The Myth of MLM Income

Multi-Level Marketing expert Robert FitzPatrick debunks the myth of earning money in MLMs in his article, The Myth of “Income Opportunity” in Multi-Level Marketing.

Multi-level marketing companies live and die by the claim that participants can make money. From some extra part-time money to complete financial freedom, MLMs promise you can have it. Robert Fitzpatrick notes:

The claim by multi-level marketing (MLM) companies of offering consumers a viable “part time income” or an “extraordinary income” greater than most other businesses or occupations is their hallmark attraction. It is also their greatest defense against persistent charges of pyramid scheme fraud, mind control and deceptive promotions. The question is whether MLM is a social and financial blight or a benefit to consumers. Legitimacy of this business ultimately hinges on the truthfulness or falsehood of its income claims. It is a question that affects the fate and fortune of more than five million new recruits in North America every year and countless more in other countries.

This report reveals that 99% of all sales representatives each year in the sample of companies analyzed earned less than $14 a week in rebate income. This figure is before all business expenses, inventory purchases and taxes are deducted. The figure therefore represents a significant financial loss for virtually all that join these schemes. Additionally, the report shows that on average no net income is earned on average by MLM distributors from door to door “retail” sales.

MLM companies seek to obscure their devastating failure rates by disclosing the number only of “active” participants and limiting the income figures to a one-year or even shorter time frame, thus concealing the factor of the ongoing and mounting losses of new investors. Most MLMs do not reveal any data at all on actual average incomes.

If all the participants over a five-year period are included in the calculations, the failure rate rises even further. Less than one in one-thousand will be shown to have gained any profit at all. The so-called successes in MLM are in the same small group positioned, year after year, at the top of the recruitment organization.

The business model and business practices of most multi-level marketing companies directly cause the financial losses suffered by millions of consumers, not normal competitive factors orthe levels of efforts or talents of the participants. The collective losses represent an enormous transfer of money from several million people in the US each year to a handful of owners and recruiters. Like any other force that contributes to general impoverishment, this income transfer damages credit worthiness, breaks up marriages, ends friendships and degrades communities.

Of the two categories of the MLM income opportunity, rebate income and retail sales income, the most publicized are the rebates, commissions and bonuses paid out on the purchases by “downline” recruits. This is the source that the companies claim has “unlimited potential” based on the opportunity to derive payments from an “endless” chain of recruits. MLM allows all distributors to recruit others and qualified distributors to receive rebates on the purchases made by multiple levels of recruits that recruit more recruits.

This report analyzes data from eight representative MLM companies. Seven of the companies that are analyzed are major and very well-known MLM companies and are members of the Direct Selling Association. One is newer and growing and not a DSA Member. Charts are provided showing the actual commission payouts on a per-10,000-sales-representatives basis for seven companies. The data show not only that virtually no recruits earn rebate profits but also that the MLM payout schemes transfer the lost investments of the great majority of participants to a tiny number of organizers at the top of the recruitment chains.

FitzPatrick also discusses how little actual retail selling goes on in MLMs:

The Disguise of Direct Selling

The second element of the MLM “income opportunity” is the claim of profit from retail sales by MLM sales representatives to consumers. The retail sales opportunity is the basis for the industry’s claim that it is a form of “direct selling.” Additionally, the retail sales potential is held up as a defense against pyramid scheme charges since the payments to the upline are based on the product purchases of new recruits, not chiefly on entry or membership fees.

This report exposes the myth and refutes the claim of MLM as a “direct selling” business that is based on retail sales. Due to factors outlined in the report, the MLM sales force seldom carries out retail selling. A statistical review of twenty-one (21) MLM companies representing 5 million sales people and “projected” retail sales of $10 billion reveals that even if retail sales are assumed to be occurring, the average MLM sales person is not earning a net profit from retail sales.

Read the entire report here.

18 Comments

  1. raisinberry

    “MLM companies seek to obscure their devastating failure rates by disclosing the number only of “active” participants and limiting the income figures to a one-year or even shorter time frame, thus concealing the factor of the ongoing and mounting losses of new investors. Most MLMs do not reveal any data at all on actual average incomes.”

    Those who are involved for even longer periods of time, ALSO suffer mounting losses…and it is simple to understand why! After you have spent 2 years, 5 years, 10 years within the MLM game, your universe has significantly diminished! The only voices of influence you hear, are those who tell you their stories of success…so glad they “never gave up”…and that arriving at the “top” is a simple matter of putting “your blinders on”. With this advice, they insure your place in the foundation of the pyramid.

    Facing the intermittent rewards of a large commission followed by a small one, a great party followed by a no show one, a ordering recruit, followed by a “sent it all back” one, you are HELD in a tossing sea, waiting for the next potential “win”. YEARS GO BY!!

    The TRAGEDY of the “SUIT” class, is that they do not see what pawns they are in the whole mlm mess! They are the striving, pushing, pressing on, production warriors for the Diva’s at the top of the pyramid, who are largely just manipulating them to keep striving for the top, so that they do not notice the foundation crumbling beneath them!

    Ladies. Directors! You, who are reading today, if this worked…if it actually worked…and provided success and earnings for your IBC’s…WHY would you be facing relentless attrition, year after year after year?

      1. raisinberry

        And now the starter kit is $50. They must be beyond desperate.

        Since there is a normal miracle set and an oily skin care set within the kit (supposed to be for demo only)—it makes sense to buy the kit instead of buy the SET at your local skin care class/party.

        Will the IBC realize that this information makes it nearly impossible to “Sell” the miracle set to consumers as customers…when becoming a consultant, able to buy at wholesale is actually cheaper than an original retail sale??

        Will an IBC actually know that a push like this is NOT for her benefit, but for the company’s? And after she signs up all the ladies at her party…where do her show lines go? Where is the next sale? How is the customer base built? When everybody gets a miracle set for $50, and She gets paid NOTHING for her class, except small purchases, before they can buy on their own without her….where does she go next? They will likely never purchase inventory as full fledged consultants…so her 4% is meaningless.

        This is done on the CHANCE that they will “catch fire” and be influenced by the Director to do more.

        Meanwhile…the IBC has a signed personal recruit who is MAYBE personal use, for a 225.00 order, and she is SO EXCITED!!! She’ll do it again…and eat up her lead lists, making few sales, and minute commissions, destroying any chance she has to sell her OWN STUFF to REAL CUSTOMERS.

        Hopefully, one thinking IBC, will actually see through this tactic and discover that a company that wants you to recruit your customer base is after THEIR MONEY, and has NO CONCERN for yours.

        1. pinkfreesince2015

          Like clockwork FB is bombarded with “the opportunity”. What makes me laugh is the majority of friends directors have on FB is other consultants/directors because everyone else has deleted and blocked them at this point.

          If you notice the flyers being passed around, the amount of product given in the starter kit has gone from $425 to $598. Let’s keep upping the amount to get them in!

          I dream of the day that Dateline runs an episode airing out the dirty laundry and lies of MK! “The Pink Predator” with Chris Hansen.

        2. enorth

          In watching training videos for another MLM (not Mary Kay), the up-line berated her folks for always having sales. “It cheapens the product,”, she said. She also chastised them for (gasp) purchasing the starter packages for new recruits. “The starter package is only $34.95. If they don’t pay for it themselves, they have no skin in the game and probably won’t do any work.”

          Same circus, different clowns.

          1. QueenOfTheTanned

            Oh, yes! Ye Olde “It cheapens the product!” Wait–Ulta has sales, Sephora has sales. They even give out coupons each month. You mean to tell me Sephora and Ulta’s product is inferior because you get a little discount (not to mention points toward FREE stuff)? Clinique gives out free products too! It doesn’t cheapen their product one bit. Quality is quality. You’re right, enorth. Same circus, different (badly painted) clowns.

          2. wifetoafirechief

            Do they not think it cheapens the product when they advertise that they make 50% profit on sales as an IBC? (Which is a lie of course but that’s par for the course) The guest is sitting there (if you can get her there in the first place) thinking “So this $40 moisturizer isn’t actually worth even $20?”

  2. MLM Radar

    Time and again we were told to not quit because the ONE person we really needed could walk into our lives at any moment.

    Time and again we were told “you recruit three, and they recruit three, and they each recruit three… before you know it you’ve got unlimited income and can retire early.”

    What they didn’t tell us was that we wouldn’t get any commission at all from the people our hot recruit brought in unless (1) we first built a team big enough to “qualify” to receive commission on grandchild recruits: ten or twenty, not three, (2) we stayed at least one level above our hot recruit, (3) we placed a minimum order, and (4) we did all this BEFORE our hot recruit brought in the grandchild recruits.

    I got fed up and bailed out when I found out that I would never get any commission from a hot recruit’s down line, because my first level team wasn’t big enough to qualify. All the team commission generated by that ONE person I really needed skipped me and paid my upline instead. It would never go to me.

    “Ooh! I just know you’re going to be great at this business! But would you please not start building your own business until I’ve recruited at least a dozen more people like you? Because if you get started before I’m able to stay above you I won’t get any compensation for roping you into this madness.”

  3. gotheart

    “Those who are involved for even longer periods of time, ALSO suffer mounting losses…and it is simple to understand why! After you have spent 2 years, 5 years, 10 years within the MLM game, your universe has significantly diminished! The only voices of influence you hear, are those who tell you their stories of success…so glad they “never gave up”…and that arriving at the “top” is a simple matter of putting “your blinders on”. With this advice, they insure your place in the foundation of the pyramid.

    Facing the intermittent rewards of a large commission followed by a small one, a great party followed by a no show one, a ordering recruit, followed by a “sent it all back” one, you are HELD in a tossing sea, waiting for the next potential “win”. YEARS GO BY!!”

    Raisin I really like how you said the above. Exactly what I experienced. Ya know I recognize now, because I can am no longer in the fog, my loved ones left me out of invites and over the years distanced themselves from me because of my MLM situation. I never saw it because of my the tossing you referred to. I needed an income and didn’t think I was able to do anything elsse that would pay so good when it did work. Boy-oboy.

    No one ever told me what I was involved in was a fraud. Family members I recruited quit, but never came back and said, “Hey you’ve been duped.” Strange for me also back then was how most of my recruits, unit members would quit after attending Seminar. When I especially expected the to “take off”!

    Thanks for all your thought provoking words. I know you’ve gone through a painful process to get your words on paper.

    “Time and again we were told to not quit because the ONE person we really needed could walk into our lives at any moment.”

    MLM, I’d forgotten the above statement but when I read it my head got dizzy from the emotional flashback of believing those words. Then the “tossing” Raisin explained would actually happen and kept the hope alive. Wicked, cruel.

    Great words of clarity.

    Big HUG to both ya.

    1. MLM Radar

      Thanks so much.

      The Big Lie, for me, was being given the picture that I could build my downline bit by bit. That’s the way a real business works. I’d be recruiting my three, my recruits would be recruiting their three, and all those recruits would be under me.

      WRONG!

      MLM is not a real business. Sure, your MLM recruits have recruits, but you don’t get credit for downline activity until your first level “team” reaches a minimum size, ten or twenty or more. Even worse, all those early grandchild recruits and all the commissions they generate will always belong to your Director.

      You recruit three, and they recruit three, and they recruit three more is just another lie. It’s right up there beside “residual income for life” and “free car.”

  4. NorwexCurious

    Hi Pink Truth,

    I am considering joining Norwex, but have dutifully been studying your site. I’m not looking to get rich, but simply get a discount on the products I LOVE and maybe hold a party or two. Norwex doesn’t require inventory purchase/front loading. While I’m aware this is MLM, it seems to not have a lot of the pink bubble issues.

    Can anyone tell me any pros/cons of Norwex, please? Thank you.

    1. Lady Z

      A neighbor back home did Norwex because she, too, liked the products. Last time I heard about it, she held an open house ($100 worth of food / prep) and sold $20. So she’s out $80 and the time.

      Don’t bother. You’re better off hitting Vegas than doing MLM.

  5. unpinkedassistant

    Various carrots are dangled in front of your face to make sure you believe that success is just around the corner. The situation with that is if you even reach that corner, there’s always another one up ahead that you must also reach.

    If you reach the position of director, that position must be maintained with a minimum production amount every month. The same is true if you have the use of a car. A minimum production must be achieved every quarter if you want to keep that car. If the amount isn’t met, there is a co-pay on the car where the director is charged various amounts (up to $900. per month for the Cadillac). Miss production and goodbye car and unit!

Comments are closed.