Why MLM Distributors Can’t Make Money Retailing Products

One of the big selling points for Mary Kay (and really for any multi-level marketing company) is the PRODUCTS. The person trying to recruit you shows you how you buy a product for $1, sell it for $2, and you’ve instantly doubled your money. You’d have to be an idiot to not be able to turn a profit, right? Surely those meanies at Pink Truth who say 99% of people who participate in MLM actually lose money must be lying!

It’s a great way to lure people in. It sounds so easy! And if you’re someone who happens to like Mary Kay products, you think it’ll be simple to sell them. Maybe you’ll only sell a little, but you’ll still turn a profit.

This is part of the grand deception behind MLM. They HAVE to have a product for you to sell, or the pyramid scheme that they’re promoting will be obvious. With a product in place, it’s now no longer so clear whether or not it’s a pyramid scheme. The truth is that MLMs are nothing more than endless chain recruiting schemes, and the products are intended to make them LOOK legitimate.

How do you know that Mary Kay or any other MLM is really a recruiting scheme? What do they talk about the second you sign up? After they talk you into buying inventory, the talk turns to recruiting people. They might not be so obvious about it, suggesting that you bring “a guest” or “a face model.” But subtle or not, the focus turns to getting new people into the scheme. Yes, there is still talk about the product because it is the bait that helps bring people in and it’s necessary to be able to claim you’re not a pyramid scheme.

But women in Mary Kay (and those in other MLMs) find out quickly that there is a very thin market for retail sales. Yes, some products are sold. Yes, there is a tiny fraction of women who sell large amounts of products. But a large, consistent volume of products is NOT sold to third party consumers. (Lots is sold to consultants, and most of that product never ends up with a third party customer.) Why is it so hard to actually retail these products?

Robert FitzPatrick of Pyramid Scheme Alert has been researching MLMs for decades. He says:

Yet in these schemes, very little of the products are actually sold to anyone other than the sales people, and virtually none of the salespeople earns a net profit from retailing products to consumers. The typical company of this type will claim it is a direct selling business and will often highlight “retail” sales. However, the average number of retail customers per sales representative is far too small to support a retail business. The retail selling is therefore only part of the camouflage. This business is not based on “direct selling” but on recruiting other sales representatives in a pyramid fashion.

The reasons why retailing does not occur are pretty simple:

  1. The prices of the products are high when compared to products of similar quality available through traditional or online retail outlets. (Mary Kay products are on par with what you will find in Target, yet they’re priced at department store prices and consultants will tell you they’re department store quality.)
  2. The products are undifferentiated. Similar products are widely available in stores and online. (Have you been to Sephora or Ulta? Have you shopped on eBay or Amazon? There are a zillion makeup and skin care products, and Mary Kay is just another brand.)
  3. In the person-to-person selling model, choice is restricted and there is the pressure of a personal relationship. In stores or online, the choices are unlimited and the sale most often comes with no pressure. (Mary Kay’s product line is limited, and consultants leverage their personal relationships to sell more, with purchases leading to repeat contacts and requests to hold parties and come to events. Customers just don’t want to do that anymore.)
  4. There is too much competition selling the product to make profitable retail sales. There are an unlimited number of sales representatives with no territories. Distributors are encouraged to recruit more distributors, who are naturally their competitors. They enroll their friends, family, and neighbors. When they do so, they not only lose potential customers, they also create new competitors.
  5. There isn’t a big enough margin in order to turn a profit. Distributors find that they can’t sell products at “suggested retail” pricing, and must discount, often heavily. Then factor in the cost of supplies, free samples, advertising, shipping, and all the other costs related to selling the products, and any hope of a reasonable profit vanishes.
  6. MLMs promote and reward recruiting far more heavily than selling. New recruits are pushed toward recruiting and away from retailing, even before the new recruits realize how impossible it is to turn a profit retailing. The only way to be profitable (with a minuscule number of exceptions) is to get to the upper levels of the hierarchy, and recruiting is the only way to move up the hierarchy.

Do some women make money retailing Mary Kay products? Of course. But not at a level sufficient to support themselves and their families. They are making pocket change. And when you compare what is made retailing to the time devoted to the venture, you find that these women are making less than minimum wage. It’s an “opportunity” that carries great risks (inventory costs and other costs that the consultant bears), almost guarantees that the consultant will lose money, and provides a very low level of profit for the very few who may be lucky enough to find a way to not lose money.

 

20 Comments

  1. roo2

    great article.. did anyone see the Kimberly Copeland post for Waverly going to cosmetology school? she says, “Y’all she will be able to do actual makeup!!” You mean Mary Kay is not actual makeup??

    When the people at the top can’t even keep up with the fake image needed to keep this going.

    1. PurpleH

      Can you just imagine the reactions when she starts “offering the opportunity” to her classmates and instructors? If she’s smart, she’ll just dig in and learn, and not even talk about MK. She might come out of it with an actual skill / certification!

    2. Ruby Slippers

      I haven’t seen Waverly in Applause top 100 for awhile now.
      Is she even making Cadillac production ? And Kim’s mother/daughter IG post was awful. All those layers of pearls, fur, and heavy makeup and her mother looks terrible.

        1. Ruby Slippers

          Tracy, I will look and let you know. Also not only are Look Books digital only. The Applause magazine is digital only starting in June. I had a feeling they would do this to cut costs.

        2. BestDecision

          And that was for only about $19,000 wholesale production and a $5256 check. Kelly Brock was in there, too. If Waverly made that every month this Seminar year, she’d only make about $47,000 in taxed commissions and then still have expenses eating into that…as a Cadillac Director.

      1. D. Phillips

        It’s been close to a year since Waverly has been in the top 100. I read a post on Copeland’s Facebook page, for their reality YouTube show (what a joke), that Wave is now attending cosmetology school! Apparently, she wants the ability to apply makeup to her customers.

  2. MLM Radar

    I have only one minor disagreement with this column. In my experience the quality of Mary Kay products is far worse than the large name brands sold at Target: Revlon, Cover Girl, Maybelline, Noxema, Neutrogena, Ponds, etc.

    Can you possibly imagine Olay marketing a facial cleanser that causes the skin to burn, but telling users to keep applying it because the burn means your skin is purging itself of deep dirt?

    The only makeup I’ve found comparable to Mary Kay is the no-name junk makeup in the WalMart low priced holiday gift baskets.

    1. Samsquatch

      I was approached by a Mary Kay lady while I was in a Rite Aid late last year. She was commenting on my period acne and she tried to get me to go to a Mary Kay “facial” party. I told her point blank that I put generic triple antibiotic ointment on it and it goes away in a few days. I have REALLY sensitive skin and the best thing that treats my period acne is the triple antibiotic because my acne gets infected REALLY easily. It runs like $4 a tube at Kroger and it has other uses than for skin care. As for makeup I only buy a tube of MAC mascara at the AAFES store on base every six months. I told the Mary Kay hun to go pound sand because she was out of luck because I wasn’t going to buy her overpriced junk!

        1. Samsquatch

          I wasn’t really surprised by it because my husband is a military retiree and in the six years that he was in the military during our marriage (we married later in his career) I was approached MANY times by other military wives to join an MLM.

          I just hate how MLM’s recruit military wives with promises of an “independent business”! My husband was at year 14 of his career when we met and we received orders to South Korea shortly after. I was one of the few wives in his squadron who WASN’T in an MLM.

    2. Gina j

      I agree with some of the other posts, the quality and science behind the products has really gone down hill the past few years. Their ‘Dr Lucy’ is ludicrous! Nothing novel since she came on board.

    3. morningstar

      I had such a red face and when I changed to the “C” brand my face cleared up and in a big way. No more flakes around the nose and a slight prickly feeling using it. I compared the ingredients wow!

      The product ingredients in MK products are not complementary regarding the face and the mixture of the cream (meaning composite/compounding issues). It did burn and the corporate line is it means your skin is getting better. Much more soothing products as you mention.

      Men in MK are calling the shots, could they care less about ingredients?
      We know they are now feeling the burn not only from products, from the unethical behavior that is winding down the company.

  3. Cindylu

    Right from the start (fifty years ago), it was based on recruiting. Wikipedia calls it mlm. The reality is that after many years of hundreds of consultants and Directors giving discounts, many customers assume they won’t have to ever pay full price. Some return products after they use them a few times. Meaning MK consultants are sometimes stuck returning items and paying for shipment. Yes at the beginning being told you will make a great profit is appealing. Then you hear “You can’t sell from an Empty Wagon”, which also makes sense. At a meeting a Red Jacket or consultant gets an award for their supposed sale. Maybe there is a guest having a make over. Little by little though I began to notice cracks in the stories. Eventually I became quite annoyed with how I was being misled. I bought product and within days the product line changed. My SD’s only Director refused to have meetings with her. I later found out my SD had sabotaged 3 previous Red Jackets. They quit and my SD got their recruits. At seminar sharing a room with three other strangers certainly didn’t seem like MK cared. It’s all smoke and mirrors. MK is a lot of embellishing, sisterhood rags to riches stories. MK herself was touted as some kind of female savior. The reality was that MK herself knew that customers became suspicious when she touted her own wares. MK gave up direct selling and concentrated on motivating her consultants. It was through having other women sell and recruit that MK became wealthy. MK, the original NSD’s from years ago and the heirs profit on the work and credit card debt of hundreds of other women for decades. In 2020 MK is definitely not a viable business.

  4. Mountaineer95

    Great post!

    This part is what speaks to me, as someone who had a long career as an actual wholesale sales rep for manufacturers:

    “There is too much competition selling the product to make profitable retail sales. There are an unlimited number of sales representatives with no territories. Distributors are encouraged to recruit more distributors, who are naturally their competitors. They enroll their friends, family, and neighbors. When they do so, they not only lose potential customers, they also create new competitors.”

    Sometimes a Kaybot will make comments comparing MK to McDonalds in that there are thousands of McD’s (those comments always frustrate me). They’re missing a HUGE difference: guaranteed territory. These are written into the contracts and are meant to protect each McD owner. McD corp would never open unlimited stores in one area, as too many stores for a population will fail, and McD corp has money invested in these locations themselves so they want the location to thrive.

    Think about that: if MK Corp cared about the retail sales success of their IBCs, they wouldn’t let unlimited people sign up for it. They wouldn’t suggest you recruit your paying customers to become your competition (and have you lose your profit on retail sales in exchange for the paltry percentage commission on that recruit’s wholesale purchases instead). And MK corp has very little of their own money invested in each IBC (basically just what it costs to create the new IBC consultant number and profile). Even if the IBC uses the 90% buy-back, the “wholesale” prices the IBc paid are not the actual cost of product to the company. MK has profit built in to all of that. So they don’t lose money if YOU ultimately cannot sell due to market saturation.

    They have no sensible justification for this other than to suggest that it’s the MK vision to “share the opportunity”. And that’s not sensible…to suggest that you should have no issue with losing retail profit by recruiting your customers just because it’s the MK Way. Oh, and if you are smart and choose to not recruit your paying customers, don’t worry…your director will go ahead and recruit them for herself. Either way, the plan all along has been for the retail customers to get recruited. And that’s a pyramid scheme, nothing more.

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