Friday, 7 August 2020

The Basics of MLMs - The Good, The Bad, And The Ugly

If there's one thing that's really nostalgic for me, it's flicking through an Avon catalogue. I remember being a kid and my mum buying her lipstick from there, picking the catalogue up from the doorstep and filling in the little form, only for it to appear a few days later. When we were older, our cleaning products always came from a similar catalogue. Then, in my teenage years; pyramid schemes fell out of favour. (and rightfully so). But, how did it happen? And what changed that lead to the rise of the multi-level marketing scheme?

Simply put - under the consumer protection from Unfair Trading Regulations 2008, pyramid schemes were made illegal. They were considered 'unsustainable' and it was deemed that 'the only people that usually profit from a pyramid selling scheme are the ones who create them in the first place' (Monzo.com, 2019). Pyramid schemes rely on you paying an upfront fee to sign up, and thereafter convincing other people to do the same (wherein you take a cut from the sign up payment that they made). It took a few years after the new legislation, but the premise of the scheme was soon redeveloped and made popular once again as a scheme known as Multi-Level Marketing, or MLM; and trust me, you'll have been sucked in by at least a few, have DMs off at least a few representatives, and you'll likely have bought from at least one or two.

A picture of a work from home set up

Though they're often billed as a quick money making scheme, readily available income reports for most MLM companies online show the realistic numbers that often a heavy percentage of people signed up make the lowest bracket of money possible within the company. It's not just about sales though; time and time again MLMs have proven that being predatory works and, to climb to the top bracket of that money making, you need to be willing to have people you know, respect, or once met at a party in University also join this scheme.

So what separates an MLM and a Pyramid Scheme?
Short Answer;
'Even though pyramid schemes might sometimes look like an MLM business, they don't actually sell a product or service.' (Monzo.com, 2019)

Long Answer; 
You can no longer gain a specific bonus from signing up another member and adding them to your team as this is considered illegal. The focus for an MLM comes from earning money selling their available product or service. That's not to say however that you don't make money from them in other ways - you can make money from their purchasing or selling products, likely at varying levels of commission and you still also likely earn a level of commission from anyone that they then sign up, but only when they make sales and not just for purely existing as a part of the business hierarchy being created. This may, however, include when they buy a kit that is required at sign up; thus creating a hidden sign up bonus that has been disguised as something else.

Can you make a real wage from an MLM scheme?
Short Answer; 
'The vast majority of commissions paid by MLM companies go to a tiny percentage of TOPPs (top-of-the-pyramid promotors) at the expense of a revolving door of recruits, 99% of whom lose money.' (Taylor, 2011)

Long Answer;
There's a reason that even people within MLMs often call those making profit 'The 1%'. Truly, I think since 2011 this probably has changed slightly, if nothing else due to the use of social media on a much wider scale, however almost every income disclosure agreement shows that over 80% of people who sign up are in the lowest earning bracket. There are, of course, many ways that people can become profitable however, especially without recruiting and earning commissions from other people's sales, it's very unlikely. A very popular fragrance MLM is currently completely free to join and displays between just under £5 up to £20 (numbers may vary, however these are those found readily online) commission per product on one of their distributors websites. With the lowest average monthly income in Liverpool coming in around £1,791.66 (Salaryexplorer.com, 2020) you would need to sell around 359 of the lower commission items, or 90 of the higher commission items (or some mix of both) every single month to earn the commission needed to meet this lowest average on your sales alone. Some other popular MLMs offer a base rate of 25% commission per sale, meaning total monthly sales would have to consistently equal £7166.64 to meet this lowest average, without including the sign up or 'kit' fee needed to pay into the company to begin with. This is an example of course, many of us live on less and some commissions can be slightly higher, but it's still an alarmingly large amount of sales to need to consistently make in order to comfortable bring in a reliable salary. The fact is, even at a 50% commission, you would still need to sell £3583.32 worth of product to match the lowest average salary detailed above.

This is, of course, where hiring other people come in. If the money needed can be split across commissions made my six or seven people that you have hired, this becomes much more profitable in a much more hasty fashion. However, that relies on them also being able to sell a huge amount of product, and for them to become profitable also hire a huge team to help them do so. As stated above, unless you're close to the top of the pyramid, your earnings are likely to be minimal.

Is an MLM a viable long term option?
Short Answer;
'Over a five-year period, at least 95% typically have left the company; and usually after ten years, nearly all but those near or at the top of their respective pyramids will have dropped out.' (Taylor, 2011)

Long Answer;
95% of people participating within MLMs don't seem to think so. The very best case scenario for the average MLM distributor is that income will be variable and sporadic in a way that doesn't allow for any real financial security for the long term. In fact, at the bottom of every single contract or leaflet I have read with regards to becoming a distributor the exact same warning is printed; 'do not be mislead by claims that high earnings are easily achieved' and yet, typically, this is exactly what distributors in messages are trying to sell; the idea of an easy, remote home job, where income is readily available. Statistics seem to show that for most people, just like their pyramid scheme predecessors, MLM options continue to be unsustainable, at least over any substantial period of time.

And so you may be asking yourself; if statistics show so little people earning money, at the very least consistently and in an ongoing way, why does the MLM scheme seem more popular than ever?
In my opinion, that one's easy. With people currently furloughed, redundancies being commonplace, and more people that ever being settled and comfortable working remotely it seems obvious that people will be more likely to be won over by a pitch that promises good money, your own business (which is debatable, but we'll come back to that another time) and the option to work when you want, where you want in whatever way suits your needs. MLM schemes are now preaching to a captivated audience that need exactly what they're promising, and their (arguably intentionally) confusing materials and explanations of practises help to sweeten a deal that's already sickly sweet during the current times. Though I really do hope that anyone out there already part of, and happy within, an MLM is doing well, it seems to me personally that the facts don't lie, and for most people partaking it could be a really slippery slope to something genuinely dangerous and potentially financially damaging.

If you've ever been part of an MLM I'd love to hear your stories, good or bad, so feel free to drop me a line on twitter or instagram.

Sammy xo.

No comments:

Post a comment

 
BLOG TEMPLATE BY DESIGNER BLOGS