Multi-level Marketing (MLM) or better known as “pyramid schemes” by many governmental and advocate departments, have been with us for many decades. In recorded business documents, such business models started in the 1920’s.
The draw of participating in an MLM based company is similar throughout the category: freedom from 9-5 job and the potential to be rich beyond words, etc. However, for many, this future is mathematically impossible to achieve.
Classic pyramid scheme, often called “naked pyramid scheme”. There isn’t a product to sell, just the opportunity. Think of Bernie Madoff and his “hedge / investment fund” scheme where millions were stolen. Then there is the product based pyramid scheme. In this scheme there is a product to be sold, as the anchor/hook, for the sales people to believe in; hence, masking with a sales opportunity (i.e. Herbalife, NuSkin, AmWay, Avon, etc).
These days, the latter is more difficult for many to distinguish, for it comes with the legitimacy that we see in the news every day, like all other legitimate business own.
“Doesn’t sound too bad to me” you tell yourself. But no matter how the exterior of the MLM is beautified and marketed, there is one undeniable fact that makes this a bad road to hitch a ride on.
Mathematically, it’s called “exponential progression”. And by this fact, one MLM representative cannot recruit enough to sustain her/his business, without potential losses.
Looking at the graphic above, there is one thing that is absolute. By the 4th or 5th level the size of the number of NEW recruits becomes as big as a small town. Some average that there is about 500-1,000 individuals each person interacts, within a lifetime, face-to-face. If in sales/marketing the largest estimation is about 25,000 face-to-face. And if this is so, then there is ‘guaranteed’ failure rate for individual sales reps at MLM companies.
And when a representative comes to this mathematical cross-road, they typically have 2 options: (1) quit, or (2) buy the products themselves. Below is an easily digest-able video on pyramid/MLM schemes.
The rep, often buys too much and realizes that the products do not sell (and have too little sales margin) and he/she cannot make a profit. The only path is to recruit as many NEW people to buy-in, as possible. Pressure for many are great, for at this cross-road, they’ve invested too much money to quit. So, they keep on buying her/his own product for themselves; products that do not sell in the ‘real world’ consumers.
The proven numbers do not lie and are reliable. It is safe to know what pyramid/MLM schemes are all about, before spending one’s hard earned dollars to get into such, low/no return business model.
There are other great videos that describe what pyramids/MLM schemes are, and are about. Here they are.