Explaining a concept called “zero profit condition” and applying it to Mary Kay to show you how it’s next to impossible to build a viable retail selling business.
In an article on Slate, Austan Goolsbee explains why most real-estate agents can’t get rich, even when the prices of the houses they sell are skyrocketing. It’s so easy to become an agent and it sounds so lucrative that hordes of new agents enter the profession, hoping to strike it rich.
Yes, the commission pie is bigger because real estate prices are up, but it has to be split among a far larger group. And the number of possible clients isn’t expanding as fast as the number of agents. So a few super-agents get a big slice of the pie and everyone else gets crumbs.
This is what economists call a zero-profit condition: No barriers to entry mean no big profits. Your chances of making a lot of money – or even making a living – in a low-barrier industry are low, because so many people are trying to get a slice of the pie for themselves.
The author of the blog Life & Such commented on Goolsbee’s piece, “I always had the opposite view point. To me, no barriers to entry meant that it would be easy for me to jump on to the profit making wagon and get a piece of the pie I never had in the first place.”
That’s the usual reaction: WOW! I can get rich too, and it will only cost me a hundred bucks to get started. That’s the reaction MLMs count on to keep the recruits coming – the reaction of a person who is unaware they are about to experience the laws of supply and demand in an unpleasant way.
Mary Kay, like other MLMs, is in a zero-profit condition. Because of the low cost of entry, aggressive recruiters, and systematic misrepresentation of the income potential, the number of Mary Kay beauty consultants is too large for the number of possible customers. You can work your business as hard as you can, have the most slammin’ suit the world has ever seen, and “show up to go up” at every function within a 3-hour drive. Unfortunately, all the positive thinking, daily affirmations and perky vocabulary can’t overcome economics. It’s zero-profit. Get over it!