MLM: It’s the biggest success-story since indoor plumbing!
I don’t know, if I’ve been unlucky on these few discussions I have taken part in. They take turns making up huge success-stories that should make people believe that this is a golden business opportunity. Of course, as with anything - the real story is somewhat different. I’ll try and outline some of their scenarios that make the least sense:
“Anyone can make a network and live of the residual income!” This is perhaps the biggest lie of them all. MLM is a game of chance and with very small odds of success - and in some of the schemes, it is downright impossible. AmWay is always quoted as a good MLM - so, let’s take a look at their figures (the good thing is that they are so big, they have to submit these numbers to the public): On average, every distributor sells for 40$ a month… the keyword being sells… it’s before their costs are figured in, and it’s before taxes - it’s pretty obvious that almost everyone is in the red figures (I don’t have access to these numbers since every distributor is a company in itself and such have no obligation to publish these numbers).
Next, they have different levels of distributors - about 0,5 % make it to the next-lowest level (’direct’) - that’s 1 out of every 200! When they were investigated in Wisconsin - they calculated the average income of these ‘direct’ distributors… the average was a net loss of 918$… so even when we move up in the hierachy… people are loosing money (ironically, they are believed to loose more money on average than the ones beneath them…).
“You just have to have a good downline - then the money is a sure thing!” Well, aside from the moral aspects - there is a mathematical problem with this… A given market can only support so many salespersons for any given range of products - now, if you manage to build the perfect pyramid below you that their material suggests (I’ll use a 6 level deep with a factor 3 - that is 3 persons in the first level below you, 9 in level 2 and so on) this takes 1093 people - okay - so one out of every 1094 people has a potential to be that winner - the problem would then be that the Danish market is way too small to even support one winner… and that 1093 out of the 1094 are not able to make the perfect pyramid… Do you think they will continue very long? In my example there are 729 at the buttom level getting the scraps from the table. I think it is only a question of time before they quit… and the pyramid will then need to hire a new set of loosers to fill the buttom level… it’s like ice-scating up-hill.
Next - in my above example - let’s say that you are the top-dog in the pyramid… how will you motivate people 6 levels below you? They are the ones that will get you rich - but my bet is that they are no-where near your own circle of friends. The MLM idea sells itself from the idea that you hire among the people you know - they hire the people they know and so on. In 6 of these jumps - they may be in the other end of the country - and you have 729 of them… that not only takes extraordinary leader-skills - it takes a LOT of time and energy not to mention money. And this is the time you are supposed to be able to kick back, relax… the money is just rolling in… yeah, right!
“You only have to hire 3 friends - then they hire 3… how can that fail?” I’ll tell you how - in my above example - in order to have my 3 friends happy - I need a new level on the pyramid - each of my friends need that 6 level pyramid below them - now I suddenly need 3280 people below me. And this is if I am the topdog - consider if I’m in level 4 or 5 of the starting pyramid? We are talking tens of thousands of people… Basically, unless you are at the start of the pyramid - you are hiring your friends to fail.
“But it’s a global market! There are so many untapped ressources!” Yes… but this only delays the inevitable… each of these countries will have their pyramids with the same characteristics as the one you are in…
“You can hire anyone! There are no qualifications needed!” While this is true - you have to consider that you are trying to hire salespersons. If you want people to succeed - you need them to have exactly the same skills as a good salesperson. If you hire left and right - it’s only a matter of time before they quit again. The problem with experienced salespersons is… well, they are good salespersons - and good salespersons own a calculator. Before you have even mentioned your idea to them - they have calculated the odds - the return on investment… Forget hiring them… If they are indeed that good - they make more money selling in a traditional distributionschannel. And a newsflash - a good salesperson is an individualist - he is not good at relying on other people’s for wealth.
Oh - and an inherit problem in the model… everyone is focused on hiring new representatives… since this is where the money is… erh… who’s going to move product? And if you don’t believe me… just remember those 18% from AmWay - only 18% of their total sales is to customers. The rest is moving around inside the company… well, companies… Basically, every representative makes more money if it is someone under him selling the stuff… so there is no motivation to sell himself…
Success? I’ll say that it is a success that they can still convince people that this is a good idea.