3 Signs Your Network Marketing Business is a Scam
Network marketing. Multi-level marketing. They both mean the same thing: Pyramid Scheme.
Many years ago I was asked out to dinner by a friends of a friend. It was at a restaurant I liked, and I was new to town and eager to make new friends. I showed up at the restaurant at the appointed time to find myself being seated in one of the rooms set aside for special occasions. There was a podium and a screen at the front. There were about 80 other people there. Worst of all, the menu was already set and it was the cheapest, driest chicken breast that this otherwise fine restaurant has ever served.
Soon the lights went down and it began. I realized I had been conned into attending a pitch for a multi-level marketing scam. I can't remember what the product actually was, probably Amway or Herbalife, but the product really doesn't matter. That's because these companies aren't really selling the product. What they're actually selling is a dream. A dream of making extra income, or of being able to quit your crappy regular job and working for yourself. But, most of all, it's a dream of finally getting your share of the good life.
When you buy that dream, you also sign up to buy the "product." It doesn't matter what it is. Vitamins used to be big in these scams and different "miracle" juices are en vogue today. Different crap, same scam.
Here are some statistics about multi-level marketing that comes from the excellent Skeptoid website:
The Federal Trade Commission says "Most network marketers end up with nothing to show for their money except the expensive products or marketing materials they're pressured to buy."
The Consumer Awareness Institute analyzed data from different network companies and found that the least successful MLM was Amway where 99.99 percent of distributor lose money. The best ... the best, mind you ... of these companies was Herbalife. Only 99.42% of their distributors lost money. So, even using the MLM's own data, you can see the chance of you even breaking even is vanishingly small.
In a Wisconsin lawsuit, the tax returns of the top 200 of 20,000 network marketing participants were examined by the State Attorney General. The average income of this TOP ONE PERCENT OF ALL DISTRIBUTORS was ... MINUS $900. That's right. The top one percent of the most successful network marketers had the distinction of only losing slightly under a thousand dollars.
These dismal statistics don't even take into account the cost of all the time you poured into the "great money-making opportunity," the cost of gas for driving around trying to peddle bullshit, or the friends and family you've annoyed by trying to get them to buy your magic beans or bottles of rainbow elixir.
Here are my top signs that you're getting involved in a pyramid scheme.
1.) You Have to Buy Your Product from Them
Here's how a legitimate sales position works: THEY PAY YOU! If you were to go to work selling ad time on KLAQ, you get a nice cubicle and you'd receive a check every month based on a combination of salary and commissions. We wouldn't require you to buy the ad time yourself and then try to sell it to your nephew after you've cornered him uncomfortably at Thanksgiving.
Again, don't get into anything where you're required to buy the product yourself, no matter how "great" the product is supposed to be. If it was really that great, they'd be flying off store shelves and the parent company wouldn't have to con people into buying it.
2.) If They Want You to Sign Up Other People to Sell
This is the true hallmark of a pyramid scheme. "Get your friends to also become distributors and you'll get a slice of everything THEY sell." That's pretty much the definition of a pyramid scheme. If you sign up, you're the lowest level of the pyramid. Even if you get in early, remember the State Audit that found only 99.94 percent of people made money in the most successful MLM operation. The odds are not in your favor.
Imagine if you moved to a town of 20,000 people that didn't have a McDonald's and you wanted to open a franchise. You'd probably stand a very good chance of turning a profit because people love McDonald's. What you absolutely WOULD NOT want to do is start trying to convince all your costumers to open their own McDonald's in the same town of 20,000. If you started convincing everyone to open their own McDonald's, it wouldn't be long before your business dropped off. Obviously, this is not a sound business model.
3.) They Can't Answer This Simple Math Question
"They" being whoever it is trying to get you involved in this, whether it's some slick huckster from the corporate office or your neighbor who's desperate to make back some of the money she's lost so she wants you to join her in sinking boat. Ask them if they can solve this question.
"Assuming each down-line of distributors has 5 people (that is, if I sign up five people and they each sign up five people) what down-line am I getting in on?"
You'd expect them to have an idea of how many "generations" in you are if you sign up. After all, they keep track of all the money that needs to be kicked up to the very top, the pinpoint top of the pyramid. If they tell you there are 15 generations of distributors then you can call BS because that would mean more people are selling magic berry water than have ever lived on planet Earth!
Here's how that works: at the top is the very first distributor. The first guy to sign up five people. The "Adam" of bullshit, as it were. Beneath him is the first generation, the first five people he signed. The second generation is twenty-five, five for each of the first generation. The Fifth Generation would be 3,125 people all selling the exact same product. By the Tenth Generation you've got 12 million people selling whatever the McGuffin product is. By Generation Fifteen you'd have 305 Billion people which is about 43 Earths worth of people.
And that's only counting people who make their monthly sales quota and recruit their 5 downliners, who then have to meet expectations every month. Even if this was a product that every single person on Earth needed AND needed to restock every month, this business model could not sustain itself beyond the 14th Generation.
There is a bright side, though. Remember, I told you about the audit that found that the most successful of these MLM's still had 99.43% of distributors losing money? Well, in Las Vegas, the odds of you winning 5 consecutive hands of blackjack are about 3.3%. That means, if you took the money you were considering investing into Mona Vie or Kyani and went to a casino and kept betting your whole pot 5 times in a row, your chances of winning would be much, much greater than the odds that you'll ever make a profit in a pyramid scheme.