plane were attracting negative energy from the universe. If someone wins the lottery, it is because they were being positive. People who believe in this way of thinking assume this is how people get ill and how natural disasters happen.
This way of thinking is practiced in all the MLMs I have come across. Sometimes the companies themselves outright spew the teachings of LOA, although mostly it comes from the uplines and is brought up in trainings and conferences. The danger behind this way of thinking is that it stops the person from doubting the company and prevents them from seeing their situation in the cold light of day. They are afraid that if they question what they are doing, they will fail. When they inevitably do fail, they will think it is their own fault for not having the right mindset.
An MLM that tries to avoid this way of thinking will fail. People in MLMs have been conditioned to think this way and it has become normal for them. As they go from MLM to MLM, they bring their beliefs with them. Even if a company set up and never mentioned LOA, the people that join up will already be in this mindset.
It is the LOA mindset that contributes to people becoming indoctrinated. Which brings us onto point 7.
7. MLMs are cults
MLMs are increasingly being viewed as commercial cults. The adherents are targeted and subjected to a series of subtle mind control techniques to remove their self control and make them obedient, even in the face of their own financial and social destruction. Steve Hassan’s website looks at the issue. The above issue of Law of Attraction has a large part to play.
Below are some characteristics of cult members.
- They use thought stopping techniques to distract themselves from the truth of their situation. They are unable to critically analyse what they are involved in and will not engage in discussions about it. They will deflect, or avoid any such discussion.
- People in cults become isolated from their support structure and become dependent on their cult. In MLMs we see people blocking and unfriending, physically avoiding worried family and friends. I have heard of family members becoming estranged because of MLM membership.
- In cults, love is conditional. Members only receive attention and support as long as they are being loyal and doing as they are told. In MLM love bombing is very common. Lots of attention is lavished on the new recruit and then this becomes dependent on how much money they are bringing to the upline.
- Cult members believe in an ideal or Utopian future and their way is the best way. Quite often in MLM the business model is touted as the future. The current system of bosses and employees is sneered upon and people with jobs are seen as stupid.
- Cult members are suspicious of critics and their perceived enemies. They believe that people who leave their group are bad. I have been accused of being a bitter and twisted, failed ex MLMer by people in MLMs. They cannot perceive of an interested critic who is concerned about what they are involved in. It must be an evil person trying to destroy their beloved company.
- The leader of the group is revered and seen as a special person who can help people achieve success. I have seen many, many posts and comments from MLM adherents on social media revering their leader.
The Freedom of Mind website offers this advice for if you think you may be under the influence of a cult.
“There are ways to break these patterns and create your own authentic identity and beliefs. If you suspect that you have been unduly influenced, take a step back from the group for at least three days. Take a break from any group materials or activities. Get plenty of sleep. Eat healthy food. Study models of mind control. Talk to critics and ex-members. Try to examine your own experiences honestly. Don’t be a cult clone. Life is so much more fulfilling and beautiful when you’re able to be yourself and appreciate the diversity of the human experience.”
If you are in an MLM, you need to stop a minute and allow yourself to answer some questions. Have you been told how to think? Are critics viewed as enemies? Have you been told to avoid or unfriend people? Are you encouraged to wake up early or go to bed late? Are you made to feel any failure is your fault? Do people in your group revere your leader? Have you gone to a convention that involves music, chanting, repetition, clapping, bright lights?
If someone tried to set up a new kind of MLM without the cult element, they would struggle to maintain any members. If they allowed people to think critically, see their leader as a normal person, be accepting of outsiders and be aware of what was happening, they would not stay long.
People have tried to tell me that not all MLMs are bad. Not one person has managed to show me an MLM that could be considered anywhere near legitimate. If anyone can show me an MLM that has none of the elements mentioned above, I would be very happy. It would be great to have a system where people could work from home for a few hours a week, selling decent products that people actually want. It would be great if they could profit from this, and build a team where others could do the same. I would love it if people could make money and not lose it. The premise behind MLM sounds great, and this is why so many people get sucked into it. Unfortunately though, it cannot work. Which is a shame. People have been really harmed trying to make these schemes work and it is really sad seeing it happen time and time again.
If you need support or advice on any of the issues raised in this article, please contact one of the coalition members on this website, or on Twitter or Facebook. We can help you make sense of what is happening. If you would like a (polite) debate on the topic, please comment below and we can discuss what you have to say.