Proof That 99% Lose Money in MLMs

Robert FitzPatrick of Pyramid Scheme Alert has conducted extensive research on multi-level marketing companies (MLMs). The research can be difficult with companies like Mary Kay, which are privately owned and therefore don’t release hardly any information about the dismal earnings of the sales force. (Who would want to admit the financial truth unless forced to? And don’tcha think that if consultants were doing so well in Mary Kay across the board, that the company would be out there touting these statistics left and right?)

On the other hand, certain companies using MLM models that are similar to Mary Kay’s way of doing business, have released public information about their representatives. Robert studied figures for Amway (Quixtar), Nuskin, Nikken, Melaleuca, Reliv, Arbonne, Free Life International and Cyberwize.com.

From this research, Robert compiled figures on a “per 10,000 representatives” basis for each company, in order to allow comparisons to be made between the companies. This research has revealed that 99% of sales representatives in these MLM companies suffer significant financial losses. The research further revealed that on average, no net income is earned by MLM distributors from door-to-door retail sales (direct selling of products).

The research was complicated ever so slightly by the fact that the MLMs generally report figures for only active participants. Naturally, this excludes all participants from throughout the year who may have also failed. Robert determined that if all participants over a five-year period were to be included in the calculations of earnings, the failure rates would be even more devastating.

The success stories in MLM systems lie within a very small group of people, positioned year-after-year on the type of the pyramid. Those people with high earnings are included in a company’s figures each year, while “failures” from years past aren’t reflected in the current year’s statistics.

Here are some of Robert’s general comments on MLM, based upon his years of research into multi-level marketing and direct sales companies:

  • Another element of maintaining the MLM myth of legitimacy and a viable income opportunity is based on the claim that, regardless how it operates, MLM is still “legal.” As a legal enterprise, “success” in the business is then said to be the result of “hard work” and “following the system” recommended by the organizers — as would occur in legal businesses. Failure rates and financial losses among those recruited into MLM — regardless of their scale — are then treated as an outcome of normal business risks and markets forces or the fault of the individuals who lose.
  • The big numbers, which are cited by the scheme’s promoter as providing “extraordinary income potential,” are based on overrides from the deepest level of the “downline.” Only a tiny few can ever recruit to this level. This is mathematically predetermined from the start by the MLM structure and pay plan. The pay plan itself dooms the vast majority to financial losses, not factors of “hard work” or “following the plan.”
  • The trick of the scheme is to cover up this reality and to convince each and every enrollee that he/she can succeed by building this large and deep downline. Recruits are told that the program is a formula for wealth that “anyone can do.”
  • Though virtually none of the “sales representatives” ever earns a profit or has any “customers,” a pyramid scheme can be made to appear as a “sales company.” This is because each new recruit makes a purchase of products and the commissions are all based on the purchases of products by other recruits. There may be virtually no end-users, just a long chain of “distributors.”
  • Such a scheme can never stop recruiting. It can never stabilize since it has no true customer base. For as long as the scheme operates and expands, the opportunity for recruiting declines, thereby further reducing the opportunity for income. Profit in such a scheme is not true profit but only a transfer of money from the latest recruits to the earlier ones.
  • Yet, the laundering of money through product purchases can camouflage the entire operation as a “sales company” based on “products” — not fees. The product sales in a recruitment scheme are induced by the false promises of income tied to ongoing inventory purchases. No purchase may be required to join the scheme, but monthly purchases are required to “qualify” for the unlimited income” opportunity.
  • Even as millions of consumers are solicited into MLM and then quit after losing money, most do not understand why they lost. They are shown the luxurious lifestyles of the top promoters and are told that “anyone can do it.” The promoters convince them that they personally “failed” and that it was “their own fault.” Most have no idea of the sheer scale of people joining, losing and then quitting. They are led to believe that they are unusual in their “failure.” Consequently, they not only do not complain to the government authorities but they do not even warn friends or relatives to stay out of MLM. Shame and disappointment are covered up with silence. The recruitment program continues largely unabated.
  • As has been previously illustrated, the massive failure rates among those who invest in MLMs have almost nothing to do with the individual recruit. These multi-billion-dollar consumer losses are due to the pyramid business model. Retailing is unfeasible and the recruitment-based income plan is designed so that most will lose. It cannot be otherwise. For a few to win, basic mathematics requires all others to lose. “Anyone” cannot do it.

And here are some of the numbers that come out of Patrick’s research in this study:

  • 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.
  • Yet, even using the MLM industry’s own restrictive method of accounting, analysis of available data reveals that more than 99% of all “active” consumers who invest money and time in multilevel marketing never earn a profit. Some lose hundreds, others thousands of dollars.
  • MLM companies sought to make the figures appear more favorable by limiting the calculations only to the sales representatives who stay “active” for a year, or only counting those that are active during one selected month or several months.
  • The income numbers are not “profits.” The costs of doing business (buying inventory, car expenses, phone charges, purchase of marketing materials, training seminars, etc.) are not deducted, nor are taxes. Actual net income, where any exists, would be much lower than the numbers presented.
  • A review of the payouts of six of the larger and best-known multi-level marketing companies and one other more recently formed MLM reveals that more than 99% of all distributors do not earn a profit from company rebates [commissions].
  • The actual retail sales levels of the vast majority of MLMs is exemplified by Amway/Quixtar, the oldest and largest of all multi-level marketing companies. Amway was compelled by government order to provide its retail sales data. It disclosed that less than 20% of its products are purchased by anyone other than its own sales representatives.

So there you have it. Almost none of the participants in MLMs are making a profit from product sales. Almost none of the participants in MLMs are making a profit from commissions. If you read the actual report, you may be sickened at the grossly huge amounts of income paid to a teeny-tiny fraction of one percent at the top of the pyramid. It’s sick. Really.

Especially when you again consider that those at the top aren’t really making profits, they are just being paid money by the lower levels of the pyramid. Those lower level people are paying their money for an opportunity to potentially be at the top some day. Some may say they’re paying money in return for products that they could/should sell at a profit, however the fact is that almost no one turns a profit from product sales. So they are in essence just paying money to the pyramid-toppers.

Probably the most common argument I hear against these facts is “Mary Kay is different”. NEWSFLASH! Mary Kay is not different from the companies in the study. Mary Kay bases its business on the exact same chain of endless recruitment, minimal retail sales, and loading new recruits with inventory packages.

MLM is MLM is MLM… You can dress it up and give things different names, but it’s all the same scam. And that, my folks, is why nearly everyone who participates in Mary Kay loses money. Anyone who can’t see Mary Kay written all over the above research has her eyes closed.

10 Comments

  1. Burned

    I just saw a facebook post about my pink kool-aid guzzling friend heralding her triumph at being named Princess Court of Sales for selling $20,000 for the year. For this achievement, she has earned some jewelry and a walk across the stage at Seminar. (Can you get excited!) Correct me if I’m wrong, but wouldn’t this $20,000 not take into account (assuming she sold everything at full price) the $10,000 spent buying the product throughout the year, the income taxes she will pay on this, and the time and effort expended to schlep the product? And what is Princess Court of Sales? Is this something new?

    1. MLM Radar

      The MK definition of “sales” is “2x what you bought.” All such stage-crossing awards are based on “estimated” retail sales, which tells you that they’re lies from the very beginning. MK doesn’t track sales that consultants make. Never has, never will. (Unless those sales are on eBay, and then they’ll try to track every penny.)

      As for Princess Court, yes, that’s new. MK doesn’t have enough Queens and Directors to fill the stage anymore, so they had to do something to get more bodies up there. MK knows that if it’s your first Seminar you’ll never know the difference. If it’s your second Seminar you probably won’t know they had a problem. And if it’s your third+ Seminar you won’t care, ‘cuz you’re a mind-numbed lifer.

      Hope that helps.

    2. BestDecision

      The company Court of Sales is $36K retail, so National Sales Directors often recognize those that do half that. There’s so few doing it per NSD that they had to create a sort of participation trophy!

  2. enorth

    “named Princess Court of Sales for selling $20,000”

    Beware when MK people use the word “sell.”

    Did she really sell (as in retail) $20K in MK products to actual end-users? Or did she just ORDER $10K wholesale from MK?

  3. Burned

    Thank you for your replies. I was shocked when I saw her post because I know she sells here and there, but if this was her personal sales, she would have to sell a lot of product throughout the year to NET this. We live in an economically depressed area, and I know this is not possible. I told her approximately 6 years ago when she was joining MK that I suspected it was a pyramid scheme (and this was before I even found this site). She quickly corrected me with the whole “it’s dual marketing” spiel. She also said she preferred her MK spin brush to a Clarisonic. Despite my better judgment, I eventually signed up as a personal use consultant to help her, and within 4 years found myself thousands of dollars in credit card debt, ordering products to help her achieve some goal, including DIQ, which she failed to complete. I have seen my friend gradually change from a sweet, devoutly religious, honest, caring, thoughtful person to a moody, bossy, obnoxious, condescending know-it-all I do not recognize anymore, nor do I care to be around. I very seldom heard from her unless she needed me to place an order. And, like the loyal, caring sucker that I am, I did so – for her. Although I can’t be certain if MK is totally to blame, my husband said he started noticing her personality change around the time she joined up, so I have to wonder. To say I am heartbroken is an understatement. She will listen to those who have ulterior motives, but completely dismisses anything I try to say as wrong. I cannot reach her at this point. I can only love her from a distance now, and hope she knows I will be there for her when the pink fog lifts. Of course, I will no longer let myself be used, nor will I support a company that shamelessly exploits women, and I have since terminated my consultant agreement with the company.

    1. Poisonberry_Sparkle

      Burned, I identify SO much with your whole comment…except it’s a family member for me. It IS heartbreaking, and I’m still tangled in the process of trying to walk away from this. I hear you, feel you, and am mind blown how many of these posts and stories elicit a sinking feeling of spot on recognition. It’s such an insidious company.

      1. Burned

        Poisonberry_Sparkle….thank you so much for your kind words. I am so sorry to hear about your family member and hope she comes to her senses before the damage is irreparable. It’s not just the unsuspecting women MK preys upon that ultimately suffer. When MK cuts its swath of destruction, loved ones are the collateral damage, which is just as heartbreaking. Plus, the ramifications are long lasting. I miss my friend terribly, but I don’t know if I could ever trust her completely ever again.

    2. ran4fun

      Hi Burned. Another family member here who joined as PU just to “help” family member. Except I only ordered once, a $600 at that (how did I let her talk me into that!). She’s lost her car and unit, but still thinks MK is God’s gift to women, literally! I have no idea what it takes to remove those pink blinders from her eyes. I come here for therapy.

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