Perpetuating the Myth That People in MLMs Make Money

It is common for multi-level marketing companies to publicize  that  “direct selling” (the code name for multi-level marketing or legalized pyramid schemes) picks up during a recession. The whole industry is portrayed a massive opportunity for consumers to make money when their lives are otherwise in financial disarray.

This is sad, especially when the research clearly shows that 99% of people lose money in MLMs. People are looking to make money, are told that MLM is the answer and they will make money if they’re willing to work hard, yet they are almost guaranteed to lose money.

Sure, people might be able to make a little extra spending money from hawking MLM wares. But think about it…. If the economy is in such dire shape, who would really be buying these goods? That’s the part of the equation the recruiters leave out.

And the media is in on the con. Here’s an example of a story by major media. They want you to believe this is the norm:

THREE weeks before her third child was due, Susan Drucker Hunsaker had more than 20 women over to her home in Burlingame, Calif., for conversation and refreshments. She also invited them to look at Stella & Dot costume and semi-precious jewelry, which she had begun selling the week before.

Ms. Hunsaker, a former high school art teacher with a master’s degree in education, sells jewelry because she needs cash, and she needs it quickly. Her husband works on a commission basis in commercial printing sales; his income dropped by half in 2008, and he expects more of the same this year.

“We had already pared down as much as we could,” Ms. Hunsaker said. “I knew as soon as the baby came, I would probably have to go back to work. But with three children under 5, if I went back to teaching I wouldn’t make enough to pay for child care.” In the first two months of this year, she sold $12,000 worth of jewelry at six parties, taking home 30 percent of that as commission.

Did she sell this much? Maybe. If she’s like the Mary Kay consultants we know, she probably heavily discounted the products, yet reported the “retail value” of $12,000 to make it sound better.

And this type of volume isn’t something she’s likely to replicate more than once in a blue moon.We’ve all heard of “$1,000 weeks” and “100 faces in 100 days” and other gimmicks. These sound great. But we all know that these things are not replicated on a consistent basis.  Those 100 faces probably grossed the Mary Kay lady something less than $5,000, which leaves her with less than $2,000 gross profit over 3 months. And she probably had to annoy and harass her entire customer base just to get those 100 done. She won’t do this type of activity again for another year.

Sometimes the authors of such pieces try (at least a little) to present the truth about MLM:

“Most of the commission should go to the salesperson, not the recruiters above her,” said Robert L. FitzPatrick, founder of PyramidSchemeAlert.org, a nonprofit consumer education Web site. He advised asking a company how sellers are compensated.

Too bad they didn’t provide more information here, because I’m quite sure Robert gave it to them. If you take a look at the pyramid of any of these companies, you see that it’s nearly impossible for the new recruit to make a living(or anything close to it) just by selling the product. That’s one of many problems with MLM. You can’t make real money unless you recruit, and even those who do recruit aren’t likely to profit.

Why is the media so hell-bent on reporting that “direct selling” is the answer to money woes?

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