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Multi-Level Marketing

Somebody tried to recruit me to sell health products through a multi-level marketing company. I did an extensive investigation, and I share my findings with you.

Before I begin, let me tell you a little story. Once a man was asked if he would rather have a million dollars, or instead, a chess board on which a penny was placed on the first square, two pennies on the second square, four pennies on the third square, and so on, doubling the number of pennies each time. The man, knowing something of mathematics, chose the chess board. Why? Because if they continued placing pennies until the entire chess board was full (assuming the squares were big enough or the pennies could be stacked without toppling), he would have received approximately 1.8446744x1019 dollars. For a half chess board, it would be over 40 MILLION dollars (specifically $42,949,672.96). The whole chess board would be this figure SQUARED, minus 1¢.

Here's another way to look at the same phenomenon: this link explains what happens to the internet when people forward hoax messages. If each person forwards the message to ten people (remember a good downline has at least ten people in it; more on that later), then by the time it is forwarded the sixth time, one million messages have been generated. Two more such generations, assuming that professionals are receiving it at work (a reasonable assumption, since they are most likely to have computers) and the cost to the economy worldwide is approximately $80 million. This doesn't even address the cost of the resources to transmit this many copies of this message.

Multi-Level Marketing - A Business Model Fundamentally Flawed

Each multi-level marketing company claims it is unique, and not like the others. If this is indeed the case, what prudent business person would want to be associated with something that will give his reputation a black mark going in? That consideration aside, here are the facts.

Each product sold by the usual means, i.e. retail, usually goes from the manufacturer to a wholesaler or distributor, who in turn supplies the product to retail outlets. The wholesaler or distributor charges something for this service. In multi-level marketing, there are distributors who have an upline (people above them in the company) and a downline (people below them in a company). In effect, EACH of the people directly in line above someone is a wholesaler! Thus, instead of the cost of one wholesaler, you have the cost of a slew. This raises the cost of the product for the consumer, and lowers the percentage of the product sale price a single wholesaler is making. In addition, each wholesaler adds absolutely nothing of value to the product, or its distribution.

In order for a person to make a reasonable income from participation in multi-level marketing, that person must have a significant downline. The downline is the people that person recruits to sell the product. Because a person must have a downline in order to make a reasonable income, the people on the bottom, with no downline, will not make any significant money at all. I once read that for one of the early companies, with a relatively good reputation, I suppose, the hourly wage for personal time expended is somewhere in the neighborhood of $1.70 an hour...well below minimum wage. Another source reported that a person will make about $1.57 an hour. To put it plainly, as far as distributors of these products is concerned, either you must cheat others, or you will be cheated yourself! I have heard the rationalization that some people are doing this as a hobby (or because he wants to buy the product at a discount, in which case, see remarks about customers). Since when do these justify cheating someone? And that doesn't address how the customer is cheated.

A downline is a structure made up of people you recruit allegedly to mentor. You will get a cut of the profit from their sales. Chances are, someone recruited you for their downline. The number of MLM companies is phenomenal, but each one is characterized by the fact that if you recruit someone, you will get some kind of financial reward. It is less common for it to be a finder's fee, and more common that you will get 5% of whatever they make. These companies can make some pretty outrageous claims. For example, they'll tell you that you can make $300,000 a year if you work hard. In reality, the only way you can make money is to cheat your downline. Greed is a major factor in recruiting people. If you are motivated by greed, you are vulnerable to some of the most outrageous scams in the world. You're better off trying to control your greed in the first place, before some wily Nigerian takes everything out of your bank account, or lures you to Nigeria where you may be beaten or even killed. If you don't know about the Nigerian scam, LEARN. Google has a ton of links. You will save yourself from certain ruin if you have nothing to do with these people. But back to the issue of MLM. No person can make a decent living by being the person on the bottom of the downline. No person can make a decent living without having a downline of his own. Thus, any person who makes a decent living MUST do so at the expense of a number of people who do not make even minimum wage. In effect, any person with a downline becomes a "sweat shop" for the people in his downline. Some multi-level marketing firms argue that it is morally acceptable for people in the downline to be doing this as a hobby with the understanding that they will make less than minimum wage. I find that argument unpersuasive. It means that the company believes it is ethical to rob people of a decent living wage as long as the company can find a good excuse! This is the fundamental flaw of multi-level marketing, and EVERY such company, without exception, has this problem. Arguing that they are reputable does NOT change this fact. I mentioned that it was calculated that a person in the downline of one supposedly reputable company (with no downline of his own) probably makes about $1.57 an hour! And he must still deduct wear and tear on his car and delivery costs from that in some cases. Even my own family members have been caught up in these scams, spending hundreds of dollars on a product for personal use, strictly as a hobby, when they desperately needed income, and making nothing significant in return. One family member borrowed $5000 (from relatives that had gotten hooked), bought inventory, and then lost his shirt. He was so bad off he had to sell his car to buy food. And then he couldn't sell his inventory, so he was stuck with it. He gave a lot of it away. He hasn't repaid this money, and has no intention of doing so. But that didn't stop him from getting taken in by another four or five companies. Some people are just vulnerable. If it sounds too good to be true, it almost certainly is! Eventually, the first company he got involved with was indicted by the government, and they are out of business. Oh, they had useful stuff to sell, but that didn't make it OK.

One clear warning signal that a business is multi-level marketing or some other scam is if they make NO determination about the skills you have, that would make you an asset in that position. This is because they really have only one requirement: greed. They're counting on you being greedy. If you are greedy, they want you. But they'll turn the tables on you. So if they don't tell you what the nature of the job is up front, or if they don't ask you about your qualifications, it's a scam. Stay away. If they try to recruit you for a business where ordinarily you would need a license or special training (such as selling real estate), and you don't have these qualifications, stay away.

The recruitment techniques used smack of cult mind control. They defraud through silence. They depend on misdirection to cause people to jump to erroneous conclusions. What I mean by this is that a recruiter will talk about how anybody can do it. No, "anybody" can't do it. You have to be willing to take advantage of your friends, and push products onto people who don't need or want them, to make any money, and not everyone is willing to do this, nor do some people have the temperament to engage in hard sales tactics. The recruiter will talk about the extreme success of the people in the top levels, and IMPLY (but not say) that you can become one of them; all it takes is a work ethic. In fact, most people will never reach such a level, and to represent that you can be one of them is just plain fraudulent. Most people won't even earn a decent living, which means it is not a viable alternative for a mother who needs to work at home. She will be spending a lot of time away from her kids (maybe physically present, but not paying them any attention and putting them off if they approach her) and have very little to show for it. Most likely, she will end up SPENDING more money for products than she actually makes! In fact, quite a few people will carry an inventory. The cost of that inventory must be subtracted from any "profit" made, but most people don't do that. This can represent thousands of dollars spent on products that may or may not sell, spent by someone who is in a poor position to spend that kind of money. I know plenty of people who have been left with a huge inventory and no way to sell it. Also, being involved does induce a lot of people to spend money on products they do not need, for personal use, often a lot of money. If they want to do this as a hobby and they can afford it, fine. But the setting encourages people to spend money they have no business spending. Even people who join for the sole purpose of getting the products at a discount are being defrauded. The bottom line is that recruitment meetings will give you just enough information so that you will jump to a false conclusion, without stating that conclusion, to evade fraud laws. They know you will jump to that conclusion because of the way they present the information. They're counting on it. The whole point of these meetings is to generate unrealistic expectations so that people will allow their personal greed to induce them to do something they wouldn't do if they were thinking clearly and logically. Fundamentally, all multi-level marking companies are BUSINESS CULTS, and their recruits act like cult victims! I have seen this countless times. They have found loopholes in the law that they take advantage of, so they can't be put out of business by law enforcement agencies. The law is full of such loopholes. Fundamentally, if you aren't one of the founders of the company, count on being screwed. The likelihood of it approaches 100%. Of course, if you are an employee of a retail outlet, a fulfillment center, or a wholesale warehouse, and you are on wages, with or without benefits, this doesn't apply.

Most multi-level marketing sites will have a link that goes to the "opportunity". Here is where you get to find out how they plan to cheat you, IF you are knowledgeable. Some sites won't have a link at all; it is carefully concealed. They have other methods of recruiting. One scam to be especially wary of, since I got caught by it, and I am far more knowledgeable than average, is a site that says it will offer you job opportunities, but when you click on the link, instead of arriving at their home page, you arrive at a form. This form will ask you all kinds of personal questions, including your address, telephone number, and so forth. You can find this link on an MLM site, or on another site that deals with home businesses, or even one that warns you of business scams (where I found the one that entrapped me), with the intent of protecting you. People who concentrate on alerting folks to business scams can also fall for them, like that site owner did. You fill out this form, and they will provide you with, say, three to five "opportunities". The site where I got trapped had three. Two of them were kind of nebulous and general. I could tell right away that I'd be the target of spam for every hairbrained scheme that came down the pike if I signed up for them. I supposedly had the option of accepting or rejecting each offer. Hah! They sent my information to all three. And the two I rejected have proven to be a nightmare. I am getting spam from people who know who I am, and where I live, and they have my phone number (I gave them my cell phone, so I get calls at work sometimes), and other information which is really none of their business. But I have no idea who they are, and no way to get in touch with them, either to do business with them, or to tell them to leave me alone. I actually did some research on some of these folks. And in one case, I had the local sheriff call the man and tell him to take me off his list. He had made a royal nuisance of himself, and I wanted him to stop. Before I called the sheriff, I looked up the law in Florida, and told the sheriff that this man was cyberstalking me. The sheriff did talk to him, and he agreed to take me out of his computer, and I didn't hear from him again for quite awhile, but then I got another one from him just a few days ago. I don't fool around with these guys. I report these emails to SpamCop. The only fortunate thing is that they rarely sell my information to anybody else. Another time, I got a solicitation for a mortgage from a mortgage broker. I own my home free and clear, and I have no desire to have a mortgage. And mortgage brokers are notorious for charging high interest rates, and like vultures, they sit and wait for you to miss a payment, and then they have your house. That's how they make money. I investigated this one, and discovered that the people who were doing this were using the computers and domain name of the mortgage company for which they were soliciting business, without the knowledge of the mortgage company. So I contacted the mortgage company and they went after these guys legally. I didn't hear from them again. The third "opportunity" that I got was from Coastal Vacations. Coastal Vacations is a multi-level marketing company. They're real slick! They'll tell you that you have to make two sales which your sponsor gets the proceeds from, as you watch them and they are training you how to sell. They tell you that after that, you get the proceeds from each sale yourself. The problem is, most people never make more than two sales. In addition, they tell you that they will give you 29 "free" vacations so you can try out their services. Yeah, they're free all right. You have to pay them nearly $2000 up front. And they represent to you that these are a real bargain for your customers. Let me tell you what they are really doing. They are really booking rooms in motels and hotels that would ordinarily be empty during the off season, and these are practically free. Oh, they tell you that you can go year round. I didn't test that part. Instead, I ran away screaming. You are responsible for your own transportation (though they might help you get a discount that you can get many other places) and so forth. It's not much of a deal, even for your customers. Another thing they like to do is get you to watch short movies. These are real slick propaganda pieces, and these are recruiting tools. You wouldn't BELIEVE how much you have to investigate to find out what they will charge you. It took me a long time to get that out of them. Since I don't have $2000, it's not even an option. Oh, I think that if you pay them $2000, you will get the 29 "free" vacations, and you will probably enjoy yourself. But that doesn't make it OK. Watch for slick movies as recruiting devices. Another scam is when a web site will represent itself as a site to warn you about scams, and it will usually present reasonably honest information about these scams, but then they have the ONE TRUE opportunity that is NOT a scam, and they're going to tell you about it. Don't believe them! Any time you are approached, if it sounds attractive, Google the name of the business, and read the criticisms of the business from people who have been there, done that. It is very eye-opening.

Sometimes the web site will give you a simplified form. It just wants your email address. But you can't find out a DARN thing about WHAT they are doing; you can't get to any part of their web site. This is an invitation to sign up for spam. Sometimes they'll have a web site that says you can check boxes for what you are interested in. And then they sell your email address to every spammer who comes along who is doing that kind of spam. I got up to 800 spam a day (and with improved methods, I still get 200 a day), and most of it comes from the fact I signed up in ONE place 8 years ago, when I was "young" and naive. In fact, I signed up for health notices. You know what I get? I get spam for viagra and drugstores that will sell you prescription drugs without a prescription, and weight loss products that don't work. (And you know what? viagra won't do me a darn bit of good, because I'm female!) I almost never get anything truly interesting. And knowing what I know now, I wouldn't do business with spammers anyway, even if they DO have something interesting. They can't be trusted. Heck, a friend of mine told me about a company where she could get business cards printed. They do nice work. But they're continually offering you "free" merchandise; just pay shipping. And then I heard that once they have your credit card number, they skim about $5 a month from your account. I don't know if it's true, but I stopped doing business with them. I also signed up for financial information. I get mostly notices for penny stock and day trading. You know the scam for that one? Most of these companies operate out of China. The Chinese will trade stock to run up the value, and then after two months, they cash in and leave you high and dry. If you don't want to lose your life savings, don't buy penny stocks or get involved in day trading. It's a huge trap! My husband even got a spam once for stock for a reputable company I do business with, so I asked them about it. They said they had nothing to do with it, and it was being circulated by a wily Russian who wanted to run up the price so he could profit by a quick sell-out. It was a huge headache for them.

The products from MLM companies are almost always badly overpriced, of poor quality, and contain very little of the listed ingredients. I have made comparisons between herbal products sold by multi-level marketing companies, and compared them to products sold in a retail store or by retail web sites. The contrast is appalling! You usually pay roughly ten TIMES as much per unit of active ingredient if the product comes from a multi-level marketing company. The doses of herbs are usually too small to accomplish anything in your body at all. Furthermore, the doses of herbs are very small by comparison to any comparable product from another source. Often, the quantity is not even listed, because the company doesn't want you making such comparisons. The formulas used are NOT state of the art. They are old formulas that have been around a long time. Many products are sold for the purpose of controlling bodyfat. Most of these products have little to no effect because they do NOT address the causes of obesity, and do not do anything substantial to change a person's metabolism. Some of the products can actually be medically dangerous. Obesity is most often related to imbalanced hormones (something you usually cannot remedy with any of the things multi-level marketing companies sell), lack of exercise, or disease. A person can take weight off TEMPORARILY with the products from a multi-level marketing company, but it is very, very rarely permanent. Products from multi-level marketing companies are also notorious for containing allergens or other harmful ingredients. And there is no guarantee that a nutrient-preserving method of extraction has been used. Most products may well be lacking in potency, but a few will sell on the basis of quantity of ingredient. Many companies will misrepresent that their formulas are state of the art, and many will recruit a few doctors to endorse their products. None of this is meaningful. Again, this becomes a source of fraud.

Some of these companies are giving the health supplement industry a very bad name, and there is a ton of different companies. They have invaded everywhere! Sometimes they carefully disguise their MLM aspect by having a site full of useful information (which they probably plagiarized from someplace else). You have to look to find the MLM aspect. They sell supplements, supposedly at cost, but if you look at what's in them, they are making several hundred percent profit. And you can't buy the product unless you join. And if you join, they'll charge you $35 a month, which goes to the person who recruited you. They make THEIR money off the products and the motivational materials. I traced this one company to a particular state, and looked up their law. Since the company only allows its members to recruit other members (NOT sell product), and you get paid the monthly fee of each recruit, and some of the fee from their recruits, up to 14 levels deep (which is HORRENDOUS), the law of the state says clearly that the person who runs the company is committing a class three felony. Folks, that's right below homicide! It is regarded as fraud. Why is this guy still in business? This is a standard pyramid scheme, and the law makes it clear that the mere fact they also sell products is beside the point! With companies like this around, no wonder so many people are down on nutritional supplements! You take pills that have virtually nothing in them, and they don't do anything, and there is always a better remedy around the corner. And people get burned, and turn against the life-saving products.

As if that were not enough, if you decide to become a distributor, the contract you must sign has some hidden consequences. Most contracts specify that you must use your own resources without reimbursement for any business expenses, including gasoline and wear and tear on your car, to deliver products. You are taught how to sell (using misdirection as in the recruitment meetings) by the company, but the legal LIABILITY for misuse of selling techniques is assumed BY YOU, not the company. No person knowledgeable in the law would ever agree to sign such a contract!

Occasionally, a company will sell a unique product not available anywhere else. An example of this is Tupperware. It's still multi-level marketing. The fact that they are using a flawed business model that inconveniences everyone is sufficient to condemn them in spite of the unique product. In other words, you can't just buy Tupperware while you are in the store for another reason anyway; you must arrange to order, you must wait to receive the product in many instances, or make a special stop at the dealer's house, or someone must deliver it.

One of the companies that supposedly has an excellent reputation is Amway. In case you are unaware, Amway changed its name to Quixtar. Now why would they throw out the value of a good name to do that? Ask yourself that. Amway says it sells a lot of really healthy products, including products for your home, your body (cosmetics and such) and supplements. Amway is really a business cult. It is a scam. For much more information about this, go here:

Amway Global Business Analysis

This guy offered a 300 page book for download. I read the entire thing. It is one of the most eye-opening books I have ever read! Amway can literally ruin your life. You can lose your marriage, your family, your home, your friends, and everything else that matters to you. It can seriously warp your personality. It can include your health (because you aren't taking care of yourself or getting enough sleep), or your life (if you get into an accident because you are too tired to drive.) You can get hooked into an endless round of tapes to listen to, each promising that if you follow instructions carefully, you will make a lot of money. Please keep in mind that Amway is one of the "REPUTABLE" ones. Just imagine what the others are like. And don't count on the Better Business Bureau to warn you! They'll give you general information about what to avoid (none of it all that useful) and they'll tell you about what's wrong with a particular distributor, but it's rare for them to really tell you what is going on. Instead, they will make these distributors look good, because they haven't gotten any complaints. What they DON'T tell you is that most people won't report a problem because they're too embarrassed or ashamed to let anyone know they have been taken advantage of.

Sometimes, a web site will offer an affiliate program. Please note: there are two types of affiliate programs. One is MLM, and the other isn't. The other is one where you will provide a link to a site, or to a specific product, on your web site. If someone clicks on the link they give you, you will get credit for the sale, and a percentage of the profits. These are legitimate. The difference is that in this practice, there is NO downline. You have your own web site that you designed yourself, and you can link to as many other sites as you want. The fact that it is called an affiliate program can be confusing. If you click on the link to the information, and you find out that you are allowed to recruit others, it is probably MLM. Legitimate affiliate programs don't usually encourage you to recruit. If, on the other hand, they encourage you to use a canned web site that they designed, it is almost certainly MLM.

It is also common for MLM sites to belong to webrings. I used to run about 1650 webrings, and I would NOT admit any MLM site to any of them. I told them why. If they have an MLM site, they are told not to apply in the first place. So if you run across an MLM site because you are surfing a ring, beware! One of the most notorious MLM efforts that likes to use webrings is ASH: Advanced Scientific Health. They're REAL cagey. They have some information, as a general rule, that might be very helpful. The fact that they are MLM is carefully concealed. In fact, after I turned them down a few times, they got even cagier. They are still MLM, but they won't tell you until you trust them. They even run their own webrings!

One final thing: some Christians get taken in, and even some MLM companies claim to be Christian. Again, don't fall for it. If it's MLM, it's a violation of the Ten Commandments, one of which says, "Thou shalt not steal," and the verse that says, "A laborer is worthy of his hire." You will often find that so-called "Christian" MLM sites or companies are really run by people who believe in what I call "prosperity heresy", which is the idea that Jesus meant for you to be prosperous in THIS life. Don't believe it. Jesus said we are supposed to take up our cross and follow Him. Sorry, but a prosperous life doesn't qualify. You may actually be prosperous, but that's the exception, and you darn well better not do it through business scams!

If you want to restore or maintain your health, don't buy your products from these companies. There are plenty of reputable companies that are selling state-of-the-art products, some of them truly unique, some homemade by the business owner, and you can find them on the internet. If you have the slightest INKLING that it's MLM, stay away. Your body will thank you, and so will your budget.

Links to useful information about Multi-Level Marketing:

Multi-level Marketing
Work at Home
Multi-level Marketing
Multi-level Marketing FAQ
Pyramid Scheme Alert
False Profits
Study of Ten Major MLMs
Financial Crisis: A Mirror Image of MLM
Consumer Bulletin: Scams Disguised as Businesses
Herbalife Class Action Settlement
Montana vs. ACN, a David and Goliath Battle
Amway/Quixtar BITE analysis
Amway Quixtar Insider Documents Massive Consumer Fraud Now a set of three links, all useful
Pyramid Scheme Alert Update
Why the FTC Lets MLM Run Wild in America
Amway Global Business Analysis

Some of the background material graciously provided by Gedeon