Facts, opinions, and the real story behind Mary Kay Cosmetics.
 

The Math Behind MLM (and Why MLM Doesn’t Work)

Written by Rachel

I recently read a quote from a site promoting an MLM: To recoup your initial $570 costs, focus on enrolling two distributors into your downline and then help them also enroll two people each.

This is the problem. Right here. It’s the exponential growth caused by unlimited recruiting (what MLMs like to bill as “unlimited earning potential.”) In the midst of a lot of talk about selling the product, the real focus for leadership in any MLM is recruitment. Some MLMs push recruiting harder than others, but they all have two things in common.

  1. They never restrict recruiting, no matter how many reps an area already has.
  2. They always encourage recruiting, no matter how many reps an area has.

I’ve never seen a catalog or brochure from an MLM that didn’t have at least a paragraph to tell you about the opportunity and how to sign up.

Now I’ll switch over to the Mary Kay case, because that’s what we know best here on Pink Truth. We get trained to tell our I-stories, and talk up the opportunity during skin care classes. So if we give classes, it stands to reason that we’ll pick up a recruit here and there, doesn’t it? Two recruits certainly aren’t very many. After all, I know my sales director had to get 30, just to become a sales director, and she keeps on bringing in new people all the time. I’ll bet she’s had hundreds of recruits. And the senior sales director – she’s had hundreds of recruits for sure. And look at those NSDs. They have more than 20 sales directors under them, each of whom has hundreds of recruits under her. Getting two recruits can’t be that hard. Anyone could do it, right?

Some sales directors will show you plans that involve recruiting people very quickly. This document shows a plan where you recruit 5 people per month. Of course no one would expect anything so ambitious for the average new consultant. My director suggested that new consultants should expect to recruit two new people in their first six months. Now that sounds like something anyone could do.

So how would it go if everyone recruited only 2 people?

In the beginning, there was one MLM rep. He recruited two more reps. Let’s not even worry about the original guy… for now, let’s just look at how many new people were recruited. After the first round, there were two new reps. After the 2nd round, when they each recruit two more, there are four new recruits. You see how it works – the number of new recruits keeps doubling.

So let’s say the number of new recruits doubles every 6 months. Of course, if everyone recruited two people within the first 6 months, the real doubling time would be shorter than that. Also, a few people would be ambitious and recruit more than that. (One person who recruits 5 per month would make up for quite a few slackers, wouldn’t she?) But we’ll be conservative and say the doubling time is 6 months. How long do you think it would take before there were more consultants than customers?

Luckily, this is easy to figure out. The number of things you end up with after doubling a population n times (starting with 1) is 2n.

  • 20 is 1 (round zero = the first guy.)
  • 21 is 2 (the first round of doubling)
  • 22 is 4 (the second round)
  • 23 is 8 (the third round)

Since I have a fair sense of what that kind of growth looks like, I’m going to start with a guess. Let’s try 232 . According to my calculator, that’s about 4.3 billion. If each round takes 6 months, the 32nd round happens after 16 years. That’s 4 billion people recruited at year 16 + 2 billion people recruited at the 15 ½ year mark, + 1 billion people recruited at the 15 year mark…

Oh wait. That’s 7 billion (and we haven’t even counted them all.) The population of the world is 7.9 billion, so we’re just about out of people.

Mary Kay, however, was established in 1963. That would be much more than 16 years ago (and I hear there are people in the world that haven’t been recruited.)

The truth is, everyone can’t recruit two people. If they were doing anything close to that on average (and remember that our “top 2%” contribute way more than their share to that average), the Mary Kay population would grow significantly every year, no matter how high the turnover rate (remember how fast growth happened just looking at new recruits? We still got 4.3 billion in 16 years.)

As it is, the number of consultants in the U.S. has been shrinking over the last 10 years. That means one thing. The U.S. has already hit capacity for the number of Mary Kay consultants. If any reasonable number of people had any reasonable degree of success at recruiting, it would grow visibly. And if they’ve managed to recruit all the people they can, even though recruiting is strongly encouraged, and there are no limits on recruiting, is there any chance the market is not saturated? What do

6 Comments

  1. NayMKWay

    Several years ago, as a thought experiment, I asked myself the question: “What would an MLM company that ‘does it right’ look like? Is it possible to do MLM such that most do not lose money?”

    I arrived at the same conclusion as Rachel: there is no “right” way to do MLM. MLMs all allow–even encourage–unlimited recruiting, and unlimited recruiting is the root from which all MLM iniquities grow. The details may vary (commission rates, number of levels, level qualifiers, etc.), but endless-chain recruiting is what really matters. It guarantees the market will be oversaturated with sellers.

    In other words: an MLM “done right” is not MLM at all; it’s a conventional sales organization with protected territories for its reps. (In typical MLM fashion, Mary Kay pretends “no territories!” is a positive.)

    The MLM drop-out rate is high because it has to be. Exponential growth is unsustainable; at some point the drop-out rate must meet or exceed the sign-up rate. For most mature MLM companies, annual sales stabilize at about $1,000-2,000 average per representative. Higher sales-per-rep encourages more sign-ups and lower encourages more drop-outs. With an average that low and a few near the top pulling down huge earnings, it’s no surprise most reps lose money.

    MLM is a dog-eat-dog, scam-or-be-scammed system. The only winning move is not to play.

    1. Charles

      Oh, it’s more than just that. It’s a gigantic sales force that has high turnover, but that doesn’t matter to Mary Kay, because this sales force recruits and trains its own replacements. There’s a lot about MLM I could say (which has probably been heard before), but that’s what blows my mind the most. Would you go into a business where someone told you, “not only will you not make much money (if anything) with this, but before you quit you’ll be recruiting and training your own replacements” ? Total insanity

      1. coralrose

        Exactly! And I that’s partly why the deception works so well. Most of us are familiar that people trying to sell-us products might be lying or exaggerating to us about how well the products work, but we’re rarely lied to about jobs/salary, so we trust the recruiter more than is warranted.

        Also, I (wrongly) assumed people would act in their own best interests, i.e., if they weren’t making money they would just quit. I got quite an education reading here about people in tons of debt, still on the hamster wheel. My former director never was in a car, wasn’t on any national courts, eventually lost her unit, & claimed she could soley support her family of 5 with her MK income. From what I know now, she was making $24K a year at most from MK, probably less! I wouldn’t have guessed she’d stick with something so long that wasn’t helping her or blatantly lie about her income when it was so far from the truth.

    2. Char

      Oh, I’ve got one: The “sales force” that pays to work for the company is also in direct competition with them.

      Do they think the company (and upline) prefers the sales force reselling their already bought product – with only the consultant personally profiting from a resale?

      Or, does the “direct selling” company prefer the consultants recruit new, larger direct orders? Those people will order and help CLEAR THE COMPANY’S WAREHOUSE, not the sales force’s home warehouse? Upline also benefits from “direct orderers”.

      Nothing like directly competing in sales with the company you supposedly represent.

Leave a Reply

Your email address will not be published. Required fields are marked *