pyramid scheme

11 June 2009

It Will Eat Your Brain and Your Bank Account: Multilevel Mindlessness

by Freddy Tran Nager, Founder of Atomic Tango + Kool-Aid Abstainer; featured photo by Les Anderson on Unsplash

"Have I got a ground-floor opportunity for you..." (Photo by TW Collins through Creative Commons)

“Try it! Look what it’s done for me!” (Photo by TW Collins through Creative Commons)

Multilevel marketing (MLM) is the business equivalent of cigarette smoking: technically legal, extremely lucrative for its corporate overlords, and lethally addictive for millions of people worldwide, even though it’s ultimately bad for them.

The big difference between MLM and cigarettes: MLM doesn’t come with a warning label.

So as an Atomic Tango public service, I’m writing this big fat warning label for MLM (aka “network marketing”), which is one kind of marketing I completely despise.

I know MLM’s from the inside, since I used to work for one on the corporate level. They’re barely legal pyramid schemes in which individual distributors recruit other distributors to sell overpriced goods to gullible people, and any sales commissions get shared up the pyramid. Some MLM’s don’t make much money from actual product sales to end users — many “sales” come from distributors selling to themselves and their families. Rather, the companies thrive by selling expensive sales kits and lots of inventory to their own distributors.

Yes: MLM’s eat their own.

Quixter (formerly Amway) is one of the largest and longest established MLMs. Yet the average annual income for a Quixtar distributor is just $1400 per year — according to Quixtar itself. That amount doesn’t even cover most health insurance premiums. (Health insurance being another scam that deserves shredding.) For a scathing look at Quixtar, please check out this Dateline/MSNBC expose.

Now I know there are many hurting, desperate people who can’t even find minimum-wage work. I also know that many people who have jobs are struggling to make ends meet, and it’s hard to resist an “opportunity” to make even $1400 simply by selling crap to people you know. It’s not these hurting people that I excoriate; it’s the pushers who hooked them in the first place. And, unfortunately, the MLM system works by turning its users into pushers.

Your odds of even making minimum wage in an MLM are slim to none — and you could even lose money. What kind of job actually costs you money? You’re better off betting on a horse race, because in a horse race, someone has to win.

You’ll sometimes hear the zombies claim that they made, say, $20,000 from a certain MLM company. Note that they’re not saying that they made the money from actual sales. Their income likely came from motivational speaking fees and how-to kits that they assembled and sold to other would-be zombies. Or, more nefariously, the MLM company paid them $20,000 as a promotional fee so they could say it.

Ultimately, the only people who make money on MLM’s are those at the top of the pyramids and, of course, the guys who crafted the MLM in the first place. That said, even with the potential revenue from creating one of these schemes, no self-respecting product manufacturer would touch this business model.

Still thinking about taking up the habit? Please read these resources carefully:

•    MLM Watch
•    The US Federal Trade Commission
•    A recent L.A. Times article about YTB, a travel-oriented MLM
•    The Skeptic’s Dictionary

If you still decide to join the walking dead, please don’t contact me. I prefer not to inhale secondhand smoke-and-mirrors.

Update 7/15/2016: The government has compelled Herbalife to amend its MLM practices. See how most people LOST money as Herbalife distributors.

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Freddy is the Founder & Creative Strategist of Atomic Tango. He also teaches graduate-level marketing communication courses at the University of Southern California (go Trojans!), shoots pool somewhat adequately, and herds cats. Freddy received his BA from Harvard and his MBA from USC.

12 Responses

  1. MLM or MLS (Multi Level Scams) is all over the place and in the times of internet age because of the ease of information distribution their usage has become rampant on the promise of a … better life. But you rightly pointed out that only very select few make the money exploiting the human need either that been financial or otherwise (as we see in social networks)

  2. MLM you could be right but there are a lot of indivduals who know how to work at a MLM and make 7 figure incomes and yes they may be at the top of the pyrmaid as you say. Thank you for the info. There are a lot of people who do lose money and never make a dime. That is the sadness of some MLM Companies.

  3. You are right most people don’t and won’t make it in mlms. But the statistics are the same for brick & mortar start ups as well.

    The ratio of people who fail in mlm is equivalent to the ratio of people who will not have enough money to retire when the time comes.

    Is that the fault of mlms too? It’s about time we stop blaming our failures on other people and circumstance and take responsibility for our own financial future.

    • retro

      Not sure where you’re getting your statistics from — and your second sentence makes no sense whatsoever — but if you check out the sources in my article, you’ll find that most people LOSE money in an MLM. Those who do make money barely make enough to cover their phone bills, least of all save for retirement. I also believe people should take responsibility for their own financial futures, but they should also be protected from con artists, like MLM operatives. MLM: waste of time, waste of money, waste of humanity.

  4. Just as there are millions of small businesses that fail each year, there are millions of people within MLM’s that will fail. Sometimes it is because of the concept and sometimes it is because of the person. Just because every small business owner does not succeed, we do not scrap the industry as a whole for being bad. This all inclusiveness is small-minded and very old school. The MLM you are speaking of is the ancient MLM…the one that isn’t regulated. Those no longer exist. Granted, there are bad seeds as with ANY industry. I do not give up eating at restaurants because I’ve had more than one bad experience in my lifetime. And as the world changes, and corporations are no longer where people can make millions, I feel sorry for those who stick to their “old school”, uninformed beliefs. I apologize for your negative experience in an MLM. It just wasn’t a good fit for you and some of that responsibility probably falls on your shoulders as well, quite frankly. But to spew all this negativity really only makes you look naive. I have been making a great income in my MLM business for several years now. It’s a great product, ridiculously inexpensive, and I have high integrity and a desire to help people succeed. It is the most fulfilling thing I’ve ever done and I see success stories every day. Again, I’m sorry to hear your story was not a success but maybe it’s time to let go of the bitterness.

    • retro

      These MLM’s no longer exist? You better tell that to the executives at Quixtar and YTB. They might be surprised. Indeed, there are many other bad MLM’s out there RIGHT NOW — all legal and regulated — completely wasting people’s time and money. Also, there’s absolutely no bitterness on my part from my experience — remember, I was on the corporate side, making a pretty decent salary. With my personal experience and marketing insights, it’s my obligation to warn people before they fall into these cults. Naive is the person who thinks MLM is anything but a glorified pyramid scheme. Since you aren’t providing proof of your “great income” — or even your real name — your claims are about as credible as those of any other huckster.

  5. Now you’re twisting my words around. Of course there are bad MLM’s out there right now…as there is with ANY industry. That was the point I was making. It is naive to assault an entire industry based on bad seeds because they are everywhere. And just as there are people who will lose money in an MLM, there are many small business owners who lose money due to failures every year. It’s a crazy generalization. Also, the MLM industry is publicly endorsed by Donald Trump. I’m pretty sure that he would not place his endorsement on an entire corrupt industry. The generalizations you are making can be applied to ANY industry. But how ridiculous for people to do that unless they have a chip on their shoulder. Lastly, let’s think rationally for a moment. If I wasn’t making money in my MLM, why would I even spend time writing the truth? I would probably be part of the smear campaign if I was a failure too, right? Use common sense to some level please.

    • retro

      1. No, I didn’t twist your words around. I printed your comment just as you sent it.
      2. Name one MLM where the average net income exceeds federal poverty level. Hell, name one where the average net income exceeds minimum wage. Note that I said “net income,” so you must deduct all the fees paid for books, sales kits, training sessions, costs of goods sold, and sales to one’s self for personal consumption.
      3. The endorsement of the Donald doesn’t hold much weight with me — indeed, considering the fact that he’s being sued for several other major ventures he endorsed, I wouldn’t take his word for anything. He’s recently proven to be rather careless with the use of his name and image. And if MLM’s were such a great deal, wouldn’t the Donald drop everything else he was doing and start one himself?
      4. In my article, I noted that some people are making money in MLM’s. They’re at the tops of pyramids that they take with them from one MLM to another. People also make money at MLM’s by earning speaking fees, selling books, and taking payoffs from the corporation. And then there are the MLM executives who are making money by milking their own distributors. MOST PEOPLE BARELY MAKE $1000/YEAR IN AN MLM. Pushing lattes at a Starbucks full time would let you make that much in one MONTH and get you health insurance on top of that.

      Freddy’s Note To Other Atomic Tango Readers: I have received an endless stream of comments from this person, who refuses to reveal her name or her financial figures, or respond to my very specific questions. Hence, they’re not worth reading or publishing — after all, this is my blog, not an open forum for con artists. I’m not Lou Dobbs, willing to give fringe thinkers any cred. “Ciaobella” and her ilk have already taken over most Facebook business groups, a huge chunk of Twitter, and your email spam folder. You can read their swill there. I’m open to printing a well reasoned, fact based argument in support of MLM, that contains strong and credible statistical support for their pyramid schemes. But none exist. Rather, their arguments continue to be either histrionic or have the oleaginous qualities of a used car salesman who runs a religious cult on the side. You MLM zombies are not only nonsensical, you’re boring.

  6. thank God! your waspish words stopped my old man getting involved in mlm especially when things are so tight at the moment! You gave me a good laugh and plenty of food for thought, as I’m so new to the whole internet thing, brilliant! I’m going to follow you now… a groupie baby boomer..yeiks!
    Regards Dee

  7. Very informative article and well written, Freddy! I appreciate your concern for those who may be subject to these types of organizations. I believe some distributors near my area are deceiving the public into false hopes and dreams. Perhaps, some MLMs are selling a “dream” to get people to buy into their organizations.
    Again, thank you for providing your insight.

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