To Those Who Are Anti-MLM

[24KT]

To Those Who Are Anti-MLM  (Multi Level Marketing), Dislike MLM, Or Even Hate MLM…

I didn’t post this to fight you or to alter your view of the MLM (Multi Level Marketing) industry.

In some ways we are similar. I, too, see problems with MLM. But in one way we are different - I believe the MLM industry can be helped.

In situations such as these there are at least two options: help “it” or harm “it.”

Let’s pretend you have a child and find he’s using drugs. Do you help him or harm him? I suppose you would want to help him. That’s the way I feel about  the MLM - Multi Level Marketing industry.

Personally, I believe there is only one fundamental problem in MLM - training (or lack thereof).  The activities of the industry have slid away from real training. Today, the “standard training” is write a list of 200 people, call them, and tell them why you’re  excited. This is not training, and it often doesn’t work.

If you go back to the earliest MLM activities, beginning in 1945, you will find that a distributor didn’t sponsor another distributor until that person proved they could get 25 customers. This activity ENCOURAGED people to train their distributors to sell products.

Since the 1980’s, several MLM companies have focused exclusively on getting new distributors, who get other new distributors, etc. This activity bypasses training a new distributor to get customers. Add to that a general lack of communication skills and “get-rich-quick” hype and you have an industry that in many ways merits criticism.

However, to me the good outweighs the bad. The above-mentioned flaws are correctable and are within our scope and ability to correct. If you analyze the stock market industry, the mortgage industry, the medical industry, the entertainment industry, etc., you will find that there is bad in all of them. But you will also find that there is good in each of them.

When MLM - Multi Level Marketing is done in a first-class way, it isn’t the same industry you criticize

Therefore it is my intention to help the MLM industry, as I’m quite fond of it.

Edit:  I've received a number of requests through PM to answer a few questions.
The answers to most of the questions I'm being asked are actually contained within the 1^st page of this thread.
I'd like to request that you read through the first page of this thread thoroughly, and then,
...if you still have any further questions that I haven't addressed below, then feel free to PM me for an answer.
With both of us on the same sheet of music, our conversation will prove far more productive that way. 

[24KT]

How Do You Know Who To Take Advice From?

Please take a moment to answer the question, “Who should you take advice from?”

There are three types of authors of content: Those who have never done it, those who have done it and failed, and those who have done it and succeeded. Note: My use of the word author includes both written and spoken communication.

1. Authors who have never done what they’re writing (or talking) about.
Newspaper, magazine and television writers and reporters rarely have done what they’re writing or talking about - their information comes from hearsay and as an “outsider looking in.” Many attorneys and professors often give advice on subjects they’ve never done. The majority of the books at the book store are from authors who have never done what they’re writing about. They can write (or speak) about it, but can not succeed at doing it.

Their advice is rarely sound because it’s based on invention, another person’s opinion, or hearsay. This problem is compounded when an author simply repeats something they heard from the media. Now there are two layers of people who can’t do what it is they are writing about, but think they know something about it. Authors who have never done what it is they are writing about, or who have never succeeded at it, cannot possibly place the correct importance on the subject! You can always identify authors who have never done it because their content is slightly off the main subject.

As an example, I read a web article claiming that MLM (Multi Level Marketing) success was mathematically impossible. Huh? That’s like claiming that it is scientifically impossible for a bumblebee to fly. Has it ever occurred to that author to just LOOK? The oldest MLM company is still growing!

2. Authors who have failed at what they’re writing (or talking) about.
When someone has failed at what they write or talk about, it is common for them to be critical of (inclined to find fault with) the subject and those who do it. Why? Because something about the subject is a complete mystery to them and they feel inadequate. They obviously couldn’t figure out some part of it -otherwise they wouldn’t have failed!

Take, for example, a person who wanted to be a real estate investor but failed at it. He will project his negative experience onto whatever he writes or says about the business. He’ll typically write about “what’s hard,” “wrong,” or “dangerous” about real estate. Why? Because he never figured it out and someone who succeeds at it proves his inadequacy on the subject of real estate. His worse nightmare is people succeeding at real estate investing. His negativity may focus on the aspect of real estate investing that caused him to fail; but more than likely he doesn’t know why he failed, so he tries to make EVERYTHING about real estate wrong - including anyone who does real estate. This can be extremely broad - a person who has failed at playing football can try to prevent their children from playing ANY sport.

Warning: on every subject there are more people that fail at it than people who succeed, so you may find much more negative information about your subject than positive information.

Do not take advice from authors who have failed at what they write (or talk) about - they are resentful and do not want you to succeed where they failed. Others’ success only proves their inadequacy. They may claim that they “only want to protect you,” but in reality, they only want to protect themselves from a sense of failure by preventing you from trying and succeeding.

3. Authors who have succeeded at what they write (or talk) about.
If an author has succeeded at what they are writing (or talking) about, they are a valuable asset to you and their advice is worthwhile. They know what is important and what is not important about the subject.

Please note that there is a vast difference between someone who has been successful at their subject and someone who has merely been “educated” about it.


Just because a person has studied a subject, doesn’t mean they can do it. A beautician can study all about hair - that doesn’t mean she can cut hair to her client’s satisfaction. A psychiatrist may have been able to listen to his teachers and may have been able to read the required text books and may have even been able to pass a state board examination on the subject - but can he fix another person’s problems? If he can’t, don’t take his advice! A student who has been educated on a subject has only proven that he can be a student successfully. He has not proven he can do the subject.

The person you should accept advice from on a subject you’re researching is the person who has gotten the results you desire. If you want to fail, take advice from someone who has failed; if you want to succeed, take the advice of those who have been successful.

I'm neither going to pretend everything in MLM is perfect. Nor do I have an axe to grind about the MLM industry. This post exists to help you evaluate the MLM business by giving you the facts about (MLM) Multi-Level Marketing - then you can make an educated decision about participating in MLM.

[24KT]

What is MLM?

MLM is an acronym for Multi-Level Marketing,
sometimes called Network Marketing.

As the name suggests, multiple levels of people are marketing a product to consumers. A sales representative (also referred to as a distributor, member, affiliate, partner or associate) gets customers and recruits and trains another sales rep to get customers.



Sales rep gets customers and trains another sales rep to get customers

Multiple levels of marketing are actually what all companies desire (both MLM and non MLM companies). If you’ve ever heard a traditional company announce, “Refer a friend and you’ll receive a discount on your next purchase,” this is multi-level marketing. Health clubs, real estate, telecommunications, and countless other industries use this technique. Professionals (doctors, dentists, accountants) live or die based on their customers telling others about them. All these businesses are simply trying to get current customers to advertise and market their product or service to potential customers.

The Traditional Company

In a non-MLM company, a sales manager and sales reps are hired by the company. The company is limited to the number of sales reps they can hire based on the financial resources the company has to pay salaries and on the traffic the sales manager can handle. Once a sales manager is overwhelmed, the company can hire another manager or convert a sales rep into a manager. This could be called “Multi-Width” marketing because it expands the organization horizontally as compared to “Multi-Level” marketing, which expands its organization vertically.



Traditional companies (non-MLM) use “Multi-Width” Marketing


The MLM (Multi Level Marketing) Company

An MLM (Multi Level Marketing) company “starts” by recruiting one person who gets customers and recruits sales reps (just as above in the traditional company). But each sales rep is also given the option to become a manager, who can also recruit sales reps. The MLM company only pays commissions, not salaries; therefore, there are no limitations on the number of sales reps or managers an MLM company can recruit. This is beneficial to the company because of rapid expansion by the number of trained sales reps. This is also beneficial to the sales reps because their income isn’t limited to only what they can sell - they can also earn commissions for having trained other sales reps.



MLM uses “Multi-Level” Marketing, which is similar to traditional marketing (see above illustration “Multi-Width-Marketing,”) except there is no limit to growth.

Very simply and factually, MLM (Multi Level Marketing) is one of the five main methods used by a company to sell and distribute a product or a service to a consumer.

All companies (MLM or traditional companies) have one main characteristic in common: they provide a product or a service that hopefully makes a consumer’s life better. Once a company has such a product or service they need to make it widely known. They do this by distributing it. Distributing a product involves finding customers and getting the product in their hands. There are five primary ways to distribute a product or service:

The Five Primary Ways to Distribute a Product or Service
 
STORE FRONT

Company rents or buys a store in busy area to get walk-in traffic. Hires sales person to communicate with customers who walk in.

DIRECT MAIL

Company buys addresses. Hires marketing person to write and send written communication about products and or services through the mail.

TELE MARKETING

Company buys telephone numbers of prospects. Hires and trains sales people to call and sell products/services via the phone.

INTERNET

Company puts up a web site and advertises to get traffic. Similar to direct mail, the marketing occurs through written communication.

MLM

Company recruits a distributor (sales representative) to sell products. Grants sales person right to recruit other sales reps to sell products.
 

Each of the five methods above can use techniques from one or more of the other methods to get customers. Meaning, a Store Front isn’t limited to only walk-in traffic. The Store Front can also advertise on radio, television and in newspapers, magazines, and mailers (post cards, flyers, etc.) directing prospects to the store location. This can increase the number of people walking into their store.

Similarly, a distributor in an MLM company can use some or all of the 4 other methods as well as getting customers through friends and family. And of course an owner of a store front (such as a restaurant) can also tell his friends and family about his store!

So what is MLM (Multi Level Marketing)? The main point to understand is that distributing any product means to make it known. MLM and the other four primary ways to distribute a product are simply methods used to make a product known.

MLM is Organic

Organically, the MLM industry is a fantastic model. By “organic,” I mean that if you strip away all the hype and noise and just look at it conceptually, it is the purest way to move a product to a consumer and the purest way to be compensated. Here’s why…

1. In its organic state one person shares a valuable product or service with another (not because they will profit, but because the product is valuable). “I like it, maybe you will too.” That is clean and pure.

2.A person shares a business idea with another - this is the foundation of all businesses throughout history. “I found a business I like and maybe you’d like to work on it with me.” That too is clean and pure.

3.The person who shares the business with another ONLY profits IF the person they shared the business with succeeds - that is ultra-responsible, which is also clean and pure.

Those three steps are the organic concepts of MLM and are absolutely brilliant.

If you strip traditional marketing down to its core, it would be a person writing an advertisement and 98% of the people who review the advertisement not responding (a top marketer gets a 10% response; the average is 2%).

Look around and see what all it takes to move a product to the consumer in the “traditional” sense, and you’ll see a lot of wasted actions and resources. Can you imagine how pure a city would look if there were no advertisements? Think of the number of trees that get consumed in the name of advertising, and the materials that then end up in land fills.

Perhaps a good way to describe MLM is to demonstrate how MLM is the same as a traditional company, and also how MLM is different. Look at this diagram for a visual.

Please understand that I am not criticizing the use of trees, the cluttered environment, or advertising - I’m simply asking you to look at the amount of unnecessary actions that go into moving a product to a consumer, as compared to the simplicity of one person communicating with another.

[24KT]

How MLM Works

These five steps illustrate how MLM companies work when done in a professional first-class way.

1.  A sales representative (a “distributor” for an MLM company) first becomes effective at selling a product (skin care, nutrition, automotive products etc.) or a service (legal services, Internet services, telecommunications services etc.) to a consumer.




How many customers a distributor should get will depend on the Company’s commission plan - typically about 20 customers. My personal recommendation is to get enough customers so that you can effectively get customers at will.  Otherwise you will not be able to train those you recruit to get customers.

It is not efficient to get many more than 20 customers, as MLM companies pay you to “duplicate yourself.” If you train 5 people to get 20 customers, you’re much more effective at getting your valuable product to consumers than if you were just distributing products  on your own. Other industries (such as direct sales) will reward you better for getting a lot of customers; but they don’t reward you for training others.

2. Recruit ONE person and train them how to get customers. This person would be called your downline.



3. Once your sales rep can get customers at will, then train them how to recruit another person.



4. Ensure that YOUR sales rep can train HIS new sales rep how to get customers.



5. Then, you recruit ONE other person and repeat steps two through four. Keep doing this until you’ve reached the income you desire. If you do this cycle enough times, you can create enormous wealth. How many times you have to do it can vary. The person who sponsored me in my MLM did this cycle as little as 16 times and made millions of dollars.

How do commission plans work?

Commission plans, also called compensation plans, are how MLM companies reward a distributor’s production.

Note: All the illustrations below are theoretical. There are many commission plans and each company’s plan is slightly different. The illustrations below serve as an explanation not only of how an MLM company works, but why they are designed the way they are.

Most MLM compensation plans can appear rather complicated at first glance because all companies (MLM or others) try to figure out how to get a sales rep to sell more products. The designer of the commission plan divides the money that is set aside for commissions into different “buckets.”

Bucket #1 is to motivate the sales rep to sell products to consumers. This is called a “retail   commission.”



In addition, the MLM companies know that new sales reps probably do not know how to sell the product and thus need to be trained. So they (theMLM company) create “bucket #2″ to encourage sales reps to properly train new people. The better the training, the more product gets sold. So bucket #2 is to reward the sponsor (which is the sales rep) for training their new rep. Which is not only logical, but quite clever.



The next commission “bucket” is to reward sales reps for becoming and/or finding leaders. The MLM company very much desires leaders, just as any non MLM company does. Non-MLM companies typically go to executive search firms to locate leaders.  MLM companies use their current sales reps to find leaders. Once found, the company will reward the leader, as well as the sales rep who found or developed the leader - just as a traditional company will pay the executive search firm  for finding leaders.



In most MLM companies, the more leaders you develop, the more “buckets” are made available to you.



One of the biggest challenges in creating an MLM compensation plan is paying out too much in commissions, which causes the company to go bankrupt. On the other hand, if the company doesn’t pay out enough commission,  they will have a tough time retaining their sales reps and will not attract  or develop true leaders.

The way successful companies are able to accomplish this difficult  challenge is to make the compensation plan difficult to achieve… but achievable by  those willing to meet SPECIFIC performance standards.

The contrary option is to make the compensation plan easy to achieve by everyone. But then every person would have a lid on their income because the available commissions would be spread (or dissipated) throughout everyone. Companies that use this type of compensation plan typically never grow big enough to get noticed because they are unable to attract leaders or there are not enough commissions to motivate a person to develop the necessary skills to become a leader.

Therefore it’s better to make the commission plan difficult to achieve. But everyone doesn’t have to achieve the top of the commission structure to earn a very good income.  Most compensation plans are structured so that a person can replace their current salary by only achieving 1/2 of the available commissions or “buckets.”

All compensation plans are designed based on the quota or standards philosophy. The word quota means: a production assignment.  The word standard means: a level of achievement.
So in its  most basic form, all commission plans work like this:

If you do nothing - you get nothing.

If you do a “little bit” - you’ll get a “little bit” =  only bucket #1 (from illustrations above).

This creates a little extra  income.

If you do a “little bit more” - you’ll get a “little bit more” = buckets #1 and #2.
This creates a good part time income.

If you do “all this” - you’ll get “all this” = buckets #1, 2 and 3.
This replaces a typical job income.

If you’re somehow able to do this “enormous amount” -  then you have done us (the MLM Company) an incredible service and we’re going to reward you this “enormous amount!” =  buckets #1 through #6!
This creates wealth.

Each person who joins an MLM company chooses what level they want to achieve, based not on a mental decision but based on results.  There is not a more fair system than one that rewards someone based on results. The most unfair system would be to reward someone based on their resume, their talk, their family connections or their attractiveness.

Have you ever been passed up for a promotion because the owner of the company’s son was promoted instead of you? Maybe a girl more attractive than you? Maybe a person worked at the company longer than you? Maybe a person went to a better college than you? The only person that deserves a promotion is the one who produces the most for the company!

If you feel it is unfair that not everyone reaches the highest level of the compensation plan or that only a few reach the “top,” you might want to think about this:  in every achievement or accomplishment there are standards that have to be met.

To be part of any sports team there are standards you must meet to be a part of that sport. To continue on and be great at that sport there are additional standards that must be met.

To be a golfer you simply buy some clubs for a few hundred dollars and go play golf - that is the base level “standard” to participate. To be considered a good golfer there are higher standards you must meet, to be a great golfer there are even higher standards. This is true of every sport, every business and every profession and even parenthood! Having a child doesn’t make you a great parent.

In MLM, to participate you buy an inexpensive distributor kit. This is similar to saying that you “play golf.” It takes almost NOTHING to achieve this level - therefore many (millions) can achieve this easy standard.

To be great in MLM (and enjoy the lifestyle that is offered) performance standards have been established in the compensation plan. They are not arbitrary standards; they are specific lines of achievement that ANYONE who wants that level of achievement must meet.

Meeting or exceeding performance standards is the reason someone achieves success in MLM.

In conclusion on the commission plan, when deciding on an MLM company you actually want a difficult-to-achieve compensation structure - but one that is achievable. You will, of course, have to work for it and may even have to increase your skill level to achieve it. But the rewards are worth the work - as long as you’ve chosen a good company. This of course isn’t any different than any other industry - if you pour your heart and soul as an employee into a company that gets downsized or goes out of business, you start over.

It’s the same with MLM.

[24KT]

Is MLM Legal?
Is MLM Ethical?
Is MLM just a Scam?

The definition of “legal” is “Authorized by or based on law.”

Yes, MLM is LEGAL! (and no MLM is not a scam)

Says who?

Says the U.S. Federal Government.

In 1975  the Federal Trade Commission accused and sued Amway Corporation for operating as an illegal pyramid. After four years of litigation the court ruled that Amway’s multi-level-marketing program was a legitimate business and not a pyramid scheme.

Perhaps there was a time prior to 1979 that someone could say, “MLM is a scam! It is an illegal pyramid scheme!” And they might have been correct because MLM hadn’t been tested and adjudicated in court. But since 1979, only the uneducated can claim that the MLM industry is illegal.

This does not mean that ALL companies that claim to be an “MLM company” are legal. But, the INDUSTRY OF MLM IS LEGAL.

Now that the “legal” issue is stated and known, there’s also a logical, ethical and professional issue that needs to be addressed.

What constitutes a “good” or “ethical” business?
To answer this, let me first answer the question, “What is business?” If you were to ask this question of an academic (a professor or teacher) he or she would probably answer that business comes down to “supply and demand.” But I personally disagree with this thinking. To me, business is “making someone’s life better.” My theory comes from the logic of why I personally reach into my wallet and pay for something. It’s not based on there being a supply of something (because there are a lot of things I don’t buy), but rather that I think  what I’m going to buy is going to make my life better in some way.

I don’t know what “guide” or “rule” policy makers and those who write laws follow when they rule in favor of or against a particular business. In other words, do judges and policy makers use some fundamental guiding principle such as “supply & demand” or “to make someone’s life better” to determine a legitimate or illegitimate business, or is it an arbitrary opinion? Is it based on how many lobbyists talk to Congressmen or Senators?

I bring this question to your attention so that you can think logically about any business or employment you seek. I don’t know what you personally use as a guide of what businesses are good, professional or ethical. Ask yourself what makes a good business? Have you decided that a “professional business” is one where the people wear nice suits and have a nice building? Is a “good” business only one that is legal? Is a good business only one that is profitable? No! That is not logical at all.

Only a business that does make people’s life better should be considered a “good, ethical, and/or professional” business. In comparison, a business that hurts people should be considered a “bad” and “unprofessional” business.

With that, I ask, “How can a business that manufactures a device designed to destroy thousands of people at once (such as a nuclear bomb) be an “ethical” business? How can selling a substance that kills 500,000 people EVERY year (such as tobacco) be a “good” business? How can we view a scientist who approves a drug to be sold, but is responsible for 150,000 to 200,000 deaths a “professional?” How can a “law” that strips an average of $359 dollars annually from every American family (such as state lotteries), disguised as a quick way to “make millions” but with the chances of winning at 0.0000002605, be “ethical?”

I was recently studying an MLM company whose “business plan” is to feed hungry children. At current date the MLM company and their 6600 distributors have donated 95,771,944 meals to hungry children. WOW! Only an insane person (or one with an axe to grind) would claim an entire mlm industry is a scam and unethical .

Now, don’t think this thread is only going to say good things about people in MLM, as if no one has ever done anything wrong in this industry - quite the contrary. The goal of this section is to set the guideline for how we might view an ethical business and the ethical activities of ANY business.

A good business makes people’s lives better; a bad business hurts people. That would be the two ends of the spectrum.

As an industry, MLM simply moves a product to a consumer.  But in choosing which MLM company you want to join (or company you want to be employed by), I hope you evaluate it based on whether it helps mankind or harms it?

[24KT]

What is First-Class MLM?

"First-Class” means the first, highest, or best group in a system of classifications.

There are first-class accommodations on airplanes, hotels, trains, cruise ships, etc. There are first-class restaurants, first-class cars and first-class neighborhoods.

What creates “first-class” status is the attention to detail, the selection of quality ingredients, the training of staff and the respect given to the client or customer.

The restaurant industry is neither high-class nor low-class. Yet, in every high-class restaurant there is someone who determines the policies and the activities for the chef, waiters, and maitre d’ and sets the ambience to create a particular mood in the restaurant. All of these items establish its “first-class” status. A restaurant that is first-class has been created and maintained that way - by a person or people. A “low-class” restaurant is also created by NOT paying attention to these details.

The MLM (Network Marketing) industry is neither high-class nor low-class. Yet individual people who do MLM can be either.

I’ll be the first to admit that I have seen MLM (network marketing) done poorly and in a way that I personally wouldn’t do it. That doesn’t mean those MLM businesses didn’t make good money doing it that way - many have. But at what cost? A band of great elephant hunters may be effective at killing all the elephants in their area - but at what cost? Anything that damages the whole isn’t good. This goes back to my discussion on what makes an ethical business.

I’ve done MLM (Network Marketing) in a way that is very professional and very ethical; thus First-Class. If you study “First-Class MLM” closely I believe you will agree that there isn’t a more ethical business model on Earth.

A person who is doing First-Class MLM would follow these basic guidelines:

1. They would tell the truth

2. They would only represent a company that has products or services that honestly makes people’s lives better.

3. They would be genuinely interested in a prospect’s success with their product or service - not just in making a profit.

4. They would know the company’s product line and how it differs from similar products. This makes you valuable to consumers.

5. They would be able to get customers and have not less than 20.

6. They would know the MLM industry and be able to explain it simply and without hype.

7. They would know their MLM company and be able to explain it simply and without hype.

8. They would effectively train people they sponsored to sell the product/service. The true test of training is,“Can they do it after their training?”

9. They would effectively train people they sponsored to recruit other distributors.

10. They would ensure the people they sponsored could train their downline effectively.

11. They would not sponsor anyone unless they were willing to train them.

12. They would do what they promise.

13. They would only take part in activities that reflect well on the whole of the MLM industry.

14. They would make valuable suggestions to their company so the product line is the very best it can be.

[24KT]

Why Look at MLM?
People join MLM companies for many different reasons. 

Here’s a partial list:

Join MLM as a social activity
MLM is a great place to meet people and have fun. There are business meetings, training meetings, cruises, cookouts and fireside chats where you can meet lots of new friends. Conversation topics are normally business and personal-growth related. I know many people who have found their spouse in MLM because there are so many people and so many events one can attend. Every 12-18 months most MLM companies hold national or international conventions where people meet from all over the world. This is a great place to meet people. Personally I’ve made friends in over 20 different countries. It’s rare to find an organization outside of MLM with as many opportunities to meet people and socialize. Another aspect of social activities is working with friends and/or family members. I’ve seen very often that couples would like to work together in their own business - MLM offers that opportunity.

Join MLM to help people
Suppose the MLM  company you join  helps people with weight management. As you get trained in how to sell products,  you learn a lot about the subject of weight management. This knowledge allows  you to help other people with weight management issues. I’ve also known very  wealthy people to join MLM because they want to help people earn more money  and achieve the lifestyle they’ve enjoyed. Rarely can a person who has become  wealthy in a traditional business be able to help their friends also become wealthy; MLM is the exception. When you’re able to help someone overcome a  weight management problem that they’ve struggled with, or help someone improve  their skin condition, or help someone achieve financial freedom, it’s very  rewarding because you know you’ve made their life better.

Join MLM as a retirement alternative or addition
Today  in the United States only 40% of people who work actually have a retirement  account. Of those who have a retirement account of some kind, the average account  balance is $29,000.00. This will not afford the average retiree the money to  pay predictable expenses (mortgage payments, utilities, food, auto expenses,  etc.). The $29,000 certainly won’t afford any unpredictable, catastrophic expenses  such as medical costs. MLM offers a way for a person to create an income as an alternative to standard retirement plans or to augment their current retirement plan.

Join MLM to transition into business ownership
Most  people work as hard as they can in whatever job they can find to keep up with  expenses. They feel trapped because they HAVE to go to work to pay the bills.  MLM offers a way out of the typical job trap because a person can work their MLM business part-time until they earn enough income to quit their full time  job - if they desire to do so. I’ve met professionals who have replaced their income through MLM, but love what they do so much that they continue in their old profession - but without the stress of having to make living with it. Personally,  I’ve seen doctors, artists, school teachers and architects do this.

Join MLM to achieve your dreams
Most people have dreams that are often hidden underneath “not enough time, money, or know-how.” Whether it be music, art, dance, benevolent causes, a horse ranch, cars, boats, flying, diving, traveling, golf - dream lists are endless unless one has quit dreaming. People often join MLM to build a business that allows them the freedom and flexibility to pursue their real dream.

Join MLM to live where you want to live
I’ve met several people throughout my travels that joined MLM because they fell in love with a particular part of the world and wanted to live there, away from the “rat-race lifestyle.” That you can work from home in MLM is very enticing to many people. Not only can you work from home with MLM, but you can work from ANY home. I have met people who live on a boat and build their MLM business.

Join MLM to create wealth
Yes, wealth is available to people in MLM. It will require as much effort (and results) as creating wealth using any other business method. You cannot shortcut the effort in the creation of wealth. But with MLM it doesn’t require as much start-up capital expense as with most other wealth-creation options. I did not write that it would require NO start-up capital; just less. Incidentally, I have accomplished all of the above through MLM. It is absolutely doable!

Why Corporations Like MLM
As Harvard-educated Professor Charles King discusses, all businesses, churches, politicians, schools,  etc. know that word-of-mouth advertising is the most effective and efficient form of  advertising. It’s effective because the advertising is coming from a trusted source - a friend, a family member, an acquaintance; it’s efficient because the company does not have to pay for advertising that doesn’t reach the customer.

If a company sends out 1,000 post cards telling people where their store is located and only 1% of the 1,000 come into the store, then 99% of the advertising was wasted. If a company spends 450 million dollars on an advertising campaign but only sells 100 million worth of products, they have lost 350 million dollars.  Corporations love doing business with MLM companies because they only pay for results. They pay no advertising expense until the product is sold.

The other reason corporations like MLM is because they’re paying for advertising that benefits the consumer. Let me explain: if a company (such as T-Mobile) hires celebrity Catherine Zeta Jones and pays her 20 million dollars, that 20 million doesn’t benefit the consumer. As charming as Catherine Zeta Jones may be, she adds no value to the consumer. In network marketing, that same 20 million dollars goes to distributors who have (hopefully) mastered the product and are able to explain it to the consumer.

   <--Click to enlarge.

MLM companies pay for production, not for coming to work
The  word production means “something produced.” If a non-MLM company hires a sales representative to sell their products, they normally pay the sales rep a salary plus commission on the sales of the products sold.  They do this prior to knowing if the sales rep will sell anything at all. If the sales rep never sells anything, their salary is a wasted expense. In multi-level marketing, the company ONLY pays a commission when a product is actually sold. That’s paying for production instead of paying people to come to work whether they produce a sale or not.

Conversely, if you’re the type of person who seeks ways to hide from producing,  you’ll hate MLM if you continue that same non-productive activity.

Best possible use of your time
If you are a productive person, you will want what MLM offers. You can create a pay raise any time you want. In addition there is little or no limit to how much money you can make.

But most importantly, you’re multiplying your time instead of expending it. There are three things you can do with time: Expend it, invest it, and/or multiply it. As an employee, you’re expending your time. Expend 8 hours, get paid for 8 hours. In MLM, you train another person to do what you do - that’s investing your time. You work 8 hours, the person you trained works 8 hours - you’re [theoretically] getting paid for 16 hours of work. If the person you trained trains someone else, you’ve multiplied your time. Don’t brush by this statement…  IT IS THE REASON MLM IS SO POWERFUL. Most people don’t understand this part.

[24KT]

How to Evaluate MLM Companies

Trying to decide between MLM companies, make sure you choose a good one!

In order to evaluate an MLM company properly, there are things that must be understood. “The expense can be high for an improper evaluation.” If you don’t join the right company, you could miss out on millions of dollars of income; if you choose the wrong company, you could waste resources (time, money, credibility, etc).

In my experience, I have seen several good companies and several bad ones. It is essential that you select a good one. No, I’m not going to give you a list of good companies;  evaluating each and every company would be a full-time job. Instead, I’m going to give you my criteria for evaluating an MLM company, thereby putting YOU in control.

Here is a general view of how I evaluate an MLM company, listed in order of importance:

1. Is the company going to last long term? No one can be successful in a company that fails.

2. Does the product sell outside the network? Meaning, are there consumers who will buy the product that are not going to join the MLM business?   

3. Will I be rewarded well for my efforts? This has to do with the commission plan.

4. Does the training produce a successful distributor?

Note: The last item on the above list deals with training. Training is extremely important as it sets in motion the activities of the group or organization.

However, the reason training is last on the above list is because there is effective training available elsewhere, obviously.

Multi-Level Marketing contains three major sections: the Industry, the Structure of the company, and the Activities of the distributors. Understanding how these three parts work independently and together is how you can properly evaluate an MLM company.



The MLM Industry was proven a legal form of distributing goods and services by the U.S. Federal Government in 1979.

In addition, the MLM business model has proven itself highly effective at distributing products and services to consumers based on the same benchmarks used by Wall Street.

The Structure of an MLM company is unique to each company. The structure of an MLM company is made up of:

1. Intention of company owners.
2. Product or service they sell.
3. Commission plan.
4. Training provided to distributors.

These four structural parts dictate the activities of the distributors within an MLM company.


The Activities of both distributors and owners of the MLM company determine whether that company is operating legally and ethically - just like every other business.

Legal and ethical activities in MLM include selling products to consumers that make their lives better, servicing the customer, and training new distributors so they get results.
 

Industry

The Industry of MLM is made up of MLM companies, MLM suppliers, MLM associations, and MLM distributors. It’s of little value to study the MLM “Industry,” as it’s simply the container which holds MLM companies and the people who distribute their products and services. By way of an example, if you wanted to study real estate, you wouldn’t study the real estate industry - you would study residential housing or commercial buildings, property evaluation, building codes, construction, etc. The same is true for studying the MLM industry.

If you want to validate the legality of MLM, hire an attorney and have them read the document called “The Amway Decision”. However, make sure you review "How To Know Who To Take Advice From" first.  Remember, you’re not asking the attorney, “Should I do MLM?” Most attorneys are not qualified to give you that advice as they’ve not succeeded at MLM. You’re only asking them, “Is MLM legal?” If you want more information on the legality of MLM, click here. If you want to learn how MLM works, click here. Understanding what MLM is is also helpful.

Now let’s move to the Structure and Activities that make up each MLM company, which is what will ultimately make up your experience in MLM.

Structure & Activities

The  structural components of MLM vary company to company and set in motion the type of company it will be - good, bad, ethical, unethical, successful, unsuccessful, legal, illegal. Yes, a company can be illegal in a legal industry. For example,   there are doctors who do illegal things within the legal medical industry.

Good companies and bad companies are “made” based on:

1. The intention of the company owners.
2. The product (or service) they sell.
3. The compensation plan they use to reward production.
4. The type and effectiveness of the training

Poor company intention:
Evaluating an MLM company is not much different than looking for employment in a traditional company. If the company owners have the intention to “get rich” without providing a valuable product to a consumer or providing a valuable opportunity for the company’s distributors, then the company will have a hard time surviving. In publicly-traded MLM companies, the company’s “fiduciary duty” is to the shareholders of the company instead of to the distributors. Shareholders demand increasing stock value. If that demand results in reducing the amount of commissions paid to distributors, then the death of the company is soon to follow. Another indication of poor company intention is if the company has a short-term vision of making several million dollars and then selling the company to investors.

Good company intention:
Good company intention is where the owners have a long-term vision of helping people with their products and a long-term vision of providing a valuable opportunity for their distributors.
MLM companies should view their distributors as their greatest asset.

How to evaluate the company:
1. Ask how the company got started and who started it. Is the dreamer who started it still involved? Has the company been sold to investors? If yes, it’s not a good sign unless the purchaser has a similar or greater vision.

2. Ask if the company is solvent (capable of meeting financial obligations).

3. Ask if the company is growing (more sales than last year). In a private company (one that is not publicly traded on a stock exchange) this may be difficult to find. This doesn’t mean the company is “hiding” something. However, I like it when a private company allows an outside accounting organization to “rate” them. Dunn & Bradstreet is such an accounting organization. The MLM company doesn’t open its books to everyone, but will open its books to an accounting organization who will issue a rating on the company. If a private company is unwilling to do this, then it’s very hard to evaluate. Also, just because a company doesn’t have more sales this year than last year doesn’t mean it’s not a great company - but if it does have increasing sales, that’s a plus.

4. Does the company listen to and implement suggestions from leaders? The company doesn’t have to implement all suggestions - the important thing is that the marketing arm (the distributors) must communicate with the product arm (the company) to create strategic plans and better products. Most good companies have a “leadership council” of some kind that meet quarterly or semi-annually.

5. If the company is over 10 years old, does it reinvent itself by opening in new countries and creating new products? A “single” product company will find itself running out of customers after a given period of time, just like any company does.

Poor company product structure:
If an MLM company selects a worthless or overpriced product, the company will most likely not last. Distributors will not be able to sell the product if it is low-quality or can be purchased at a lower cost from another MLM company or traditional industries. If the product is low-quality or too expensive, distributors will focus on recruiting new people rather than selling the product because the business idea is easier to sell. This creates a company where the only people consuming the product are the distributors. Do you see how poor product structure dictates poor distributor activities? This is extremely important and explains how it is possible to have an unethical (or even illegal) company within a legal industry.

Good company product structure:
Conversely, if a company selects products that are valuable to consumers, then distributors will enjoy selling them because the consumers will be enthusiastic about the products.  It also makes it easier to recruit new people because those who consume the product will want to become distributors. A valuable product is the backbone of a successful company because it’s what makes a consumer’s life better. Only valuable products cause a consumer to keep purchasing them.

How to evaluate the product:
1.  Your first step should be to buy the product (or the service) and use it. Do you like it? If you don’t like it, don’t join the company.

2. Are there a lot of customers who will want to buy the product or use the service?

3. Identify what “niche” of buyers you will be dealing with. A niche can be viewed as a group of buyers. Take cars as an example: a lot of people buy a car for basic transportation - that’s a niche. Others buy more expensive cars, such as minivans, sports cars, or even Rolls-Royces. All of these niches have been successful. You need to ensure that the MLM product or service you will be selling is in a niche you want to be in.

4. Is the product (or service) effectively priced? Personally, I’m not one who wants to sell the cheapest product on the block. I much prefer to compete based on quality. I also love to have patents on the products I sell. But to be competitive, you need to have a product that is price-competitive. If it’s not, there has to be some legitimate reason why not. Take vitamins as an example: you can buy Vitamin C very cheaply, or you can buy it  expensively. If Vitamin C is all the same you would not have a sellable reason to charge more. But all Vitamin C is not the same - high quality Vitamin C costs 25 times more wholesale than the synthetic version. If you can explain the difference, this will justify the more expensive price for your product.

Poor distributor commission structure:
If a company uses an MLM compensation plan that rewards only the recruiting of new people and doesn’t reward the sale of products to consumers, the company will have caused the activities of the distributors to be focused exclusively on recruiting new people and not selling products. This is not bad if the company is set up to be a wholesale buying organization.  But it is bad if the company is set up to be a retail sales organization and no one is selling products. I hope you get the importance of this - the company can have a great product, but if it doesn’t also have a compensation plan that rewards people for selling the product the activities will be primarily focused on recruiting new distributors! Also, if the company has a commission plan that pays out too much money to distributors, the company can go bankrupt. So don’t fall for the new company that claims, “We pay out higher MLM commissions than any other company!” That is just hype.

It’s also important that people are not allowed to “buy” the top level of the commission plan. Let me explain: suppose that in a commission plan a person who has developed six leaders receives a higher percentage of commissions.   If a person is allowed to buy that position rather than earning it, then people with money can bypass developing leaders. That “short-cut” is extremely damaging long-term, as those who buy the commission plan are bypassing learning how to be a leader and how to develop leaders. If people can buy those commissions rather than earning them, training will no longer focus on developing leaders; purchasing higher levels of commission will become the focus. Those people who really can’t afford to buy the levels will try to emulate their upline and buy the levels on credit cards. This is a house built on sand! This activity will eventually destroy the company and its distributors.

Good distributor commission structure:
The ideal commission structure is one that rewards distributors for selling product, rewards developing leaders, and whose top level is relatively difficult (but possible) to obtain (explained more in "How MLM works"). Those that obtain the top level should earn at least $500,000 dollars per year. Last, the MLM company should not allow members to purchase positions in the commission structure.

How to evaluate the MLM compensation plan
1.  The commission plan should allocate approximately 40-50% of every profit dollar to the commission plan.

2. The commission plan should reward at least 30% profit margin for wholesale to retail mark-up. This rewards the person for selling the product to a consumer.

3. The commission plan should be difficult to achieve - but it should be achievable.

4. The top level of the commission plan should pay out a minimum of $500,000.00. This amount is based on the current income level it takes to attract strong leadership.

5. The company should not allow people to bypass developing leaders by buying positions in the compensation plan.

Training activities
As you’ve learned from the above, the product and the compensation plan have an enormous amount to do with “setting in motion” the activities of the distributors. However, the training is the main part of the business that most directly affects the distributors’ activities.

I’ve seen MLM companies that have done everything right (great intention,  great product and great compensation plan) but end up destroyed because of distributor leaders whose training activities create an unethical atmosphere that honest people do not want to be a part of, or that even drag the company into trouble with the state or federal government.

In MLM training, there is something called “The ___ System.” It might be called the “Fast Start System,” or the “Company Training System,” etc. The “system” is the method a distributor uses to introduce a prospect to the business. This is only part of the training that is needed. An effective MLM training process should include EVERYTHING A PERSON REQUIRES to succeed. Read and reread that sentence until it is really understood! This would include how and what to say to prospects, how to respect prospects, how to service prospects - as the majority of people do not come to MLM having  this skill.

The MLM training is what converts a distributor into someone who is effective in MLM. This isn’t any different than any other organization in the world. Those organizations (sports teams, military, corporations) who train their people better than any other always do better than less-trained organizations.

If you find the company, compensation plan, and products to be desirable, but the activities of the individuals who are training you to be undesirable, you may need to branch off and create the culture you envision.

How to evaluate MLM training
1. Does the training produce an effective distributor? The only real test of training is, “Does the MLM training create success?”

2. Does the training include selling the product to consumers?

3. Is the training specific and does it teach you all the skills necessary for MLM success?

Below are some examples of activities to watch for - both good and bad. These activities will indicate whether people are being trained correctly or incorrectly:

Do they promise you enormous sums of money for little or no production?

These poor examples are not made up - they are just as I’ve heard them.

Example of poor activity: “This company is amazing! I joined 3 months ago and my check is now over $30,000.00 per month! I don’t even know what I’m doing! This is so crazy - I just tell people about it and my check keeps going up!”

Example of good activity: “This company is amazing! I joined 3 months ago and took the training very seriously. I have about 30 customers who love the products/service. I’ve sponsored a handful of people and am working with them to train them correctly. I’ve already surpassed the income I was making in my previous job, but now I get to be at home with my family.

Do they violate laws by claiming their products do things like cure cancer or heart disease?

Example of poor activity: “These products are amazing! Oh, my gosh! My brother was diagnosed with cancer last year and I got him on the products and now he has NO MORE CANCER! I used to have migraine headaches and these products got rid of my migraines! I also don’t have PMS anymore!”

Example of good activity: “These products are amazing! Personally, prior to using the products I had migraine headaches. I can’t claim the products had anything to do with the migraines going away because I increased my water intake to take the products, but someone would have to pry these products out of my hands. I like them that much!”

Are they interested in you?

Example of poor activity: Do they call you and tell you what “they’ve got” without  caring what you want? Do they cause you to feel like just a cog in their wheel?

Example of good activity: They  talk to you like a person. They’re polite, ask you how you are and what you’d like to achieve. They return your phone calls and e-mail within 24-48 hours. They work to locate “where you’re stuck” and then provide workable solutions to get you unstuck.

NOTE: The above is a two-way street. You cannot expect someone to work hard for you and you not work hard for them. Be industrious when you’re not on the phone with your upline. There’s nothing worse than a leader taking the time to train you and you not doing anything.

In conclusion, find a company whose owners are committed to products that actually help make people’s lives better, a company whose owners see their distributors as their most important asset. Also, make sure the compensation plan pays its leadership very well and that there are leaders who have achieved the top level. This is difficult with a brand new company, so you will have to compare their compensation plan to a company that has a similar compensation plan. If the person who is recruiting you is a good trainer, consider yourself very fortunate; if not, don’t complain - that’s a waste of time. Just teach yourself.

[24KT]

Pyramid Schemes and Scams…

What are they and  what do they have to do with MLM?

To be able to determine whether MLM (or a specific MLM company) is or is not a  pyramid, scam, Ponzi scheme, or chain letter, you will need to understand each of them. Only then can you differentiate between them.

When my friend's son was young he would point out a car and say the word “car.” He soon picked it  up and would point to a car and say, “Car.” Then he pointed to a bus and said, “Car.” My friend said, “No, bus.” His son didn’t believe him. Why? Because his son had assumed that a bus “looked” like a car - therefore it was a car. Specifically, anything that moved on wheels was, in his mind, a car!

To solve this, my friend found a bus and a car that were parked side by side and pointed out those things that make them different from each other and those things that make them like each other. Only then could his son determine if what he was looking at was a car or a bus. If someone cannot see how things are different and how things are alike, they are dumb on that subject.

What I’ve just described is how the media (and many people) have confused the world about MLM and pyramids - because they can’t differentiate between them.  They have lumped them into the same category, evidently thinking that anything that pays on multiple levels must be a pyramid. If that were true, franchising would be a pyramid.

Let’s start with a couple of definitions, since many people do not really know correct definitions to these words.

Scheme

1. Someone’s plan for achieving something.
2. A secret or devious plan.
Scheme comes from Latin word schema, which means figure.
Therefore, a scheme can mean either a plan for something good or something devious.

Scam

A fraudulent scheme.
Fraudulent comes from the Latin word fraud, which means deceit.
Deceiving someone means to trick them.

FACT: There is no industry (including stocks, charities, legal, medical, religion, MLM and government) that does not have a history of fraudulent activities. Fraudulent activities of some people in an industry does NOT constitute a fraudulent industry.

In looking at scams, it is important to locate the actual source that is carrying out the scam; there is ALWAYS at least ONE person.

Source

One that causes, creates, or initiates; a maker.

If a person kills someone with a rock, don’t blame the rock! The rock isn’t the source and didn’t kill the person. A person with bad intention is the source and USED a rock to do damage.

If a scammer uses telemarketing to seduce its victims into a scam, don’t blame the telephone. The scammer (a person) is the source and USED a telephone to deploy his scam.

If a scammer (a person) uses MLM to deploy his scam, don’t blame MLM.

An industry can’t be a scam as it’s not capable of tricking people. People are the only ones capable of tricking people.

MLM is not the culprit in scams, pyramids, investment fraud, chain letters or Ponzi schemes.
The culprit is the unethical activities of a person or a group of people.

The reason scams sometimes use MLM is because MLM is a powerful way to distribute anything.  Just as a telephone or the Internet is a powerful way to reach people.

Confused
1. Being unable to think with clarity or act with understanding and intelligence.
2. Lacking logical order or sense.

The government and the media have done a fantastic job of confusing people on the subject of pyramids and their association to MLM. The government (FTC - Federal Trade Commission) has publicly sued companies for running an illegal pyramid scheme and announced it to media; then the media has announced it to the public with very accusative statements like, “(Name of company) is an illegal pyramid scheme - ACTION IMMINENT!”

Then, after researching the company, the government drops the case because of no wrongdoing. But the media doesn’t announce this - therefore the public continues to think that a particular company is a pyramid scheme when it’s not. Pretty soon people just generally think that all MLM companies are pyramids when they are not.

This is the primary reason for the “controversy” around MLM. The controversy comes from people being confused on what is a legal and ethical MLM business, and what is a pyramid. I will remove the confusion below.

Perspective

The ability to perceive things in their actual comparative importance.

How “fraudulent” is one industry compared to another industry? To try and calculate this you’d have to ask the question, “What is the damage done by the fraud?” In the case of pyramids it would be loss of money. So in order to quantify how fraudulent one industry is, you’d have to compare it to another or other industries where people lose money. A news reporter can claim, “People have lost millions of dollars in these pyramid schemes.” Is that a lot? Compared to what?

NOTE: I am not discussing MLM here, I’m discussing illegal pyramids.

In the US during the 2000’s, I was able to find:

FTC vs. BigSmart - $5 million
Gifting Clubs - $16 million
Professional Resource Systems - $13 million
FTC vs. Skybiz - $20 million
That totals about $54 million.

Is  that bad? If so, how bad? Let’s compare it to some other “losses.”

The largest financial losses to mankind in the 21st century (and throughout history) have been in the US stock market.

The stock market lost 9 TRILLON dollars of people’s money (January 2001 to October 2002)!



Seattle Times reported that, “According to Census Bureau statistics, the number of older Americans in the workforce grew by as much as 50 percent between 1980 and 2002. These older workers are seeking career changes, such as opening small businesses, and others are returning to work after huge stock market losses reduced their retirement funds.”

Even though the losses are well known and documented, the government continues to let the stock exchanges do business. If the FTC’s stated purpose is to protect people against deceptive business practices that cause financial loss of their money, why, oh, why would they be focused on pyramids when the stock market in ONE DAY lost $663 billion dollars (October 27, 1997) of Mom and Pops’ life savings? How can that business be allowed to stay in operation? I do not have an axe to grind with the stock market. I’m bringing this up as an example of perspective. Intelligent people can and DO put things in perspective by comparing them.

When you compare the losses in the stock market, lotteries, and gambling to the losses caused by pyramids, it is clear that pyramids do not cause nearly the amount of damage as other industries. In 2003, the average household in the U.S. spent $372 on state lottery tickets - that’s 42 billion dollars in losses (not counting the handful that won). Americans “legally” gambled more than 1.1 trillion dollars (2006). Put a trillion into perspective.



I am by no means advocating or defending pyramids! I want all scams and unethical business practices stopped. Period. One of the main reasons for this post is to educate people about how to tell the difference between MLM and pyramids so they never get involved in a pyramid or an MLM that is doing business in an illegal or unethical way. My comments above merely suggest that if people (government, media, anti-MLM people) are  going to scream fraud, then they should put the fraud into proper perspective of what’s causing the most financial damage. To do otherwise clearly demonstrates stupidity on the subject, or personal bias.

Illegal Pyramid Scheme

There’s a lot of “talk” about pyramid  schemes. A pyramid scheme is different than an MLM company.

A pyramid is an illegal business that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered. Sometimes there may be the appearance of a product, but it’s only there to make the pyramid look like a real business. Few people outside of the pyramid desire the product.

If you enrolled me into your “business” and I paid $300 to join BUT THERE WAS NO VALUABLE PRODUCT EXCHANGED, it could be an illegal pyramid.



This does not mean that MLM is an illegal pyramid because people enroll others into a business. The fine line between legal MLM and illegal pyramid scheme (according to the FTC) is the exchange of a “real” product.



By contrast, if you enrolled me and I bought $300 worth of products to see if I liked them and wanted to do the business, then that is NOT an illegal pyramid - as long as the product is a “real” product and not some gimmicky product. The best test is, when you use the products, do you like them? If you wouldn’t buy and use the products if you were not in the business, then don’t be in that business!

Most legitimate MLM companies give a thirty-day 100% refund on products if you don’t like them. If you join the business and buy inventory to sell and then change your mind, most MLM companies will give you back 90% of the purchased price on unopened products. This is rare compared to ANY industry that I’m aware of. If I buy a tire store and buy inventory and then change my mind, I am stuck with a bunch of tires! 

Legitimate MLM company taking part in illegal or unethical activities
There  are times when the above is done correctly by the MLM company, but the distributors are participating in illegal or unethical activities.

In a few of the court transcriptions I’ve read from companies being sued for operating as pyramids, the FTC (Federal Trade Commission) puts a lot of focus (in the court room as well as in their investigation) on the following two activities: income claims and not getting customers.

Income claims
An income claim is enticing someone into the business by promising them that they can make a lot of money. The FTC puts even more emphasis on this when the enticement suggests that big money or life-long income can be attained easily.

Personally, I’m not in agreement with this as a “legal” issue, as it’s not consistent with what one sees on stock-trading promotions, lottery advertisements or walking into a casino.  They are all full of “income claims.” It’s also not consistent with a regular job interview. If I walk into a company wanting a sales job, I would ask about the salary, commission, and how much money the top producer is making.

The legal issue aside, and speaking purely from an ethical view, I don’t feel that enticing people into a business by promising them easy big money is honest, nor is it ethical or professional. It’s also not very effective! Being honest IS effective.

Please note that distributors making income claims does not make an MLM company an illegal pyramid scheme! Remember, an illegal pyramid is when distributors are signing people up and not exchanging a valuable product. But earning claims can get you and your MLM company investigated by the FTC, which normally results in a fine and bad press.

Not getting customers
Something else the FTC looks at closely is whether the distributors in an MLM company are getting customers. If the distributors are focused on “signing people up” without a focus of getting customers, the company could get investigated. If this activity is out of control, it could result in the FTC suing the company for running an illegal pyramid. Make sure you read:  Wholesale Buying Organization versus Retail Sales Organization to follow later in this thread.

Here’s an example of a pyramid that used MLM:
Skybiz (a business claiming to be MLM that sold e-commerce web sites) was later determined to be a pyramid scheme. According to the FTC, Skybiz was “focused on the huge sums of money that could be made by recruiting additional participants. Participants were urged to invest in more than one “Web Pak” to maximize their earning potential.”

Summary
To summarize the pyramid section, if someone contacts you trying to get you into an MLM business and you want to find out if the business is a pyramid, here’s what you do:

First, don’t assume that what the person is showing you is a pyramid or a scam. Also, don’t assume it’s a good business. Be neutral. Keep reading this thread, and you’ll be able to properly evaluate the company.

Also, keep this in mind: I’m truly indebted to the person who showed me the MLM business.
No one could have given me a better gift.

[24KT]

What is a Trillion?

Paul Zane Pilzer refers to Health & Wellness, as the next trillion dollar industry. What is a trillion?
When large numbers get tossed around in conversation people tend to get “numb” to what they mean.

To help put these numbers into perspective, I’ve compared them to seconds so you can see the magnitude of the losses which have come as a result of gambling and the stock market.

1 million seconds = 12 days

1 billion seconds = 32 years

1 trillion seconds = 32,000 years (that’s approximately 30,000 years before Christ!)

People lost 1 trillion dollars of their life savings in two days of stock market crashes in 1987 and 1997.
The stock market lost 9 TRILLON dollars of people’s money (January 2001 to October 2002)!

When the stock market crashes the talking heads on TV say, “This is a necessary retracement (pull back) - prices were getting too high.”

Tell that to John and Jane Doe who were a year away from retirement and had all their money in a mutual fund that lost 40% of its value!

Where are the FTC’s priorities? How can a government use taxpayers’ resources to put a person in jail who sends a chain letter asking people to send him $10? If the entire planet sent him $10 it would equal $60 billion, but each person would have only lost $10. Meanwhile, the stock market has lost $9 TRILLION of people’s money!

[24KT]

Multi-Level Marketing Is Shaped Like a Pyramid…

MLM’s triangle shape makes it a pyramid, so MLM is a scam, right?

Sometimes uninformed people think the shape (polygonal base or triangle) of an MLM company makes it an illegal pyramid scheme. This is false.

Many organizations are pyramid-shaped without being a pyramid scheme: for example. Your family tree is shaped like a pyramid. The US government’s organizational chart is also in the shape of a pyramid - it is called the chain of command. Even traditional business organization is pyramid-shaped - it’s called management.

The reason almost ALL organizations are organized in a pyramid shape is that a single person can only manage a finite number of people before they become overwhelmed and need other people to do some of the work.

Picture this: if you run a daycare center, how many kids can you keep track of before you become overwhelmed and need to hire an assistant? If you hire two assistants, that becomes the shape of a pyramid (triangle). In MLM, a person enrolls a handful of people and trains them to sell products and to enroll others. This is because a single person can only handle so much activity before they require another person to lessen their workload.

The pyramid shape of an MLM compensation plan does not mean it’s an illegal pyramid or scam.



Does this look like a pyramid? Click it to find out if it is…

Multi-level pay plan

Sometimes uninformed people think that if a company pays “multiple levels” then it’s an illegal pyramid. Not true: many franchise companies pay multiple levels. In typical sales organizations, managers get a percentage of what the sales reps sell. This is multi-level marketing, whether it’s called that or not.  The fact that an organization pays on multiple levels does not make it an illegal pyramid scheme.

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In MLM, Are the People At the Top
Making Most of the Money?

Sometimes people think that in MLM (Network Marketing)
only a few people at the top are making most of the money. Is it true?

This is actually true…but it’s no different in other businesses, in other industries, or in other countries!

If you research the traditional executive and owner compensation of most companies, you’ll see that “only a few people at the top make the majority of the money” in every business model.

CEOs of large U.S. companies last year made as much money from JUST ONE DAY on the job as average workers made over THE ENTIRE YEAR. According to an Associated Press survey of 386 Fortune 500 companies in 2006, the executives averaged $10.8 million in total compensation, over 364 times the pay of the average American worker.



The average U.S. worker made $29,544 in 2006. In the same year, the average CEO earned $10,800,000. In every industry “a few people earn most of the money.”

In the 2005 US Census report, almost 70% of US households earn under $25,000, while only 5.8% earn over $150,000. So only 5 percent of all US households earn over $150,000.



But $150,000 is by no means the “top earnings” of the wealthy! According to the World Wealth Report by Merrill Lynch & Co, in the US and Canada there are 30,000 people with investment assets of more than $30 million. Those 30,000 people represent only .0001% (that’s one-hundredth of one percent) of the total population.

Don’t complain about this - be one of them! People who complain that, “The people at the top are making most of the money,” are either justifying why they have failed, or justifying why they have never tried.

The more important thing to understand and focus on is that MLM compensation plans are designed to reward production: do a little - earn a little; do a lot - earn a lot. How else could you possibly compensate people? Do a little - earn a lot? That’s the welfare system.

MLM pays based on performance standards. If you perform to a certain standard, you earn whatever that standard or level pays. How many people will achieve this? However many perform to the standard! An MLM company puts NO RESTRICTIONS on anyone. They don’t say, “We will only allow 10 people to earn the top level of commissions.” They don’t look at the school you attended and decide what you’ll be paid. They don’t look at your salary at your last job and use that as the basis of what they will pay you, as most employers do. An MLM company doesn’t even look at what “experience” you have. Whoever meets the required performance standards enjoys the benefits of that standard. Make sure to read:  How MLM works.

Another variation to “People at the top make all the money” is “The people who get in at the beginning make money off the people who come in later.”

In what business does this NOT happen?

If you work for a traditional company, didn’t the owners get in before you? Aren’t they earning money off what you do?

MLM (Network Marketing) is very different when you really understand it. There are people in my organization (in my downline) that make more money than me. Isn’t that odd? But it’s the truth! The fact is, it shouldn’t be odd. The truth of the matter is the people who earn more money than me SHOULD! They’re obviously more productive than I am.

You may also be interested to know that one of the largest overriding factors in the legal decision that MLM (Network Marketing) is a legitimate business was that Amway proved to the courts that there were people in their business who made more money than the people who came in BEFORE them. People who join the business in year TWENTY can and do make more money than people who got in during year ONE.

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Do Most People Fail in MLM?

Some make the claim, “Most people fail at MLM (Network Marketing).”

Who would make this statement? My guess is people trying to justify why they failed or never started.

If you looked at the statistics of how many people succeed compared to how many “fail,” you could draw the conclusion that most fail. Factually, this statement is true.

But why people act as though this is different than anything else is unknown to me, because the same could be said about anything people attempt!

According to the National Association of Real Estate, over 80% of people who get their real estate license quit in their first year - most never sell one home.

Most people who want to sing at the Opera fail.
Most people who want to play professional sports fail.
Most people who start a business fail.
Most people who want to play a musical instrument quit.
Most people who want to get into shape quit.

So while it is true that most people fail at MLM (network marketing), it is also true that a majority of people fail at every other pursuit!

If someone goes on a diet and exercise program and then cheats by eating things that are not on their diet program and/or by not exercising when they’re supposed to, can they really blame their “failure” on the diet and fitness industry?

NO! If a person fails, it’s because they failed, not the industry!

Having used that diet/exercise example, I will admit that if a person follows the program but doesn’t get results, then the program could have one or more flaws. But that doesn’t mean the entire diet and fitness industry is flawed.

The same is true with MLM (Network Marketing). If a person is trained and does everything they are trained to do but does not get results, the training could be flawed. But that does not mean that the ENTIRE MLM INDUSTRY IS FLAWED.

A similar claim: “The odds” of making big money in MLM are low.

This isn’t relevant.

If I want to get fit, what are the odds that I will?

Huh?

That seems like an odd question, doesn’t it? What do “the odds” have to do with me getting off the couch and tossing the potato chips in the trash?

Trying to apply the odds of success has nothing to do with someone pursuing their dream. If someone wants something, they never look at the odds. Odds belong in gambling and stock trading. Anyone who achieves anything worthwhile actually beats the odds. Be one of them.

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Do Levels of Commission in MLM Add to the Price of the Product?

If MLM companies pay commissions on multiple levels of distributors, does that raise the price of the product?

Of course it does. But there are two things that should be factored in when looking at this:

1. Whether those levels add more cost than the traditional advertising budget does.

2. Whether those levels add any value to the consumer.

Open and review this image. You see, all businesses have an advertising budget because each must find customers. For a company to “tell the world” about their products, they advertise on TV and/or radio and/or billboards and/or shelf space in a store and/or direct mail, etc. Each of those can be viewed as a “level” of expense that raises the price of their product.

In 2006 Nike paid out $702.4 million to 25 athletes to endorse their brand. So if someone claims that “MLM’s products are expensive because levels of commissions add to the price of the product,” what do they think $702.4 million dollars does to the price of Nike products?

MLM companies simply pay people like you and me the advertising budget instead of the popular method of paying celebrities.

Let’s pretend we have a company. We’ve set aside 50 million dollars to advertise the products. How should we spend that 50 million? In a traditional company we would pay some of those 50 million dollars to a celebrity to appear in our literature or in a television, radio or Internet ad.

By contrast, if we were an MLM company we would pay those 50 million dollars to people like you and me to advertise the product.

Which is better for the customer? If the distributor for an MLM company is a professional and builds their business in a first-class way by knowing their product and competing companies’ products, MLM is much better for the customer.

I’d be willing to bet that Catherine Zeta-Jones doesn’t know how T-Mobile is better than AT&T - yet T-Mobile paid her 20 million dollars for promoting their phone service. This adds no value to the customer whatsoever. But a knowledgeable sales person who can “un-confuse” a customer IS very valuable.

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Do MLM Companies Collapse
Because No More New People Join?

The view that MLM (Multi Level Marketing) companies could “collapse” when no more new people are joining the business is a wild mathematical myth.

The statements were originally made hundreds of years ago about pyramids - and then some people applied the same concept to MLM - Multi Level Marketing.

Here’s the statement by the general counsel for the FTC (Federal Trade Commission)  about pyramids and Ponzi schemes (not MLM):

“Every pyramid or Ponzi scheme collapses because it cannot expand beyond the size of the earth’s population. When the scheme collapses, most investors find themselves at the bottom, unable to recoup their losses.” Debra Valentine,  General Counsel for the U.S. FEDERAL TRADE COMMISSION

That statement is funny to me. Let me explain why…

The FTC states that in order for a pyramid (or MLM) to work it would have to continue to grow (new people recruiting new people) forever. But the problem they forsee is that there’s not enough people on planet Earth. Here’s a diagram to help you see what they’re trying to claim:

1 (If you recruit 10 people)
10 (and each of the 10 also get 10 people)
100 (now if all 100 each get 10 you’d have 1000…and so on)
1,000
10,000
100,000
1,000,000
10,000,000
100,000,000
1,000,000,000
10,000,000,000 (more than Earth’s population)

If it is a straight pyramid with no product at all and each person recruited had to pay money to join and NO ONE EVER QUIT, then yes, you would eventually run out of people - on a calculator! But this is ridiculous to debate for four primary reasons:

#1 - Pyramids–like the fictitious example above–are illegal, so why are people wasting their time trying to discredit the MLM industry by comparing it to an illegal pyramid scheme?

#2. Any person who has done MLM - Multi Level Marketing knows that what isn’t factored into the “math example” above is that when person 1 (you) recruits 10 people, not all 10 will do something! Imagine what happens “mathematically” when person #1 recruits 10 people but 6 just want to buy the product at wholesale, 2 joined because a family member asked them to but then do nothing else, and the remaining 2 people actually work. Now the math goes

1 (you)
10 (get ten people)
2 (actually work)

So MLM - Multi Level Marketing is not going to collapse because Earth runs out of people! Now you can see why I stated that this concept is funny.

#3 - The third reason this is nonsense is that IT’S NEVER HAPPENED! The oldest MLM company is still growing today, so this statement is all theory.

#4 - The fourth reason this is ridiculous to debate is because businesses don’t collapse because of “no more new people.” No more new people just simply causes businesses to not grow any more. If people are joining an MLM business - selling products and recruiting and training others to sell products - and then suddenly there are no more people on planet Earth to recruit (insane idea), that would just simply mean that the business would no longer be expanding by new people. Where’s the collapse? All the customers who have bought the product and are enjoying the product are still buying the product: no collapse.

Where you get a collapse is when people suddenly pull their money out of something (like a bank or the stock market) because they’re afraid of losing it.

A franchise (like McDonald’s) recruits new franchise owners (like me and you) in a similar way that a person in MLM recruits another person. If a franchise suddenly stopped opening new stores it wouldn’t mean that McDonald’s would collapse. Maybe they wouldn’t be expanding at the same rate, but they wouldn’t collapse - they’ve still got customers buying their food.

There is a difference between a business collapsing and a business closing. There have been times when MLM companies have “closed” because of mismanagement of the business and/or unethical leadership, or because the government made a public allegation that caused people to stop participating in the business.   But never has an MLM business or an illegal pyramid scheme collapsed because it ran out of people on planet Earth.

To show you a couple of examples of true scam-based collapses (so you can avoid them), let’s go back to one of the first large scams in recorded history, when during the mid-1600’s the government of France tricked the common people into turning in their gold in exchange for paper money. The government got the people to believe that paper was “as good as gold.”

With so much gold in the vault, the government began to loan paper money to businessmen. They loaned more paper money than they had gold to back it. The common people began to get skeptical that there could be that much gold in the small vault, so they began to cash in their paper money for real gold.  Pretty soon there was so little gold left that the government devalued the paper money, meaning they would no longer give people (in gold) the full value  printed on the paper.

Next, the government severely limited the amount of paper money one could cash in for gold. In desperation, the government finally passed a law making it illegal for any one  person to hold more than a small amount of gold or silver. Government officials were trying to stop the public from buying up the gold the government needed in order to keep their scam going. This enraged the public and they demanded their gold back. By May 1720 the Royal Bank of France was out of gold and silver and the scam collapsed. You see, it takes people pulling their money out of something to cause a collapse.



Another example of a collapse caused by people pulling out their money is the bank crisis during the 1930’s. Most banks had their depositors’ money in the stock market and when it crashed in 1929, the money vanished. Reading the newspapers, people feared that their money might have gotten lost so they ran to the banks to withdraw it. But there was no money there to withdraw! This caused the collapse of 9,000 banks in the 1930’s. People who had entrusted their money by depositing it in a bank lost 140 billion dollars.

The stock market crash of 1929 is another example of a collapse caused by investors suddenly pulling out their money. Many historians blame that crash as the cause of the Great Depression. If you look at how it is all intermingled you can see how that could be true.

Logically, if a bank invested “its” money in a company and the value of that company dropped by 90%, then the bank lost most (if not all) of its investment.  Whose money do you think the bank invested? The depositors’! So the bank has to shut down its business. If a bank closed, every person who deposited their money in that bank lost it! That meant that people could not afford to buy the basics of life. When few people have the money to buy the basics, businesses and farmers stop creating the basics (farming, clothing, etc.). And when companies quit making the basics, they have to lay everyone off, which creates widespread unemployment. So I can certainly see how historians can blame the stock market crash as the cause of the Great Depression.

MLM - Multi Level Marketing does not collapse because no more new people are coming into the business. As we have shown, a business collapses when investors suddenly withdraw their money.

If someone is building their MLM business in a first-class way, they have customers who love the products. Then, there’s nothing in MLM that decreases in value.

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Is MLM a Scam Like a Ponzi Scheme?

What is a Ponzi scheme and is MLM a similar scam?

Ponzi Scheme

The word Ponzi comes from Charles Ponzi who made this type of scheme well-known.



A Ponzi scheme is an illegal investment scheme that involves paying returns to investors out of the money paid in by later investors, rather than from net revenues generated by any real business. According to the FTC (Federal Trade Commission), “…there is an expression that nicely summarizes this scheme: It’s called “stealing from Peter to pay Paul.”

Charles Ponzi’s basic idea was that he would take money from person #1 and tell him that he would give him a high interest on his money. When person #2 gave Ponzi money, Ponzi would take part of that money and give it to person #1 - thereby fulfilling his obligation to give him a high interest. When person #3 came in, Ponzi would take some of that money and pay off person #2 - thereby fulfilling his obligation. If there were no #4, then Ponzi could not fulfill his obligations to #3.

The government claims that these schemes run out of people and collapse.

Charles Ponzi learned this scheme while working at a bank in Canada. He noticed that the bank “knew” that at no time would everyone walk into the bank and withdraw all their money simultaneously. Therefore, the bank could loan out other people’s money to potential borrowers. Banks still operate on this fundamental principle today.

Personally I believe that banks operate an “organized” Ponzi scheme:

When a bank pays you interest on the money you have deposited with them, where do they get that interest? Perhaps from money they’ve earned in the stock market or business investments, as well as from other people’s money. Isn’t that “borrowing” from Peter to pay Paul?” 

What would happen if people stopped putting money into banks? Would they collapse?

A Ponzi scheme is different from a Pyramid scheme in that in a Ponzi scheme the money goes back to one person (such as Charles Ponzi), hence the person at the top is making all the money. By contrast, in a pyramid scheme, each “level” makes money.

The Federal Trade Commission states that what’s wrong with a Ponzi Scheme is that there’s no “real” business attached to it and, “When the scheme collapses, most investors find themselves at the bottom, unable to recoup their losses.” --Debra Valentine, General Counsel for the U.S. FEDERAL TRADE COMMISSION

MLM is not a Ponzi scheme because it has a real product and it is a real business. Make sure you've reviewed: How to evaluate an MLM company.

Additional thoughts on the subject…

Based on the way the FTC defines a Ponzi scheme, the US Social Security system is just such a scheme. The Social Security Administration calls it “Pay-As-You-Go.”

Here is the Social Security Administration’s response to this claim:

There is a superficial analogy between pyramid or Ponzi schemes and pay-as-you-go insurance programs in that in both money from later participants goes to pay the benefits of earlier participants. But that is where the similarity ends. A pay-as-you-go system can be visualized as a simple pipeline, with money from current contributors coming in the front end and money to current beneficiaries paid out the back end. So we could imagine that at any given time there might be, say, 40 million people receiving benefits at the back end of the pipeline; and as long as we had 40 million people paying taxes in the front end of the pipe, the program could be sustained forever. It does not require a doubling of participants every time a payment is made to a current beneficiary. (There does not have to be precisely the same number of workers and beneficiaries at a given time - there just needs to be a stable relationship between the two.) As long as the amount of money coming in the front end of the pipe maintains a rough balance with the money paid out, the system can continue forever. There is no unsustainable progression driving the mechanism of a pay-as-you-go pension system and so it is not a pyramid or Ponzi scheme.

If the demographics of the population were stable, then a pay-as-you-go system would not have demographically-driven financing ups and downs and no thoughtful person would be tempted to compare it to a Ponzi arrangement. However, since population demographics tend to rise and fall, the balance in pay-as-you-go systems tends to rise and fall as well. During periods when more new participants are entering the system than are receiving benefits there tends to be a surplus in funding (as in the early years of Social Security). During periods when beneficiaries are growing faster than new entrants (as will happen when the baby boomers retire), there tends to be a deficit. This vulnerability to demographic ups and downs is one of the problems with pay-as-you-go financing. But this problem has nothing to do with Ponzi schemes, or any other fraudulent form of financing, it is simply the nature of pay-as-you-go systems.
 

Obviously Social Security is “legal” because the government makes the laws. If you have a hard time believing that the government could run a scheme, read the First Historical Example of a Pyramid Scheme to follow later. But it certainly seems like they are borrowing from Peter to pay Paul. Their analogy of a pipeline seems a whole lot like what Charles Ponzi was doing. …”visualized as a simple pipeline, with money from current contributors coming in the front end and money to current beneficiaries paid out the back end… Perhaps I’m just missing something.

Now, looking at it historically, I think Social Security did a great job at helping to break the Great Depression. But it appears to me (and this is just my opinion) that the government used the concept that Charles Ponzi was arrested for.

The largest proof that it operates similar to a Ponzi scheme is that it appears to have “not worked!” The current talk coming out of the government is that they are going to drop Social Security because it will be bankrupt in a few years. Meaning, it’s going to collapse. The reason for this, they claim, is because there are not enough new people paying into the scheme to pay those who’ve been contributing all their working lives. So evidently there are not enough Peters to pay Pauls.

Allow me to restate the comment from the FTC: “Every pyramid or Ponzi scheme collapses…. When the scheme collapses, most investors find themselves at the bottom, unable to recoup their losses.” -- Debra Valentine, General Counsel for the U.S. FEDERAL TRADE COMMISSION

No matter how one twists the details, the facts are that at a minimum some people in the government have used Social Security to run a fraud. In 1983 the government predicted this “demographic change” of the Baby Boomers would occur and bankrupt social security. To prevent it from happening, Congress raised payroll taxes and reduced the benefits given to retirees (Peter pays more, Paul gets less). As a result, the government collected more money, $667 billion in excess was brought in between 1983 and 2001, and the government spent it! The definition of fraud it to trick someone. So is Social Security collapsing because there are not enough people paying into the scheme, or is it because of mismanagement of funds?

People have been paying into the Social Security scheme for decades. I don’t think they will be able to recoup those losses. Hopefully you “got in at the beginning” and will get more out of it than others.

MLM is not a Ponzi scheme because it has a real product and it is real business. Make sure you review: How to evaluate an MLM company.

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Is MLM a Scam Like a Chain Letter?

A chain letter may appear like MLM because one person is sending a letter and making money off each person that comes in later - but MLM is not a chain letter.

Chain Letter Scheme
An illegal scheme whereby someone writes a letter that attempts to induce the recipient to make a number of copies of the letter and then pass them on to one or more new recipients. To participate in the chain letter, recipients must send money to the sender of the letter. What makes this an illegal scam and not MLM is there is no real product or service offered to a consumer.

In a recent chain letter case brought before the Federal Trade Commission the document stated, “The FTC alleged the scheme is an illegal chain-letter; that the earnings claims were false; and that most participants would fail to make any money.”

Interesting…and inconsistent.

The below graphic was taken from a STATE lottery web page. The text below the graphic read: “Players now have 4 chances per week to become a millionaire!” I don’t know about you, but I would call that an earnings claim. It’s also proven that most people who put in their money will “fail to make any money.”



In addition, I’m finding it difficult to figure out where the “real” product is in lotteries - or in gambling, for that matter.

What was most fascinating were these two statements from the FTC’s web site concerning “foreign” lotteries:

1. “If you play a foreign lottery, you’re violating federal law.”

I think it’s obvious the government is after money for themselves - the only difference between state and foreign lotteries is that the US government can’t benefit financially from foreign lotteries.

2. “There are no secret systems for winning foreign lotteries. Your chances of winning more than the cost of your tickets are slim to none.”

Wow - can you believe that statement? Like the “chances” are any better in the USA!

MLM is not a chain letter and chain letters rarely use MLM to deploy their scams. But to the uneducated a chain letter can look like an MLM scam because one person is sending a letter to another, who would in turn send it to another, and each person “could” make money. This activity is illegal and unethical because there’s not a product that makes anyone’s life better.

See What is MLM? to differentiate between a chain letter and MLM.

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The History of MLM

How MLM (Network Marketing) got started and grew to meet the needs of the customer and the entrepreneur is fascinating 

A company that creates a product must make that product widely known. Sales  organizations made up of individual salespeople were (and still are) the backbone of business.

The number of salespeople in the United States began to grow rapidly starting in the late 1800s.

1861: 1000
1869: 50,000
1885: 100,000
1903: 300,000

1860 - Traveling salesmen were known as canvassers, peddlers, hawkers and drummers. Some of these former peddlers created trained sales organizations.  Had it not been for their influence, many of the corporate names we’re all  familiar with today might never have been.

-Henry Heinz, a former peddler, created an organization of 400 salesmen to sell various vegetable products, like ketchup and pickles, to people who didn’t grow their own.

-Asa Candler, another former peddler, built a sales force to sell Coca-Cola syrup to restaurants after buying the formula from pharmacist John Pemberton for $2300 in 1886.

Out of these organizations came companies that allowed their salespeople to have their “own” business.

1868 - J.R. Watkins founded the J.R. Watkins Medical Company, one of America’s first natural-remedies companies where associates marketed directly to consumers.

1890 - David McConnel started the California Perfume Company, based out of New York. In 1906 he had 10,000 sales representatives selling 117 different products. The California Perfume Company changed its name to Avon Products in 1937.

1905 - Alfred C. Fuller was another former peddler who greatly influenced future sales organizations. Fuller started the Fuller Brush Company and hired 270 dealers throughout the U.S. to follow his business plan on commission only. By 1919, the Fuller Brush Company had made $1 million in sales; by 1960, $109 million.

1905 - Sarah Breedlove, a single mother who was widowed at 19, soon found her hair was falling out. She experimented with hair products already on the market, but nothing helped. Choosing instead to create her own formulation, she put it on her scalp, and in a few weeks hair was coming in faster than it had ever fallen out. she tried it on her friends; it helped them. She made up her mind she would begin to sell it.^1. Arriving in Denver in 1905 with $1.50 savings, she rented an attic room, joined the local AME church, and found a job as a cook. She saved her money and before long she was able to quit her job as a cook, and, taking in laundry two days a week to pay her rent, spend the rest of her time mixing her products and selling them door to door. Wonderful Hair Grower, Glossine, and Vegetable Shampoo were well accepted by the African-American women of Denver. By 1906, Charles Joseph Walker moved to Denver and the two soon married. From then on, Sarah began calling herself Madam (sometimes spelled Madame) C. J. Walker, a name she thought gave her products more appeal.

At first, Madam Walker used all her profits for materials and advertising in papers such as Denver's Colorado Statesmen. C.J. Walker, familiar with newspaper promotion campaigns, helped develop a marketing plan, design advertisements, and organize a mail order business for his wife's products, but he was not as ambitious as she. As Madam Walker described: "When we began to make $10 a day, he thought that was enough, thought I ought to be satisfied. But I was convinced that my hair preparation would fill a long-felt want. And when we found it impossible to agree, due to his narrowness of vision, I embarked on business for myself."² She later divorced Walker, putting her then 21-year-old Lelia in charge of the mail-order branch of the business while she traveled around the country promoting the products. Business grew and in 1908, Walker and Lelia settled in Pittsburgh where they established Lelia College, a training facility for the Walker System of Hair Culture.

Walker continued to tour the country promoting her business and hiring hairdressers and door-to-door sales representatives. She recruited and trained a national sales force that included schoolteachers, housewives, cooks, and washerwomen. Walker's traveling agents taught these women to set up beauty shops in their homes, keep business records, and make their customers feel pampered and valued.

In February 1910, Walker visited Indianapolis, Indiana, and was very impressed with what she saw. The city had become the country's largest inland manufacturing center because of its access to eight major railway systems. This would be a major asset for a mail-order business. The city also was home to a substantial African-American community, whose main thoroughfares were lined with cafes, offices, and other thriving businesses. Madam Walker decided to move her entire operation there. She built a factory, hair and manicure salon, and another training school. After intensive training in hair and beauty culture, graduates of the school were ready to give scalp treatments, restyle hair, and give manicures and massages. She soon had 5,000 agents throughout the country and her company was making $7000 per week.

By 1917, Walker agents were holding yearly conventions, learning new techniques and sharing experiences. One agent wrote in 1913: "You opened up a trade for hundreds of colored women to make an honest and profitable living where they make as much in one week as a month's salary would bring from any other position that a colored woman can secure."³ These employed women now were able to educate their children, buy homes, and support various charitable organizations.

As a pioneer of the modern cosmetics industry and the founder of the Madam C. J. Walker Manufacturing Company, Madam Walker created marketing schemes, training opportunities and distribution strategies as innovative as those of any entrepreneur of her time. As an early advocate of women's economic independence, she provided lucrative incomes for thousands of African American women who otherwise would have been consigned to jobs as farm laborers, washerwomen and maids. Her agents could earn from $5 to $15 per day in an era when unskilled white laborers were making about $11 per week⁴. Madam CJ Walker was the first female, black or white, to become a millionaire by her own achievements⁵

1931 - Frank Stanley Beveridge was the former vice president of sales for Fuller Brush Company. He and Catherine L. O’Brien founded Stanley Home Products. Influenced by the economic hardships of the Great Depression, Frank and Catherine envisioned an opportunity for people to start their own businesses with minimal investment, selling products that people use everyday. This vision was obviously taken from the Fuller Brush Company. Stanley Home Products sold household cleaners, brushes, and mops. Some Stanley dealers began giving demonstrations for clubs and organizations rather than for individuals to increase sales volume. Other Stanley dealers quickly embraced this idea as a way to maximize the selling presentation. These dealers took the “clubs and organizations” concept into homes by having the home owner invite friends and family over….and the “party plan” was born.

Stanley Home Products became the training ground for many well-known company leaders. Mary Kay Ash, founder of Mary Kay Cosmetics; Brownie Wise of Tupperware; Jan and Frank Day, founders of Jafra Cosmetics; and Mary Crowley, founder of Home Interiors all received early training as Stanley Home Products dealers - again spurred by the Fuller Brush company.

1934 - Carl Rehnborg started the California Vitamin Corporation selling what today are known as vitamin supplements. In 1939 the company changed its name to Nutrilite Products Company, Inc.

1945 - Nutrilite contracted with Mytinger & Casselberry to become the exclusive American distributor of Nutrilite products. Mytinger & Casselberry created the first documented MLM compensation plan. It worked like this: A Nutrilite distributor bought his supplies at a 35% discount. (Ex: A distributor bought a box of vitamins for $13 and then sold them for $20 = $7.00 profit.)

To encourage the distributor to sell more, Nutrilite paid an extra monthly bonus of 25% on the total sales. 20 customers x $13.00 (wholesale value) = $260 x 25% =$65.00 profit.

Once the distributor proved that he could get 25 customers he was allowed to become a DIRECT distributor - which meant that he could find others who wanted to sell the Nutrilite products and then they would buy their products from him. In essence, once he proved that he could get customers he was “promoted” and allowed to find other distributors and to train them to get customers. As an incentive to train his distributors well, once he and his distributors amassed 150 customers, he received an additional 2% of the total sales volume.

This is not a pyramid - it’s a quota-based system of management. Those who sold the most boxes of vitamins got a higher reward than those who sold little.  The MLM compensation plan was simply an extension of the Fuller Brush Company rewarding production. With MLM (Network Marketing) , the company could motivate a sales person to not only sell more products, but to train others to sell more products as well.

1945 - Earl Tupper created a line of flexible, lightweight plastic containers with tight-sealing lids. He started selling his products through conventional retail outlets, but realized the products needed demonstration. Earl Tupper then teamed up with Brownie Wise (formerly with Stanley Home Products) and launched Tupperware Party Plan, now a world-wide billion-dollar company operating in 40 countries.

1949 - Rich DeVos and Jay Van Andel (high school buddies and business partners) returned from military service and became distributors for Nutrilite vitamin supplements in 1950. After a brief dilemma with Nutrilite in 1959, the two abandoned ship and formed the Amway Corporation. In 1972 Amway Corporation acquired Nutrilite.

1956 - Dr. Forrest Shaklee developed a method of extracting minerals from vegetables and used MLM (Network Marketing) to distribute his products.

1963 - Mary Kay Ash creates Mary Kay Cosmetics. By 1996, company sales were in excess of 2 billion dollars.

1975 - The FTC (Federal Trade Commission) filed suit against Amway corporation for operating a pyramid scheme.

1979 - An administrative law judge ruled that Amway’s multi-level-marketing program was a legitimate business opportunity, as opposed to a pyramid scheme.


1 A'Lelia Perry Bundles, "Madam C. J. Walker: Entrepreneur (New York: Chelsea House Publishers, 1991), 35.
2 A'Lelia Perry Bundles, "Black Foremothers: Our Creative Trail Blazers," Spelman Messenger (Campus Issue, 1983), 19.
3 A'Lelia Perry Bundles, "Madame C.J. Walker: Cosmetics Tycoon," MS (July 1983), 93.
4 Henry Louis Gates Jr., "Madam's Crusade", Time magazine, December 7, 1998, Canadian edition.
5 Guiness Book of Records.

[24KT]

The First Historical Example Of A Pyramid Scheme…

Was a scam carried out by the government of France? Oops!

The first famous pyramid scheme occurred in the early eighteenth century in France. What you’re about to read goes down as one of the greatest deceptions in history.



Near the end of King Louis’ XIV reign (1643 to 1715) the economy of France was on a steep  decline. The country was 3 billion livres in debt. Officials debated whether the government should just declare bankruptcy and start from scratch, but the politicians of the time feared revolution and looked instead for a more expedient solution.

Their first attempt to remedy the problem was to devalue the currency through recoinage (the making of new coins). New gold and silver coins were issued weighing 20% less than coins already in circulation but with the same face value, and the public was ordered by law to make the exchange. The government planned to use the extra gold and silver they saved from the new coins to pay off the nation’s debt.



But the people of France weren’t to be fooled by devalued coins. They refused to exchange their gold and silver for currency that was intrinsically less valuable. This foiled scheme greatly discredited the government of France and worsened the economic depression.

After King Louis’ XIV death, the Regent Duc d’Orleans appointed Scottish economist John Law as Controller General of France.. (A Regent is someone who rules a country temporarily due to the absence of a Monarch.) Together the Regent and Law formulated a brilliant scheme to pay off the national debt.



First, the Regent of France authorized Law to establish a central bank under the name of Law and Company. (A central bank is a nation’s principal monetary authority: in the United States it’s known as the Federal Reserve, while in the United Kingdom it’s called the Bank of England.)

Second, the Regent authorized Law’s bank to issue bank notes (paper money) INSTEAD of real gold and silver coins and decreed that the paper money would be accepted for the payment of taxes. This gave Law and his bank notes a measure of credibility.

Third, Law knew he had to gain public confidence in his bank notes for the entire scheme to work. He immediately announced that all notes from his bank were payable in coin, meaning that his bank notes could be exchanged for their face value in gold or silver. This gave the appearance that the paper money was the same value of the gold coin! This was perhaps the greatest deception of the 18th century.

Because of the discomfort of carrying coins around in their pocket, people preferred to carry the paper currency. Therefore, the public would deposit their gold and silver into the bank in exchange for a piece of paper. This practice is just as common today - people put their coins in a jar because the coins are too heavy to carry around. Once the jar gets full, they take it to the bank (or even the local grocery store) and cash in their coins for paper money.

The entire scheme required people to believe in the credibility of Law’s bank and his ability to redeem his notes in coins. Once that belief was established, the paper money was literally “as good as gold.”

As more and more people cashed in their gold in exchange for paper, the bank’s vault filled with gold.

Now I need to explain how banking began in order to complete this explanation.

In the early days, there was no such thing as credit. If you wanted to buy something, you carried your gold or silver coins to the store and paid in coin. People didn’t want to have their coins in their home or on their person when traveling for fear of being robbed, so they would keep their coins in a bank’s vault. As more and more people put their coins in banks, the bank’s vault would fill up.

Banks recognized that at no time did EVERYONE pull ALL their gold out of the bank simultaneously, so they loaned out depositors’ gold for short periods of time. This was the birth of “credit & loans.”

John Law learned of “credit & loans” working in his father’s bank. Now, for the first time we have “credit” as a financial tool.

This is where the pyramid concept comes into play. Because of my divergence into banking and credit, let me recap to ensure you’re still following all of this…

The country of France wanted to pay its debt through recoinage, which failed. Economist John Law, a man with extensive banking experience, encouraged citizens to deposit their gold and silver in his bank in exchange for paper money. The government added credibility to the paper money by declaring Law’s bank a central bank and accepting the paper money as payment for tax debts..

The scheme worked… for a while.

The Law and Company’s bank received enormous sums of gold to store in its vault. With all that gold in the vault the bank could issue loans…but the loans would be made in paper money rather than in coin. This was the magician’s act. The real product, gold and silver, vanished and the fake product, paper money, was now in the spotlight. This seems a lot like current times, doesn’t it?

THE BANK BECOMES A PYRAMID SCHEME

The Regent made Law’s bank a publicly-traded company and declared it the Royal Bank of France. Now people could buy stock in the government’s bank as well as receive credit in the form of bank loans. Over the course of a few years, the bank issued over one billion livres in paper currency to the public.

Keep in mind that all of these paper loans and paper stocks were based on the real product of gold and silver coins in the vault. You see, once the magician got you to believe that the paper was as good as gold, he didn’t need to show you the gold any more.

Businesses rushed to the Royal Bank of France to secure loans, with which they expanded commerce both at home and abroad. Foreign countries could not cash the paper money from France, so they required payment in gold and silver. Slowly but surely, the gold and silver that backed the paper-money loans began to drain out of France and into other countries. With the bank issuing so many loans, the people of France began to suspect that the gold and silver backing their paper money was disappearing. Depositors quietly began converting their paper money to coins and transporting the coins to foreign banks.

By 1720 the scarcity of coin began to increase. The vaults, once filled with gold and silver, were becoming empty, but the paper money was still being loaned out. In an effort to stop people from converting their paper money into gold and silver coins, the government depreciated the coin’s value to 10% below the paper, and the bank continued to limit the amount of coins any one person could receive. The limit was 100 livres in gold and 10 livres in silver. The government was now claiming that gold and silver was worth less than the paper!

In February of 1720 John Law made a fatal error. At his suggestion to the Regent, a decree was issued forbidding anyone to hold more than 500 livres in coin and prohibiting people from buying up precious stones, jewelry, silver settings, and so forth. The penalty was a heavy fine and confiscation of the holdings. The government was desperate to hold onto the gold and silver that backed the currency loaned out and sold as stock. This enraged the public.

In May of 1720 the bank was out of gold and silver in the vaults and was forced to stop making payments in coin. The bubble burst and the pyramid collapsed.

John Law, once a national hero, became the scapegoat for the entire crisis. The government of France blamed him for the whole debacle and he was nearly murdered by angry crowds.

To prevent another such crisis, most countries adopted the gold standard and required that banks have sufficient gold to back the paper currency they lent out.

However, today no well-established currencies (US Dollar, Pound, Yen, etc.) are backed by gold or any other real product. Their worth is based on “belief.” The governments can - and do - create money out of thin air by simply printing more. The governments can - and do - devalue their currency at will. This is no different then the famous financial scam you’ve just read about.

Oops.

What’s the point is sharing this with you?

I want to show you that pyramid schemes have nothing to do with MLM.

A scam is a scam because the person perpetrating it is trying to trick someone. In what you just read, the government was trying to trick the people into believing that paper money was the same as gold. The government’s intention was to create money with no production or product.

The basis of legitimate business is products consumed by customers that make their lives better. If you understand this at its fundamental level, you will never fall victim to a pyramid scheme because you can recognize it for what it is.

[24KT]

Wholesale Buying Organizations versus Retail Selling Organizations

There is a HUGE difference between these two organizations
...don’t mix them up.

A Wholesale Buying Organization is an MLM business that recruits people to purchase products at wholesale prices from the MLM company. There is no emphasis on making a lot of money.

A Retail Selling Organization is an MLM business that recruits people to sell products to a consumer and also to recruit others to do the same. A lot of money can be made.

The main difference is the “sales pitch” and what the distributor’s activities are after the pitch.

If the sales pitch is about achieving wealth and time freedom, then that can only be achieved with a Retail Selling Organization.It has been achieved in a Wholesale Buying Organization, but requires approximately 5,000 customers purchasing the products to produce a $5,000/month bonus check.

If the MLM company is a Wholesale Buying Organization, the “sales pitch” should be about earning extra money. Notice that the pitch is NOT about wealth and time freedom. You can expect to purchase products at a discount and, after several others have joined, you may make enough extra money to pay for your products. After a few hundred people in your downline, you may be able to earn a car payment. After a few thousand people, a house payment. But a Wholesale Buying Organization is not the way to achieve wealth and time freedom.

Sometimes distributors in MLM companies mix these two organizations together. A distributor may be told to get customers to purchase products at wholesale prices by using a “sales pitch” about wealth and time freedom. This is the activity of a Wholesale Buying Club! Because there is no focus on getting and training new distributors, the “sales pitch” about wealth and time freedom is not accurate.

It may not be “illegal” to do this, but at a minimum it is misleading to suggest to someone that they can reach financial freedom doing wholesale consumption activities… unless you tell them it will require them to have thousands of customers.

The correct activities of a Retail Selling Organization are recommending that the new person purchase products (they should do this so they know they like the products), training them to get new customers, and finally teaching them to recruit and train others to do the same - these activities can and have produced “wealth and time freedom”.

If you see that your company is confusing these two organizations, you need to correct it with the people you recruit. Blaming your upline for not training you how to get customers does you no good. Just learn it on your own and then teach your downline. Soon you’ll be a top producer and everyone will want to know how you did it.

Summary:

If the “sales pitch” is earn wealth and time freedom = Retail Selling Organization. Activities are: Buy products for yourself and get trained on how to sell products and recruit others to do the same.

If the “sales pitch” is earn extra money and get products at wholesale prices = Wholesale Buying Organization. Activities are: Buy products at wholesale and get others to do the same. Do not expect wealth and time freedom.

Do not confuse these two organizations.

[24KT]

Some MLM stats From The Direct Selling Association

Here is what one US President had to say about our industry:

I find it notable that in 2006, while the numbers of participants fell slightly, the sales numbers actually increased. For the most recent figures visit: The Direct Selling Association website

[24KT]

MLM Glossary

The MLM glossary below defines commonly used MLM words. The definitions are in layman’s terms to bring about an understanding of the subject of MLM. These definitions are not to be misconstrued as legal definitions.

Anti-MLM
1. Those who are against MLM.
If you are against MLM, please read the first post in this thread.


Compensation Plan
1. Money received as payment for selling a product to consumers.
2. Money received as payment for a downline member selling a product.
3. The “compensation plan” is the way a MLM company rewards the production of getting customers and recruiting others who get customers.

Crossline
See Sideline.

Distribution
1. The process of marketing and supplying goods and services.
2. Part of the process of announcing to a consumer the existence of a product or service.

Distributor
1. A person who has signed an agreement to distribute a product or a service for an MLM company.
2. One that markets or sells merchandise, especially a wholesaler.

Downline
1. Any person you recruit to join your MLM company. “Chris is in my downline.”
2. Any person recruited by someone you have recruited. “John has sixteen people in his downline.”

Diagram of Downline
A downline is a person you recruit to join your MLM company.



Your downline also includes all distributors that any of your downline recruit.



The above diagram shows the lady in orange has recruited three people to sell products. The lady in green has recruited two people to sell products. Thus the lady in orange has a total of 5 sales people in her “downline.” The lady in green has 2 people in her downline.

Ethical
1. Being in accordance with the accepted principles of right and wrong that govern the conduct of a profession.
2. Morally right or morally acceptable.

Ethical Business
1. A business that makes someone’s life better.

Financial Freedom
1. Free from debt and having the means to buy all one desires.

Frontline
1. A person you have personally recruited to join your business. There is no one between you and them in the structure.

Leader
1. A leader is a distributor who takes responsibility for those in his downline and ensures they are well trained to sell products to consumers and recruit others.
2. A leader is a distributor who recruits and trains a lot of people. MLM companies reward leaders highly because of the value they bring to the company and the people they recruit.

Note: A leader in MLM is not based on a resume (as in traditional business), but on production only. Leaders can be found or they can be developed. It is the position of this author that anyone can be a leader with the correct training.

Multi-Level Marketing
A method of distributing a product to a consumer. See What is MLM?

MLM
Acronym for Multi-Level-Marketing

Network Marketing
A word used in place of the word Multi-Level-Marketing or MLM. Some believe that “network marketing” is different than MLM in that in MLM distributors inventory products to sell to consumers, but in network marketing distributors simply connect consumers with the network marketing company so they (the consumer) can buy direct from the company. Although this may be true in a small number of companies, it’s not being practiced in the industry as a whole - therefore the definition does not fit.

Personally, I’ve traced the word “network marketing” back to a group of distributors in Amway who wanted to bypass the negative media attention in the early 1980s and changed the name to network marketing. I’m not implying that this is (or is not) the origin of the word - this is just where the “string” ended in my research. In addition, I’m not finding fault with the practice of a group attempting to build a positive image. For instance, the “gaming & entertainment” industry used to be called “gambling.” In every news story there is at least one person “spinning” the story for their intended outcome.

Organization
See Downline

Pension (Lifetime)
A sum of money paid regularly as a retirement benefit.
[Section added by Tim Sales: Lifetime pension is an antiquated retirement system in the United States that is fading into nonexistence. Lifetime pension plans were a popular retirement plan in the mid 1900’s where the employer (the company) contributed 90% of the contribution amount and employees (you) contributed 10% towards a retirement plan. Lifetime pension plans are being replaced by 401(k) plans because they save corporations (on average) 50% of retirement expenses.

Prospect
1. Someone who is a potential customer.
2. Someone who is a potential distributor.

Recruit
1. To enroll or seek to enroll as a member. Colleges recruit athletes.
The difference between recruiting and hiring is that when one hires another it means to engage the services of (a person) for a fee; to employ.

In MLM a person recruits another, or a company recruits a person but they are not hired as employees. They are paid a commission for products sold.

Sideline
1. A sideline (sometimes called cross line) is a person who is in the same MLM company but is not connected structurally or within the same line. Sidelines do not profit from one another’s product sales.

Sidelines that are in the same geographical location may work together as they are “on the same team.” Team meaning, they are in the same company promoting the same products.



Another example of sidelines



Sponsor
1. The person who recruited you into your MLM business. “My sponsor recruited me last month.”
2. To recruit someone into an MLM business. “I sponsored 2 people last month.”

Team
(see Downline)

Upline
1. The person who recruited you into an MLM company. “Mike is my upline.”
2. Any person who is connected “within the same line” to the person who recruited you. “My upline put a lot of emphasis on training people right.” See diagram.

Understanding the word “upline” is a lot like understanding the word “boss.” The person you work for is your boss - but the person he works for is also your boss. Your upline is the person who brought you into the business - but their upline is also your upline.

Diagram of Upline
Your upline is the person who recruited you into an MLM company.

The person who recruited them is also your upline.



The below diagram shows that you can have many people “up the line” from you.These people are known as your “upline.”

[drkaje]

Did anything in the book you posted explain how being a customer and salesperson of the same company makes sense?

[24KT]

Did anything in the book you posted explain how being a customer and salesperson of the same company makes sense?

Yes, ...but I'm not one to reveal spoilers. Perhaps you should read "the book" to discover how it makes sense. 

btw - I'm still waiting for you to post the question you posed earlier.

[drkaje]

Yes, ...but I'm not one to reveal spoilers. Perhaps you should read "the book" to discover how it makes sense. 

btw - I'm still waiting for you to post the question you posed earlier.

Can't remember the question exactly but it can be rephrased:

How can the cost of re-selling products within an organization be legitimately compared to actual business costs (product development, brick/mortar, advertising, etc...) and then passed on to consumers?

Someone getting a percentage of every sale under the guise of support or management doesn't fly.