Are all MLM companies pyramid/ponzi schemes

9 years ago

If a company actually sells a product, there's nothing wrong with recruiting people to sell it, incentivizing them to recruit others, and so on.

But if a company is selling nothing but the opportunity to sell something, and that something is the opportunity to sell something, and that something is the opportunity to sell something... you get the idea... then you're dealing with a scam.

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SunilTanna

9 years ago

Originally Posted by Jon Patrick

But if a company is selling nothing but the opportunity to sell something, and that something is the opportunity to sell something, and that something is the opportunity to sell something... you get the idea... then you're dealing with a scam.

I agree with everything you said, but I think you need to go further

I believe that the majority of the revenue, must come from sales of the product to people not involved in the opportunity - that is retail customers.

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AndyCole1971

9 years ago

Originally Posted by Jon Patrick

If a company actually sells a product, there's nothing wrong with recruiting people to sell it, incentivizing them to recruit others, and so on.

But if a company is selling nothing but the opportunity to sell something, and that something is the opportunity to sell something, and that something is the opportunity to sell something... you get the idea... then you're dealing with a scam.

Couldn't have said it better. I don't get many people bashing it these days but in the early days Six Figure Mentors used to get MLM haters come in with the attitude that this is how SFM operates.

The training package that I purchased with SFM taught me how to create a sales funnel and apply it to any product in any niche. I stick with the 'make money online' niche generally but you get my point.

I'm also an affiliate for SFM so I make a commission if somebody purchases one of the training packages from me. When somebody gets in touch and asks me if this will turn them into a millionaire over night I tell them to get real. I explain the benefits of the training honestly and if they want it, great. If not, no worries.

I think YNB was a 'sell the opportunity to sell something' kind of scam. I did not get on with well with it at all.

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edmacd

9 years ago

MLM is just clever marketing, the old carrot dangling from a piece of string on a stick... dream on, dream on is their mantra.

Every MLM/Network Marketing scheme I've looked at has products which are no really unique at all, the only unique aspect being the pricing. Which is way over the top, but then it has to be to pay those upline.

Affliate marketing is far better all round; no fee's, no compulsory purchases to release possible commissions, no selling to family and friends, no team building and all the time/effort that would take.

MLM is just too dishonest a way of selling.

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icemonkey9

9 years ago

Yeah... I don't personally have kind things to say about MLM groups. I'm much more into the "create a product yourself and sell it yourself... then get people to sell it for you" side of life.

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Richard Phillip

9 years ago

Originally Posted by icemonkey9

Yeah... I don't personally have kind things to say about MLM groups. I'm much more into the "create a product yourself and sell it yourself... then get people to sell it for you" side of life.

^^^This. Exactly. If you're going to make the effort, why not work for yourself and be the owner. MLM is great is your the one at the top of the pyramid.

R.

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RogueOne

9 years ago

I know there are alot of MLM companies that make alot of people money and have good products

Really?

if a company can not keep the lights on simply off the sale of the product then it is a ponzi scheme.

A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. Ponzi scheme - Wikipedia, the free encyclopedia

Not MLM.

I've said it before, I'll say it again, "MLM stands for - most lose money."

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Jreed

9 years ago

Yeah, in fact alot of the products MLM companies sell are good products (even though you can buy them online or at walmart)

Scenty's smell great
Pampered Chef- love their slicers and dicers
All the noni juice companies surely sell good juice.

But that's not where the bulk of the money comes from. As you said Most Lose Money. that is very accurate.

Originally Posted by RogueOne

Really?

A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. Ponzi scheme - Wikipedia, the free encyclopedia

Not MLM.

I've said it before, I'll say it again, "MLM stands for - most lose money."

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Alexa Smith

Banned 9 years ago

Originally Posted by SunilTanna

I believe that the majority of the revenue, must come from sales of the product to people not involved in the opportunity - that is retail customers.

I agree.

I suspect this may vary a little from country to country, but in the US, state courts are even going a little further than that, in their precedent-based judgments/rulings on this point: they're putting a precise figure on that, and the figure's 70%. They call it "the 70% rule", but the reality is that it's a little more than just a "rule": it's something for breaching which a court may not hesitate to wind up a company.

Some very legitimate, ethical, MLM companies inside the US are now even asking their distributors, before ordering anything each month, to state unequivocally that they've sold a minimum of 70% of their previous month's order to retail customers.

There are similar laws/procedures/principles in EU countries, too (though as far as I'm aware without the precise percentage being defined).

Some MLM-ers like to deceive themselves that their own monthly "qualifying volumes" can be included within the 70%, but of course that isn't so at all: courts and regulators state clearly that a "genuine retail customer" is someone who has no distributorship agreement with the company. Those are not "genuine retail sales" at all.

Originally Posted by Jon Patrick

there's nothing wrong with recruiting people to sell it, incentivizing them to recruit others, and so on.

True enough. But very widespread laws, regulators and courts say that there's plenty wrong with paying them for recruitment.

Originally Posted by Jreed

Yeah, in fact alot of the products MLM companies sell are good products (even though you can buy them online or at walmart)

The better companies, which survive and flourish for many decades, have products either unavailable at Walmart, or much better quality and/or much lower prices.

Originally Posted by Jreed

Are all MLM companies pyramid/ponzi schemes

No. None is. A company is either a legitimate MLM or an illegal pyramid/Ponzi. It can't be both at the same time - they're mutually exclusive.

Unfortunately, there are many illegal pyramids and Ponzis around, masquerading as "MLM", and it can be terribly difficult for the public to tell the difference. Through no fault of their own, not only do most people not know the right questions to ask, but even most distributors probably don't know the right questions to ask.

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Jreed 9 years ago

Well said Alexa!
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- Jeff Schuman 9 years ago
  
  MLM , also known as network marketing is a business model. Pyramid schemes are illegal. I have written extensively on the MLM business model over the years. My family was full time in Amway for over 20 years, so I grew up with it.
  
  I was never real good at building an income this way because I was not a very good networker. It is easier now thanks to the Internet if you can get traffic to your website and have a good sorting system for prospecting, follow-up, and sponsoring.
  
  Alexa is right that the best MLM companies have distributors who retail products as well as sponsor new distributors into the business. MLM companies have problems like every other business, but they have a pretty poor retention rate which hurts their growth.
  
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Eldon Beard

9 years ago

Originally Posted by Alexa Smith

The better companies, which survive and flourish for many decades, have products either unavailable at Walmart, or much better quality and/or much lower prices.

This type of discussion always generates a lot of interest. I have been an associate with Watkins for about 15 years now and have enjoyed a consistent income from it most months during that time.

Watkins is rather unique in the network marketing/direct sales world, in that they utilize a multi-channel distribution system. You CAN find a few of the more popular products in large chains such as WalMart or Target. This has been part of the company's distribution model for years, and in part is designed to enhance brand awareness.

I suspect that Watkins sells more products at retail to non-distributors than most any other MLM company out there. The independent associates are the only channel that can offer the complete line, and we've found over time that having a few products in retail stores has had a more positive effect than negative.

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James Foster

9 years ago

Yes, there are some legit MLM companies. Avon and Keller-Williams Realty would be two.

But you'll notice in both those organizations the focus is on selling the products not the opportunity.

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DTGeorge

9 years ago

Originally Posted by Jreed

I know there are alot of MLM companies that make alot of people money and have good products but heres the thing.

As far as I am concerned if a company can not keep the lights on simply off the sale of the product then it is a ponzi scheme.

My question is, is there any MLM company that actually makes more money off the product it sells then the recruiting tools, new associate fees, etc.

For people who will reply, I know XYZ who made millions or I have made alot of money.

I'm not saying people don't make money, Ponzi schemes are very profitable. that's not the point. but eventually they all fall.

Once the company stops recruiting they will not be able to sustain themselves.

And if they could sustain themselves just off product sales then why do they need independent distrubitors?

I understand the concept of affiliates and paying commissions which is great, but you don't need to pay a monthly fee and understand a conveluded compensation plan to be an affililiate.

just a thought.

The only issue here is that your INTERPRETATION of a ponzi scheme, and what a ponzi scheme ACTUALLY IS, are two different things.

An MLM is NOT a ponzi scheme.

That being said, I've had a couple close friends try to recruit me to their network, but I eventually had to tell them it just ain't happening.

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Jreed

9 years ago

I understand that a MLM is not technically a Ponzi scheme because a product is involved. I also know what a Ponzi scheme is.

Take money from person A and pay it to person B and this will continue successfully until there are no more new people to take money from to fulfill your commitments to people who entered earlier.

While an MLM has a product that you are paying for. My suggestion while it may not be accurate is that most MLM's are doing the same thing as a Ponzi scheme because the product is just a way to legally launder money in the Ponzi scheme business model.

If they didn't have the product then really they would just be taking money from one person to pay another, and since most MLMs that I know of don't make their money off the actual product then technically even though the product and opportunity exists they really are still just surviving off of the new recruits.

Once people stop entering the company will crumble, just like a ponzi scheme.

A real MLM company would be able to stay afloat because a real MLM company should be able to make enough money to run their business from product sales not new associate fees and dues.

thoughts?

Originally Posted by DTGeorge

The only issue here is that your INTERPRETATION of a ponzi scheme, and what a ponzi scheme ACTUALLY IS, are two different things.

An MLM is NOT a ponzi scheme.

That being said, I've had a couple close friends try to recruit me to their network, but I eventually had to tell them it just ain't happening.

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asiriusthoth

9 years ago

I have always thought if an MLM brings an actual value to the "customer" it's legal. If an MLM brings on value to their "representatives" and nothing of true value to customers it's illegal.

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goindeep

9 years ago

Yes.

It is inherent.

This does not mean the company that makes the product is acting fraudulently. However because there is almost no control in the recruiting process, the training, the marketing and investing of recruits this is where the scam comes in.

It's un-regulated.

You can have the best product e.g. Usana is really great. But the MLM/Network marketing process itself in flawed and it naturally spawns scammers. Sorry.

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seobro

9 years ago

Hey, I can speak from my own experience. Actually, I worked at an MLM company. Like we had most of our "partners" on auto ship and they sold few items if any. Yeah, it was a scam. I got into an argument with the owner and got fired. Let me tell you, this owner had a huge mansion. Also, a big yacht and a fancy sports car. He was making big money. Oh yes, many millions every year. People were not getting their commissions. Mostly, this industry is short on delivery and long on promise. Sadly, the whole episode left a bad taste in my mouth, but I cannot say that all MLM is a scam. That said, we were selling a pipe dream to people who were poor. Well, reality can be a night mare.

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Paul Marcoux

9 years ago

their not schemes, for most their not profitable.

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sethalexander

9 years ago

Interesting discussion.

Legit network marketing (MLM) companies are out there. If they weren't people like Warren Buffet wouldn't own them. The Pampered Chef is owned by Berkshire Hathaway.

Due to the physical structure of MLM companies (being in the shape of a pyramid) people have for a long time associated them with pyramid schemes. Funny thing is, most corporate structures are exactly the same looking.

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Jreed

9 years ago

I don't consider warren buffet owning a MLM reason to think it's legit. Heck, Donald Trump has an MLM, Sylvester Stallone has one and I'm sure many others.

They own them because they are hugely profitable. Whether they are legit can be debated, because people do make money, but most don't.

But that can also be said with anything in life.... hmmm

I just think that with an MLM the odds are already against you and having to depend on others while filling a bucket with a huge leak is just a miserable way to earn a living.

I'm sure the millionaires of MLM will disagree, and I would too if I were one of them, lol.

I was in an MLM this was about 6 years ago, My sponsor had been in for 4 years when he recruited me. so now he has been in about ten years.

He has hit the lower Executive director level a few times but never held the position.

He works his ass off and still to this day send me emails and text messages. He has his own hotel meetings, weekly conference calls. Attends every event and has a nice size team.

But he is not rich, I don't think he even makes $30K a year after expenses. He might as well work a full time job because he literally puts in 80 hours a week.

And for what? to wear nice suits and portray an image that you are rich? I think he is in too deep to ever quit because he probably feels he has invested too much and MLM is part of his identity even though he hasnt been able to live the life of freedom that MLM companies say is possible.

I could never work as hard and as long as he has for what he as achieved so I know for sure that MLM is not for me anymore.

I respect him for his work ethic but at the same time I question his mindset.

Originally Posted by sethalexander

Interesting discussion.

Legit network marketing (MLM) companies are out there. If they weren't people like Warren Buffet wouldn't own them. The Pampered Chef is owned by Berkshire Hathaway.

Due to the physical structure of MLM companies (being in the shape of a pyramid) people have for a long time associated them with pyramid schemes. Funny thing is, most corporate structures are exactly the same looking.

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SunilTanna 9 years ago

Warren Buffet owns an MLM company.

It shouldn't be necessary to point out that he isn't at all like being a distributor for an MLM company.

If you run into Warren Buffet, he is unlikely to try and sell you some of the company's product (kitchenware), or try to recruit you as a kitchenware distributor.
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- TheEye 9 years ago
  
  Like most things, it is only the 1% who become truly successful.
  
  With MLM you need to be able to network.
  
  You also need to know that you are looking for that one in a hundred people (of those who sign up). The person who will sell goods and recruit people who will sell goods.
  
  For reputable MLM companies, the monthly fee and monthly quota of goods sold should be to filter out the people who join but are not prepared to put in the work to succeed.
  
  If you are part of the 1% who can do this MLM can be very profitable.
  
  If you are part of the 99%, like I am, MLM is not for you.
  
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mervp

9 years ago

The modern, better MLMs don't have the pyramid aspect of a recruiting bonus, and are friendly towards letting the sales reps use current IM methods to generate sales and a downline.

Several are free to join, so there is no ugly prospect of manipulating friends or family by roping them into spending money, while knowing most will fail. Some examples of the next-generation companies are Vitel, RegenerationUSA, Yagooft, NAP.

When the company formerly known as Pre-paid Legal filed disclosures to the SEC a few years ago about the actual success rate of its reps, it reported that about 70% make virtually no money across 12 months, 25% make $1-$1,000, and 5% make more than $1,000.

I think MLM is as viable as any other direct sale field or business start-up opportunity, but the supporters should face the real numbers and risks involved, and not push it as a "guaranteed formula" for success as is too often hyped.

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MarketingMonk

9 years ago

AVON is an MLM company so if the company has some products to sell then i think it is a good MLM company.

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Alexa Smith Banned 9 years ago

Originally Posted by MarketingMonk

AVON is an MLM company so if the company has some products to sell then i think it is a good MLM company.

An interesting general conclusion to draw from just one example? There have also been plenty of companies with some products wound up by court orders for being illegal pyramids, too, you know? "Having some products" is far from a guarantee of legality, sadly.
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Kurt@viewswin

9 years ago

Hey guys, I have read most case law available as I am creating a legitimate social sharing system which is 6 months off. There is some really good information at the world federation of direct sellers website. There is an international code of ethics which everyone should abide by. It is not difficult to comply. Simply don't make false representations or try to rip people off and ensure that all your distributors are dong the same. If you want a long term venture you should comply with the code, if you are a distributor then ask yourself does what I am doing comply . We should support this because the industry is being allowed to progress under this premise of self regulation. (The WFDSA is not a law making body, it consists of direct selling companies)

The other point is the old "too good to be true test", which you can work out from the figures. If the system requires endless amounts of new recruits in order to pay the proceeding recruits then this model is obviously unsustainable. People need to just turn of the "get rich quick" part of their brain, and whip out the calculator. 1+1=2, not infinite wealth.

Would love to hear and discuss more about this as I think I have the concept mastered, and would love to be proved wrong now, rather than after we launch our system.

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Tsnyder

9 years ago

Not surprisingly, there is an abundance of ignorance
of the subject in this thread. Frankly, I'm not even sure
where to start. I think I'll ponder that for a while...

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Alexa Smith

Banned 9 years ago

Originally Posted by Tsnyder

Not surprisingly, there is an abundance of ignorance
of the subject in this thread. Frankly, I'm not even sure
where to start. I think I'll ponder that for a while...

It goes that way, in MLM threads, around here: one is ultimately up against "the voice of ignorance and prejudice", and that's rarely an easy voice to correct. Your replies on this subject do, obviously, significantly raise the value, the accuracy and the content of these "discussions", but equally nobody can blame you for getting irritated with the whole thing and not bothering at all (I sometimes feel that way in the "article marketing" threads).

:rolleyes:

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Kurt@viewswin

9 years ago

Originally Posted by Tsnyder

Not surprisingly, there is an abundance of ignorance
of the subject in this thread. Frankly, I'm not even sure
where to start. I think I'll ponder that for a while...

Please join in. sound like you have a lot to offer on this topic! Apologies if we are a little behind the eight ball, or if the topic has been done to death in the past!

cheers

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Kurt@viewswin

9 years ago

Originally Posted by Art of Marketing

As shared previously many MLMs have been around along time and can thrive.

If you want to be successful in MLM...focus on offering MLM leads and training to MLMers.

There can never be enough of either.

-Art

So people should sell training on how to be an mlm. Then those people sell more training on how to sell mlm, with hardly anyone ever selling any tangible products. I am not saying it wont doesn't work, (it must because people do it). BUT, if you made serious money, then it seems to me that the courts could find you liable as operating a pyramid scheme. If you only make a few hundred a week then you will probably never get sued because it is not worth it to anyone.

Does this business model really make sense though, selling training to train people to train people etc. wouldn't there be a market saturation point only a few levels deep?

Please don't take offense to these questions, I am honestly really interested in hearing how this is supposed to work. I appreciate your time in answering!!! because to me the idea doesn't make sense.

Thanks heaps

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Chris Silvey 9 years ago

If it fleeces its members and sells products, services, a tier structure to its members and its sole purpose is to draw people in the MLM and not offer products and services without any hitches to the general public , then Yes.

I have yet to see a MLM not does the above...

I really hate MLMs that fleece people that sell only a pipe dream.
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- Alexa Smith Banned 9 years ago
  
  Originally Posted by Chris Silvey
  
  I have yet to see a MLM not does the above...
  
  You haven't looked very far, then, Chris.
  
  There are several MLM companies which have been established for many decades, with millions of distributors worldwide, who don't do that at all, but concentrate on retailing very high-quality products at considerably lower prices than those at which their inferior equivalents are available in shops.
  
  One of them has nearly 10 Million distributors now, and owns and cultivates over 75% of the world's supply of Aloe Vera.
  
  Another is, I think, the world's 4th-largest greetings-card manufacturer.
  
  There are many others, too.
  
  But hey ... let's not let an inconvenient little thing like "facts" get in the way of such an enjoyable "theory" to which some people are irretrievably bound.
  
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Gengis

9 years ago

I am not involved in any MLM and not interested either but to say they are a Ponzi Scheme is probably very ignorant.

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Kurt@viewswin 9 years ago

There seems to be a bit of a grey area in the selling of services through mlm. As I hinted earlier the courts seem to be leaving the industry alone unless its a down and out pyramid scheme with no product or service being sold, (which is not what we are talking about). I have not found a case where the selling of training packages to new recruits as the product has been heard. Has anyone heard of litigation for this. I mean, you pay to join up and as a new member are required to buy the training package, you then recruit new members and make money from their purchases of their training packages and so on. The courts could interpret this as a pyramid selling scheme. However it hasn't happened to the best of my knowledge in any country except china, anyone know otherwise? It seems to me that if the wrong people lost money and sued as a class action with a decent legal team, and you got the wrong judge, you might be nabbed for it. (and some other MLM's), of course most could be defended successfully.

This is not what I do by the way, just wondered about it!

Interesting topic
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Mitch Barber

9 years ago

Hi Jreed,

That's a really great question! And I know why you might thinks so. There are indeed a lot of very low quality MLM companies I'm afraid.

I used to make a lot of money in MLM in the late 90's. The two companies where I made money had an awesome product that saved people money and gave people tremendous value. I tried a couple of others that didn't do that, and I didn't do so well.

Due the the laws surround MLM, none are technically a ponzie scheme, but if their products are not simply amazing and/or offer incredible value, then they will not likely have a long term lifespan.

So it's very important to choose carefully. And I also believe it's very important to look at the background of the founders. This will tell you a lot.

Actually, I could write a whole book on this subject. I'm actually a great fan of the MLM concept because you make money by helping others to do the same. Also you should get a lot of personal development out of it. The more people you help to earn and grow the more you will earn and grow.

After all that, I guess the short answer is this: choose your mlm company carefully. If it's a good one, you will get awesome value from participating in it.

I hope that helps

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Eldon Beard

9 years ago

Originally Posted by Mitch Barber

Hi Jreed,

Actually, I could write a whole book on this subject. I'm actually a great fan of the MLM concept because you make money by helping others to do the same. Also you should get a lot of personal development out of it. The more people you help to earn and grow the more you will earn and grow.

Thank you Mitch. This is what a lot of people miss about MLM -they are led to believe that just by signing up and doing some prospecting, they are going to start making a lot of money. What is seldom emphasized is the personal development and training that most new MLM business owners need.

Very few come into the business with all the skills they need as well as the proper mindset. You have to be prepared to work with people who have objections and questions, and you have to be strong enough to endure some rejection along the way. If you don't have or develop the people skills, you won't do much better (if any better) by going 100% online and buying leads or whatever. In the end, it is still a people helping people business.

Your own personal development + helping those you sponsor grow and get the right mindset is what it takes to make long-term income in this.

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bullseyemarketing

9 years ago

As someone that has been involved in MLM since 1982 I would say that easily 90% fail and most are scams or horribly managed. Very rare for a company to come along and stay the course. Amway and Herbalife are probably the best MLM companies to compare others to. They are tested. I also found that direct sales has made me much more income than MLM ever did. Money comes in chunks rather than small dollar amounts.

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Alexa Smith Banned 9 years ago

Originally Posted by bullseyemarketing

As someone that has been involved in MLM since 1982 I would say that easily 90% fail

Is there a form of "running your own business" of which that isn't true, though?

Originally Posted by bullseyemarketing

most are scams or horribly managed.

Sadly, this seems to be true. It seems to be true because of all the illegal pyramids pretending to be MLM. It's a great shame for the ones that aren't, because in the public perception they're all tarred with the same brush.

Originally Posted by bullseyemarketing

Amway and Herbalife are probably the best MLM companies to compare others to. They are tested.

If, by "tested", you mean that they've both had a long, extensive and very troubled international history of litigation and major regulatory problems, which they've survived at times by the skin of their teeth, then you're quite right. I think "Forever Living Products" is a far better example, myself. They haven't been caught out pulling even a fraction of the legal/ethical "tricks" that those other companies so repeatedly have.

Originally Posted by bullseyemarketing

I also found that direct sales has made me much more income than MLM ever did. Money comes in chunks rather than small dollar amounts.

I've found that internet marketing has made me a far greater income than MLM ever did, myself, but that's entirely about me, not about IM or MLM - my skill-set is just more suited to one than to the other. There are people of whom the exact opposite is true, of course.
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Young Financier

9 years ago

I've saw people mention Avon in an attempt to prove the validity of MLM. But let me ask you something: When you think of Avon, what is the first thing that comes to mind? Is it their product or their annoying distributors running around trying to recruit everyone in sight?

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Alexa Smith

Banned 9 years ago

Originally Posted by Sean Tudor Carter

When you think of Avon, what is the first thing that comes to mind? Is it their product or their annoying distributors running around trying to recruit everyone in sight?

Their product, clearly. One thing's for sure: few MLM companies have more of a reputation for making genuine retail sales to genuine retail customers than Avon does! It's one of the very big, very well-known MLM companies from which none of the people I've met has ever tried to recruit me. Their entire corporate ethos and culture revolve around presenting people with lipstick and perfume, not with business opportunities. You'll look a long way, indeed, to find a more retail-oriented MLM company than Avon. In their company training materials, even where they talk specifically about recruiting other distributors, the emphasis is pretty firmly on "turning customers into distributors" and on sponsoring people who will retail the products. In genuine, legitimate MLM, without customers buying products, nobody earns anything at all.

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realaffiliatereviews

9 years ago

ever since i tried working with amway 15 years ago, i havent liked network marketing companies. that was until my wife got involved in a very new company in the anti-aging arena. the company did $100 million in its first year, which was last year. and on top of this, we haven't even launched the company outside the US yet.

the only reason i really believe in network marketing and the company is because the product works, the product has a patent, and so noone can ever copy it. This is exactly why most people are joining. It's crazy the results the product is giving people in under 30 days.

If anyone wasnt to find out more about this solid product and business let me know. And if you're outside the US, being one of the first to be a part of the company in your country would be huge as well.

Thanks

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Are all MLM companies pyramid/ponzi schemes

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Just horrific :(

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One product page with variants vs. separate product pages

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