Ponzi, Pyramid, Network marketing, un-franchise, gifting club, multi level marketing or M.L.M. has many names. But as Shakespeare wrote, “What’s in a name? That which we call a rose by any other word would smell as sweet”. Change the name, still smells the same. It seems as soon as people find out it’s a losing game the name changes and the same scam starts all over again. Often by the same people, with renewed promises that this one is different and the hype is trueÃ¢Â?Â¦ this time. Anyone who has signed into a chat room, has an email address or has spent more than 30 seconds on the internet has been bombarded with “business opportunities” that promise immediate wealth, happiness, all the time you want to spend with family and children, and a work free life of leisure all without spending fortunes or time, and all with no education or experience or business know how. Just sit back and let the money roll in!
To be perfectly clear on what this article is talking about let me explain the difference between a legitimate business opportunity, and MLM.
We all know about the “success” stories told and the references made to such companies as Mary Kay, Avon and Tupperware. These companies do indeed employ a type of multi level marketing in that you can and do advance in earnings by recruiting another person into the plan. However, and this is the big difference between legit and pure scam, the products are real, the profits are realized from sales of those products and not by how many other investors or participants you can recruit into the company. To site an extreme example there is the old “Ponzi” scheme named after a Charles Ponzi who 1919 to 1920 ran an investment scam where old investors were paid dividends from new investors that were sold on the idea of investing. There were in actuality no profits being made at all. Of course in the end everyone lost their entire investment. Now if you think that just because it’s illegal to do this today it has died out Ã¢Â?Â¦ think again. It’s alive and well in MLM land. There are many MLM’s today based on exactly the same formulae that old Sneaky Charles used back in the good old days. There is no actual product, no one is paying anyone for the service, yet as long as someone is “investing” then you get paid for recruiting them.
To be slightly less extreme you also have to look at the huge number of MLM’s that are based on product so bad or un-sellable that the only way to make a profit is once again by recruitment. One of my favorites is a MLM that sells a coffee made from red mushrooms. Not only is the product rated as undrinkable by coffee drinkers world wide but if you get out your calculator you’ll find that you’re paying close to $158.00 per pound for the swill called a “Healthy Coffee drink”. This one is at worst a Ponzi or at best a snake oil scam.
Another favorite is the get paid for reading emails. This is a pure Ponzi since no one is actually paying you to read them. You get paid for recruiting others. Or there are the get paid for surveys we all have seen. Trouble is, in order to complete the survey you have to sign up with a lot of sponsors, which if course all charge you. Yes you may actually get paid to take the survey, but you’re going to spend a lot more than you make. I actually did find one company that paid for surveys. I took 5 surveys which required me to spend a little over two and half hours to complete. After complaining to the company for non payment they sent me a check. for $5.00. Not exactly the big money I was promised.
Right about now I’m sure there are a few of you asking, what is wrong with recruitment?
As I mentioned there are successful companies that allow for extra income from recruiting. The bottom line though, and what you have to consider is how does the math work out? Am I getting paid for promoting a legitimate product at a good price, or am I simply looking for more suckers to spend the same money I just did.
Let’s do some math and see how the MLM business model actually works.
There is a phrase you’ll hear often in MLM’s. It’s called the “down line” or how many people are under you, sending money up line. If you have to recruit say 5 people that may not seem so bad. It in fact seems pretty easy. It is not. Depending on personal ability to sell and the effort you can afford to put into it, it may be pretty near to impossible.
I recently did an extensive research survey where I interviewed almost 300 people who were involved in recruiting for MLM companies. Out of those 300 people nearly all of them were on their second attempt at an MLM having failed to produce even a dime of profit with another one. Most were between the ages of 28 and 42 and had at least a high school education. About 120 of them were currently involved with more than one MLM company at the time of the interview. One of the questions in the survey was how much time they spent in recruiting. The average was 31.6 hours per week. This is very close to being a full time job. The average length of time involved was a little over 6 months. The average number of people that were in each ones down line was less than two. If you run this out in numbers that means that you would spend close to 32 hours a week for 6 months to get 2 people recruited into your down line. That works out to almost 432 hours spent per person in your down line.
Suddenly just getting those first 5 people is not so easy. To reach your immediate goal of 5 people you’re going to have to expect to spend 2,054 hours. And keep in mind; you’re not making a profit yet. This is simply the very first step on the imaginary road to fabulous wealth and leisure the hype promises. Consider now the fact that after you have recruited those 5 people, the task now is for those 5 to snag another 5 each. That means you have to multiply the time you spent by 25 or in other words we now have over 51,350 man hours and this is only the first level in your down line. The next level would involve 25 x 5 people or 125 people and 256,750 man-hours. The third level is 625 people recruited and 1,283,750 hours. Level four is 3,125 recruits and 6,418,750 hours. Can you hear the kids in the back seat screamingÃ¢Â?Â¦ are we there yet? Go one more level to 15,625 and (drum roll please) 32,093,750 hours invested.
Keep in mind that in the hype that talked you into this in the first place, it read something more like “and all you have to do is sell this to 5 people”. It’s not exactly a lie, but it’s hardly giving you an accurate picture of reality either. The worst part is that as soon as any part of your down line fails then you have to start all over again. Remember that more than half the people I interviewed had been in another MLM and dropped out. Out of the 15,000 people in your down line you can count on at least 11,000 people breaking the chain. And out of the close to 300 people I interviewed, not one single one actually had five people in a down line.
I am in no way trying to trash the idea of making money on the Internet. There are in fact many opportunities that are legitimate, run by honest people, and are quite successful. The internet is the greatest communications tool in the history of. Keep in mind that it works both ways. You can use the internet to find sources of legitimate income, and “get rich quick” scammers can use it to find you. While you’re being a responsible parent and warning you children about sexual predators on the internet chat room, remember there are financial predators out there in incredible numbers too.