Back in 2013, I criticized Dave Ramsey sharply for promoting the idea that multi-level marketing is a way for consumers to make a lot of money. This article was published on his site, and it said:
Truthfully, if you have a go-getter personality, and you can follow some basic business and personal etiquette, you can make a lot of money in an MLM. The trick is to avoid all the potential pitfalls along the way.
That statement upset me because it has been proven that 99% of people involved in MLMs lose money. Dave cautioned:
MLMs can be awesome if you understand how they work, but they can also be a financial and personal disaster if you jump right in without thinking.
The sad truth is that no matter how careful you are, you are almost guaranteed to lose money in MLM. You can follow all the rules, invest lots of time and money into your “business”, and you will still lose money.
Later that year, this video was put on YouTube. A caller asked about multi-level marketing, and among other things, Dave said:
- There is nothing wrong with MLM
- You control your destiny.. there is no glass ceiling…
- He knows people who make over a million dollars in different MLMs
- It’s not a pyramid scheme because an actual product is being sold (wrong!)
One of the good points Dave made to this caller is that you’re “constantly recruiting” in MLM. He also mentioned that the vast majority of recruits who get into MLM are gone within a year. He pointed out that if you just sell the product, you’re going to be making minimum wage. To make more than minimum wage, you’ll need to recruit. NOW we’re headed in the right direction, with your advice, Dave!
Dave Ramsey talks about the constant need for recruiting and the fact that retail sales will not generate much income. Lazy Man and Money provides a good analysis of an important part of the video:
Ramsey now states that MLMs aren’t about selling the product or “whatever they do.” He says it is about recruiting: “constantly recruiting, recruiting, recruiting… everyone is a recruit.”
Ramsey’s description of an MLM is exactly an illegal pyramid scheme according to FTC guidelines. The FTC makes it clear that a legitimate MLM is focused on selling the “whatever they do” and that “recruiting, recruiting, recruiting” is a pyramid scheme.
Dave (2:59): And if you don’t recruit people… because your fall-out is very, very, high. The vast majority of people are gone within 3-4 months, but certainly in a year almost nobody is there.”
Again, does this sound like a legitimate sales business or a pyramid scheme based on recruiting?
Also, remember that 99% failure rate above? I’m not saying that running a legitimate sales job is easy. However, we know that mathematically pyramid schemes based on “recruiting, recruiting, recruiting” are unsustainable.
A “year-long” person in your hierarchy is extremely rare. When you get one of those and they go build their own hierarchy that’s when the serious money seems to happen.
I like how Ramsey is calling it a “hierarchy” now. Maybe if we call it recruitment hierarchy it won’t sound like a pyramid scheme?
So having one consistent person in your pyramid is extremely rare. And then you have to consider that person needs to build their pyramid of extremely rare circumstances. This continues on and on.
While Dave provides a few pieces good advice in the video, there is too much bad advice and simply wrong information. The original article I criticized is still available on his site. I don’t like the conflicting information Dave Ramsey provides. He gets some things right, but he gets a whole lot of things wrong, and I hate that it appears that he does endorse MLM as a legitimate business, when it is not.