I’ve recently become interested in the concept of Multi-Level Marketing companies and have watched some of the videos of a Youtuber called Illuminaughtii. (Cool Name!)
I didn’t know anything about MLMs before I somehow managed to stumble upon her channel one day, so I imagine some others here didn’t, either.
Except...we actually did!
A few of the more well-known MLM’s include companies such as Avon and Amway (which is apparently one of the first and largest MLM companies), so I have to imagine that many readers out there, particularly those from the U.S., have heard of Avon.
If you’re like me, then you thought the, “Avon Lady,” or the, “Ask me About Avon,” yard signs and bumper stickers that you might remember from decades ago just had to do with someone personally selling makeup, fragrances and garbage costume jewelry, but there’s actually more to it than that, which we are going to get into a bit today.
THE BASICS OF MLMS
In its most basic form, which is rarely the case, a, “Representative,” of an MLM sells products for a particular company. This representative acts as an independent contractor, which will usually be the individual’s legal classification and would offer the products to their friends, family or might look for people that might wish to purchase the products on various forms of social media.
Essentially, this person is an independent contractor who would earn commissions on these sales and is not actually guaranteed to make anything, by way of profits. With a standard commission model---the only experience I have being furniture sales---the company actually paid us a guaranteed hourly wage (as this was a physical retailer) and then we would get a percentage of our sales on top of that.
Prior to becoming a supervisor at a telemarketing call center, we also worked partially on commissions. In the call center business, we had a concept known as SPH (Sales per Hour) for our credit cards and credit card fee products/services. The way that worked is that you would earn commissions relative to the, “Sales goal,” for whatever program you happened to call on at any given time. The commissions would range anywhere from $0.00-$2.00 and would be added as an hourly bonus, in fifty cent increments, based on how much you outperformed your goals.
In essence, you work at the physical location and are compensated extra based on how much you do in sales. At least, simply put. For furniture sales, at least, it depended on what type of item was sold (wood, upholstery, mattresses were our general categories) and, in the case of mattresses, you got a higher percentage based on how much the mattress cost.
However, MLMs don’t do things quite so simply and aren’t exactly working on straight commissions of their own sales, either. At least, not if they actually want to make any money. Consider Avon’s own earnings chart, which can be found here.
Okay, so it looks like Avon Representatives did a total of 40,100,000,000 in sales for the year 2020, which is 40.1 billion in sales. Pretty good, right? They must be raking in the cash! All 7,700,000 sellers!
Wait, what? How many!?
That’s right, 7.7 million sellers, according to Avon themselves.
That means that the average seller sold $5,324.68 for the year, though Avon says $5,208, so we will go with their number. Either the number of sellers rounded up, the sales (in hundreds of millions) rounded down, or both.
So, $5,208 in sales. Avon has this to say:
7.7 million direct sellers (a 13.2% increase over 2019) built a business full-time (30 or more hours/week) or part-time (fewer than 30hours/week).These people sell products and services to consumers and may sponsor people to join their team.
Hold on, that doesn’t seem like very much in sales. Even at an average of 10 hours per week, the average representative (if all of them worked ten hours per week) would only be doing about $10/week in sales. That can’t be good.
Don’t worry, it gets worse. Avon’s products obviously cost Avon something and Avon certainly needs to profit from their sales themselves, so not all $5,208 of that is going to the representatives.
In fact, I found a chart that gives a commission breakdown here and lists the following percentages for commissions. It’s broken down into Beauty Commission as well as Fashion and Home Commission, so we will only be looking at Beauty Commission (which is sometimes higher than 25%) as it is a best case scenario.
We need go no further for the time being. We have already exceeded what the average Avon representative is doing in annual sales, so let’s check our commission that they made based on Avon’s numbers:
(4999 * .25) + (209 * .3) = 1312.45
Okay, so that’s something. Maybe these people are EXTREMELY part-time, so let’s figure out how much the average Avon representative is earning in commissions, per week.
1312.45/52 = $25.24 (Rounded)
Well, there you have it. As long as you’re pulling those kind of numbers and only working less than four hours per week, you’re riding that Federal Minimum Wage train. Good times. You can eat at McDonald’s, like, twice with that kind of windfall.
Let’s get into some more from Avon’s Earnings report, because they list the total number of preferred customers and discount buyers at 41.6 million! That’s huge!
Wait a minute. What the hell? Let me do something really quick...7.7 million sellers...41.6 million customers on the year...40.1 billion in sales…
41.6/7.7 = 5.4026 (Customers PER Representative)
40100000000/41600000 = $963.94 (Annual Spend Per Customer)
$963.94 * 5.4026 = $5,207.78 (Sales per Representative)
Okay, so the numbers are all coming out in the wash the way that we would expect them to, but why the hell would you need one representative for every 5.4026 customers? In what world does that make sense to have that many employees?
Let’s go back to the furniture store for a second. When it came to mattresses, commissions would range from a scant 2% (bargain basement mattresses nobody bought anyway) to 8%, depending on the price of the mattress. Our cutoff for it to be 8% was $1,200, as I recall, so $963.94 would be in the 6% category.
Now, let’s imagine if I only had six customers per year. We’re going to be generous and call it six. First of all, I would be fired if I only sold to six people in a month, so we already know this is getting ridiculous. I sell each of these people a mattress at $963.94 and make:
(963.94 * 6) * .06 = $347.02 (Rounded)
Start with that wouldn’t have been enough to keep me there. That’s less than $1 per day in commissions, and even though the hourly at that job wasn’t terrible, I could do better elsewhere. They would have fired me and I would have wanted to quit anyway!
Let’s compare Avon to a physical makeup retailer such as Sephora.
According to Staista, Sephora did 5.9B in revenues for the year 2019. That’s less than Avon, but now I look to see how many employees that Sephora has and Forbes has them listed at 39,000 employees. The revenues on a per-employee basis for Sephora are, therefore, about $151,282.05, assuming these sources are correct, which makes a hell of a lot more sense.
I’m no expert in any particular industry, but I do know, at the furniture store, I’d darn well better at least be selling items equal to what I am getting paid! More than that, actually, since we were only marking up the items 100-125% compared to what we were paying for them. I figure they break right about even on me if I am selling at least double what I am being paid...not to mention their other costs.
That leads to the following two questions:
- How can a company survive, let alone profit, when the salespeople aren’t selling jack?
- How can a company pay 25-50% commissions...on anything!?
The answer to #1 is because they aren’t employees to begin with. Though MLM’s might have titles such as, “Representative,” “Supervisor,” or even, “District Manager,” (!!??) they aren’t employees of the company.
In addition to those commissions being paid out, let’s not forget that there are costs associated with distribution, warehousing. Certainly, Avon does have actual employees who have to take care of various things, such as customer service, etc…
But, the salespeople aren’t necessarily making anything.
According to the most recent census, there are 331,449,281 citizens of the United States, so apparently, 1 in every 43.05 citizens (rounded) sells for Avon? How does that work? We’ve already established that the sales per representative are dwarfed by Sephora.
So, how much commission do Sephora salespeople make? Exactly 0%. Nothing. Not a dime. They just get their salary or hourly wage, depending on their position in the store.
So, let’s look at what stands to reason. It stands to reason that Avon is a profitable business. In fact, 2020 (source: Statista) is the only year of the last ten in which they took a loss.
Let’s take a peek at one of Avon’s products.
So, here we have some Anew Lash and Brow Activating Serum. I’m not going to pretend to know what that means, but I know how to retype words, so let’s compare that $60 asking price to some other websites and see what others charge:
Well, the first listing I get is from Amazon for the same product for $18.26 of the Avon Lash and Brow Activating Serum. Someone has it and doesn’t want it. There are other Amazon sellers selling it for less than that as I write this, including one for $17.40, which includes free shipping.
I’m not going to reference the individual sellers by name because some MLM’s (and I don’t know if Avon is one of them) tend to get displeased when their representatives are selling the items on third-party websites.
How did these folks come into the Avon products? Why are they selling them for so much less than Avon seems to want for them? Did they, “Self-Sell,” get the commission and are now trying to unload the product. Do they sell to themselves (or someone they know) to improve their commission bracket for future orders? How much did the representative have to pay Avon for this product? Did they get a discount?
We don’t really know any of these things, but it is strange that someone would buy this Avon product for $60 just to sell it, ‘New,’ for around 30% of that price, isn’t it?
Start with that a minimum of $15 of that sale (if someone actually managed to sell it to someone else at that price) would be commission, and as much as $30 of it, if the seller was in the top bracket. That brings the amount Avon sees to $45, less manufacture, shipping, distribution, the usual things.
Let’s look at how Avon defines, “Preferred Customer,” which makes up the vast majority of their customers:
Preferred customers have signed a preferred customer agreement with a direct selling company where they may be eligible to pay wholesales prices for products/services.They are not eligible to sell products/services to others, and they are not eligible to earn.
It would seem that the majority of Avon’s customers are paying wholesale prices as a result of the fact that they deal with one specific direct selling, “Company,” which I take to mean, “Avon Representative.” So, the answer to who is paying the asking price of $60 for this Anew crap is, basically, “Suckers.”
The other customers are, “Discount Buyers,” which are defined as:
Discount Buyers Are Eligible To Purchase, sell, & sponsor, but are product lovers, only purchasing products/services they personally enjoy and use at a discount.
Okay, so the answer to who gets a discount off of that $60 asking price could be boiled down to, “Almost everybody,” but the reps are still making that 25-50% commission, so how the hell is all of this happening with Avon still making a profit? Nothing about this makes any sense.
Also, these so-called, “Discount Buyers,” are also eligible to sell products and to sponsor the Avon representatives of the future. With that, how many of these, “Discount Buyers,” are actually Avon Representatives themselves?
I could be wrong, but I’m going to guess roughly 7.7 million of them.
So, wait a minute...if I am selling products, but the products that I myself buy are being counted as direct sales revenues...and I count as a customer...does that mean that there are only some 34 million genuine straight-up customers and that the average representative has fewer than five customers per year?
That’s sure what it sounds like.
It also sounds like these sales are somehow making their way to, “Direct Sales,” figures, which then makes you wonder how much of these sales are being done to non-Avon parties and how much of them are just the representatives buying from themselves? Do they make a commission from selling products to themselves, or are the prices just decreased by what would have been the commission amount?
Wait a minute...WALMART is selling Anew eyelash and brow serum for $28.43? What the hell? Should I ask Walmart about Avon? Is the Walmart greeter my, “Avon Lady?” How can Walmart sell the same product, on direct, for less than half the price.
What the hell even is eyelash and eyebrow serum?
Oh, it’s lengthening mascara!!!
Yeah, I still have no idea what the hell that means, but now I know how to comparison shop!
Hourglass Instant Extensions: $18.00-$29.00
Maybelline Lash Lift: $7.69-$10.49
Kevyn Aucoin The Volume: $28.00
Pat McGrath Labs Dark Star Mascara: $30-$31
Glossier Lash Slick: $16.00-$28.95
Okay, that’s enough. I have no idea if any of those things are better than the others, but it sounds like some of them are boutique brands...I have to assume at least one of them is as good as Avon, and ALL of them are half of Avon’s asking price, or less.
According to Avon, the consumers had this to say:
- 84% of women agreed lashes look longer after 8 weeks of use**
- 84% of women agreed lashes look fuller after 8 weeks of use**
- 81% of women agreed lashes are visibly healthier after 8 weeks of use**
But, wait, hold on...we’ve already established that a good many of them sell the product, so of course they are going to give it favorable reviews? In fact, barely any of the customers are not in some way affiliated with a direct seller, so who’s going to review it poorly.
Amazon gives it a 4.4 star rating on 44 Reviews, but some of the written reviews are mixed.
Either way, we have discovered how Avon can afford to pay 25%+ commissions on this product---the price of the product is, almost objectively, ridiculous. 25% commission ain’t a thing when your prices are almost double what a similar product can be had for elsewhere.
We have established a few things:
- Individual sellers do not, on average, make very much money annually.
- The price of some of the products is ridiculous compared to what you might find elsewhere.
- Some items sold at Sephora sell for less than half of items that do the same thing, or, supposedly do the same thing, at Avon. However, Avon pays 25%+ commissions and Sephora simply pays their employees whatever both parties agreed to them working for and does not pay commissions.
So...does anyone from Avon make any money?
IT’S NOT ABOUT THE PRODUCTS
That’s where we are going to get into the other components of Multi-Level Marketing. It’s not REALLY about selling products.
According to Avon themselves, some 1 in 43 Americans sells for Avon. You couldn’t have 1 in 43 Americans sell anything and have any hope of them making money on it.
The question isn’t, “How do they all make money?” The real question is, “How do any of them make money?”
The answer to that is that Avon representatives do not just make money on their own sales, they actually make money on the sales of other Avon representatives.
Imagine if you were working at a furniture store as a salesperson and the store had a certain chain of command that, bottom-to-top, looked something like this:
Assistant Store Manager
(Various Corporate Positions)
Okay, that’s basically what our chain of command looked like, except there were obviously hundreds of stores, so that many more people at Store Manager, or below.
The next thing that you will have to imagine is that none of these are hourly or salaried positions, at least, not until you get to the bottom of my list. Instead, all of these positions are relying on sales from all of the entities who are under them. Along the way, each of the entities from bottom (of my list) to top get a commission.
For the sake of keeping the example simple, let’s say each store has five salespeople, two supervisors, two assistant store managers, one store manager, one district manager per twenty stores, and one regional manager per 100 stores. We’re also going to say that each store also sells home furnishings, which adds a supervisor, and the smaller stores only need one Assistant Store Manager instead of two, so the average is 1.5 per store.
For 500 stores, the organizational structure might look like this:
RM RM RM RM RM
What a fascinating structure! It almost looks like something I read about in World History class. Something that the Egyptians built...now what was that darn thing called?
The difference in furniture sales is that I was getting an hourly rate above state and federal minimum wage as well as my commissions. Also, nobody in what we would call the, “Chain of Command,” but MLM calls an, “Upline,” (more on that later) received any of my commissions. I think maybe the Store Manager and Assistant Store Managers might get a performance bonus, but that was based on what the entire department store did. My earnings were just my earnings.
The way that you make money in an MLM is that you have to recruit people to compete with you!
Your Own Competition! (Well, Kind Of)
The way the furniture store worked was that we all earned an hourly pay just for being there AND commissions on all of our sales. Commissions were important because, while you didn’t keep your job or not based on commissions, you DID keep your job or not based on your sales per hour compared to the other salespeople.
That’s why we had a concept called, “Downtime.” For example, if I was putting up sales displays and could not take any customers for that reason, then I would fill out a form, round up to the next (not nearest) half hour and say that I wanted that to count as downtime against my sales per hour goal. Being one of the three college students who worked there, we were often given the physical tasks---including some assembly and moving---which would have put us at a significant disadvantage in sales per hour compared to the older salespeople who only took customers.
The way the furniture store worked was that they would look at SPH (Sales Per Hour), and if you were in the bottom two, two out of the last three rolling months, buh-bye. Didn’t matter if you were number #1 the third month; you just couldn’t come in Bottom Two two of the last three months.
Of course, I was new, so I inherited a, “Customer book.” There were always eight salespeople, so you would get the, “Customer Book,” of whoever quit/terminated before you. As you might expect, given that three of the salespeople had been there for ten, or more, years...that wasn’t a great customer book. The customer book basically gets mostly passed along from one terminated person to another!
So, you had to call customers who had not made a purchase in more than six months and you could reach out twice per year, unless they asked you not to call them anymore. That call would go something like this:
Good evening! I’m Brandon James with (redacted) Furniture. I was just calling to let you know that James is no longer with the company, so I am your new furniture salesperson. I’m generally scheduled Tuesday-Friday evenings and work morning to mid-afternoon on Saturday and Sunday. We can also make an appointment if my normal hours are inconvenient for you.
And, then you’d just talk to them from there.
Most of the time, even for the seasoned sellers, people would just come back in and talk to anyone. However, everytime you could get a repeat customer that, “Asked for you,” that gives a huge advantage.
In fact, I worked with a lady who I won’t identify by name (just in case), but she tried to get me fired!!! Apparently, some customer had purchased from her three times previously, but they ambled into the store when she wasn’t there and I made a sale. This customer made a $3,000-something purchase and didn’t ask for her or mention her at all.
Anyway, I didn’t look at the customer's “Sale History,” because the customer was standing right there looking at the computer and I had no reason to. I even put their invoice in my sales book.
A couple months later and the lady gave them a follow-up call, but they told her they just bought from me a couple months back, so she looked it up and complained to management. I figured I’d be fired; this particular lady seemed to get her way with everything.
So, management drags yours truly into the office with my, “Fellow Co-worker,” and they explain the situation. I asked, “Well, did you ask the customer if they asked for you?”
She replied, “No, that would be rude.”
I said, “Okay, because they didn’t. Call them again, if you want to. You can even have the commission. I don’t care; I’m clearly not as petty as some people around here, all I care is that I want the sale to count towards my number for that month or I might end up bottom two.”
She bellowed, “YOU SHOULD BE FIRED FOR STEALING CUSTOMERS!!!”
I looked at the Store Manager and said, “I shouldn’t have to put up with this and I had better also be getting downtime. Call the customer.”
The Store Manager did and, while the customer said to pass the female salesperson their apologies, they also said they did not ask for her.
Speaking of apologies, did I get one? No, I did not. At least I wasn’t fired.
Anyway, that’s the nature of competition. You have to compete not only for commissions, but even if you don’t care about the commissions, then you have to compete to keep your job.
You have to compete to keep your job AND you have to compete for commissions.
I would work weeknights, so that basically saddled me into a few of the slowest shifts of the week, except for Fridays. I’d sometimes get so bored in the furniture department that I would just trawl around the store trying to sell the store’s credit card to people. It’s not as if I was going to see any customers anyway. I tried to ask for downtime if I were to do detail cleaning, but of course they said that is the job of custodial.
Anyway, it would usually be myself and one other salesperson, so we would make a gentleman’s agreement. One of us would go up to the other and simply say, “Alternate,” then offer a handshake. The handshake was always accepted, so we could sit at our desks and pretend to be doing something professional knowing which one was going to take the next customer to show up, sight unseen.
When it was busy enough, usually weekends, you wouldn’t make such an arrangement. You had to have good eyes to know who was browsing and who was buying; you wanted to talk to the people who were buying. I focused on mattresses. I don’t know what it was about the way I presented them, but I could sell a mattress to anyone who was even remotely considering buying. Most of it was just trying to get them to lay down on the thing for a few minutes!
“It’s easier to get in their wallet when they’re laying down!”
Anyway, imagine if we had 100 salespeople on the floor at all hours! It was never fewer than two and never more than five.
As an aside: Actually, the only time there was ever only one, it was me, because I was the only one to volunteer to open up for Black Friday. Nobody else wanted to come in that early. That two hours I had the floor to myself beat a few entire two WEEK periods that I had!
If there were 100 salespeople on the floor all the time, you might go an entire month without even talking to a customer. As a consequence, you’d be tied with several other people for $0 in sales and would be in the bottom two.
Avon is that equivalent.
Avon does not do enough in sales to sustain 7.7 million salespeople with anything even approaching minimum wage. In fact, NOBODY does enough in sales to support that.
WALMART ONLY HAS 2.7 MILLION ASSOCIATES!!!
Just do the math. How could anyone make money on straight sales?
The answer is: They don’t.
Creating Your Own Competition
For an Avon rep to succeed on straight sales commissions from her own direct sales is probably possible...maybe a handful do it...but it’s ridiculously unlikely for any given individual.
You succeed by creating your own, “Competition.”
Think about how little fundamental business sense this makes. “Recruiting,” other Avon representatives from your own circle of people that you know, if you were relying on straight up sales, would be a disaster. It would be like three blocks of ten storefronts each being nothing but coffee shops in a town with a population of 3,000. They couldn’t all survive!
Generally speaking, if you are a sales rep, you DON’T want millions of people selling the same thing that you do. That becomes even more true when it’s an, “Unsought good,” which means that the customers aren’t even coming to you; you’re going to the customers.
So, why would anyone who sells Avon be highly motivated to convince other people to sell Avon?
Okay, so the person who recruited you to sell Avon and everyone who recruited them is called your, “Upline.” In addition to the commissions that you get on your own direct sales, (and the commissions that your upline gets on their own sales, not that all of them necessarily need to sell anything themselves) your upline also gets a piece of your sales. That’s another reason that the products are so overpriced (for many products): the person who directly sells them is not the only one earning commission!
It works the same way with your, “Downline.” Essentially, you recruit people to sell Avon and you get a piece of their action, plus the action of anyone who they may recruit.
That’s one of the key differences between single-level and multi-level marketing. I’ve actually done single-level marketing, though not as a full-time job. My job was to sell the sponsorship banners (the ones that get hung off of the bleachers or on the fences in a sports stadium) for a local High School. I sold the banners, then I got a percentage of whatever I managed to sell...it was simple and straightforward.
It is the, “Multi,” in Multi-Level Marketing that creates the pyra---triangle-looking setup. While someone with a small downline might still be riding the bottom of the pyramid, the more substantial your downline gets (and the more sales partially attributed to you) the more likely you are to move up the pyramid.
Of course, those at the very top have it pretty well...they just let their downline do the selling and collect the money. If they do much of anything at all, it’s mostly trying to recruit more people to their downline. However, the people recruited by individuals who are part of their downline also become part of that downline.
Essentially, the little worker bees do their puny sales numbers and get their puny commissions whilst everyone on their upline is also getting a piece of their action until it gets down to them.
In Any Other Industry
In any other industry, these people would be your direct competitors! It’s just like the furniture store, every sale someone else makes is a sale that I theoretically could have made.
You are directly selling products or services to other people, so why would you want MORE people to sell the same product or service? Generally, competition is great for the consumer and is NOT good for anyone else, unless you count that it fosters innovation. In the MLM model, creating your own competition is good for you and everyone on your upline.
“Someone’s choking, is there a doctor in the house?” (Probably not)
“There’s a mascara emergency, is there an Avon Rep in the house?” (Fair chance there is--provided she can afford to eat there.)
There’s simply no other context in which 7.7 million people selling one type of item (and, remember, Avon is far from the only seller in that industry) where that makes sense.
IS IT A PYRA---THE P WORD?
Investopedia defines, “Pyramid Scheme,” as:
A pyramid scheme is an illegal investment scam based on a hierarchical setup of network marketing. The most famous kind of pyramid scheme is, perhaps, the Ponzi scheme.
New recruits make up the base of the pyramid and provide the funding, or so-called returns, in the form of new money outlays to the earlier investors/recruits structured above them in the scheme. A pyramid scheme does not usually involve the selling of products. Rather, it relies on the constant inflow of money from additional investors that works its way to the top of the pyramid. This means that multilevel marketing schemes are not classified as pyramid schemes and are not necessarily fraudulent.
Wait a minute? So...what’s the difference?
The difference with multi-level marketing is that there is an actual product, or service, being directly sold to consumers. Pyramid schemes are based on exactly nothing, whereas MLM’s are, at least in theory, mainly based around selling something to consumers.
The Federal Trade Commission investigated the number one MLM company, Amway, and issued a decision in 1979. You can look that decision up for yourself, if you like, but the key points are as follows:
1.) There must not be a direct entry fee to engage in the selling.
-To be clear, that doesn’t mean that being a salesperson doesn’t cost anything. Depending on the MLM, the salesperson might be required to make a purchase from the company themselves, purchase certain starting amounts of inventory for sale, sometimes known as, “Starter Kits,” and might be required to purchase other marketing and promotional materials from the company.
2.) The representatives MUST sell products in order to be compensated.
-It’s debatable to what extent this ends up being true, considering that people in the upline are essentially given credit for the sales of those in their downline. Either way, there is a product or service actually being sold...and that is generally sufficient unless the company somehow draws closer scrutiny.
3.) (Amway) would buyback excessive inventory.
-Okay, so for MLMs where the representative has to, “Stock,” upfront, the company would buyback inventory that could not be sold. It might not be strictly necessary for all MLMs to do this and the policies regarding inventory buyback can be expected to vary greatly.
4.) Requiring that products be sold to retail consumers.
-In other words, the general public. Essentially, if other sellers were the exclusive customers of the goods being sold, then it would essentially just be a pyramid scheme with a product tied to it. Obviously, having every single customer also be a salesperson would not be sustainable...who would actually make money?
The FTC also demanded that Amway cease the following practices:
1.) Allocating customers to their distributors.
-That would essentially just make the distributors employees, for one thing. The customers cannot go to the MLM parent company and then the company directs the customers to individuals by any proportionate means. The representative must create the representative’s own downline and they must all find their own customers.
2.) Cease retail price fixing.
-If the sellers are truly independent contractors, then they should be able to sell the products for whatever price they want to. If they are forced to buy their own inventory, but then are also forced to sell it according to strict pricing directives by the company, then it’s really no different than if a retail store forced the employees themselves to pay for stocking the shelves and then gave them a commission on sales.
3.) Must disclaim price lists.
-Any materials with price lists must disclose that they are the suggested retail price, basically.
4.) Earnings disclosure.
-The way the earnings disclosure works is that an MLM essentially has two choices:
A.) They can disclose the average amount in sales for each representative.
B.) They can disclose sales per representative in a more comprehensive way, but if they do that, then they must break the figure down into ranges and specify how many sellers end up in those ranges.
Herbalife has provided ranges for first-year distributors and all distributors here:
First year distributors breakdown thus:
*50% Earned more than $201 in a month.
*10% earned more than $1,246 in a month.
*Top 1% earned more than $5,913 in a month.
With that, we also know that 39% earned less than $201 in a month.
How do the commissions work? Well, the commissions work on an, “Up to 25%,” sort of basis. Remember, the representatives can basically sell the product for whatever they want to, so the example that Herbalife themselves use is a product that looks like:
Suggested Retail Price: $42.85
Distributor Price: ($32.67)
Potential Profit: $10.18
Of course, that would not include shipping and tax, if applicable.
What’s usually going to happen is that the salesperson will try to, “Middle,” the person to whom they are selling the product if they can’t get suggested retail price out of them. They will then want to sell it for more than the price they pay, but less than suggested retail price.
The same product as pictured can be found being sold on Amazon for a little less, but not much less, than the suggested retail price at the time of this writing.
Of course, Herbalife (multiple sources, including Amazon) prohibits representatives from selling Herbalife products on Amazon and want Herbalife to be sold in direct transactions via ordering for the customer from the Herbalife website.
Now, let’s think about this...if you’re Herbalife and MORE of your products could be sold if you let the representatives use Amazon, then WHY wouldn’t you want them to be selling on Amazon?
In my opinion, it’s because such a notion screws up the whole upline/downline nature of the industry. Instead of creating competition for themselves, the representatives would instead be acting like an actual business would, selling their products by any means necessary. Imagine if all Herbalife sales consolidated to a handful of online retailers operating via Amazon, or some other thing, the whole upline/downline model would fall apart.
What would Herbalife do without all of the Herbalife drones running around trying to sell the products, nearly 40% of whom that don’t make $201 (or more) per month? Why...I guess they would have to advertise, open retail stores, hire employees...you know, the things normal businesses do.
Also, think about this: According to Herbalife themselves, they had 90,000 distributors, of whom, about 30,000 were first year. If Herbalife were a real sales company and had 33% employee turnover annually...let’s just say that’s not a great sign.
What ends up happening is that most representatives try it for a year (or less), quickly discover that it’s mostly futile to try to find enough people to actually sell the products to (that’s a sucker’s game, the real goal is to create a downline) and give up. Hopefully, they didn’t lose any money, but more on that later.
So, are the Multi-Level Marketing companies pyramid schemes?
Pragmatically, usually. Legally, no. They are engaged in (mostly hopelessly attempting to) selling a product.
WHAT MAKES IT A GAMBLE?
“Time is money.”-Ida Saxton McKinley
“Don’t trust quotes you see online.”-Everyone
It’s true. The first thing that a person needs to spend is time, whether that time be spent fruitlessly hoping to sell enough product (Ain’t happening) to eke out a living, or spending time trying to recruit one’s downline.
That time could be spent doing something that is more likely to bear fruit, such as looking for a job.
I guess such people could also take a closer look at casino advantage play, but unlike MLM’s, I don’t want more competition.
Herbalife sells these packs:
Preferred Member: $34.95 (I think this gets you the discount, but you can’t sell Herbalife.)
Conversion Pack: $59.95 (Go from Preferred Member to representative for only $60)
International Business (Distributor) Pack: $94.10
International Business Super Started Pack: $124.10
So, yeah, you do have to shell out a little money to begin being a distributor.
Usually, you start working for a company and they pay you as you show up. The only outlay you might have, at first, is if they have a particular dress code and you don’t already own any clothes like that. Training is unpaid, sometimes, but most states are even cracking down on companies that want to engage in unpaid training practices.
In fact, I can’t think of too many jobs where you actually have to pay to start working. I guess that’s true at some strip clubs, which isn’t meant to disparage exotic dancers. Hell, if nothing else, a stripper couldn’t dance without somewhere to dance (though the internet is changing that) and the venue does the advertising, so strippers could actually be argued to be getting something for their shell out.
I guess Herbalife will allow a representative who resigns to return any products that they have purchased within the last year for a full refund, so maybe that’s why 33% of their representatives are one year, or less. They claim they pay for shipping, but if the return process is easy, then I would want to hear that directly from the mouths of some of the distributors.
Anyway, the gamble is that you shell out your time (definitely) and maybe shell out some money, depending on the company.
ARE MLM’S ETHICAL?
Oh, gosh, why are you coming to me for ethical advice? I recommend a better source of ethics.
I mean, the MLM’s often sell legitimate products. Makeup seems generally legit.
Tupperware is an MLM and Tupperware products are legit; that business actually started out with home demonstrations (the seller would leave the tupperware and carrots with the buyer---credit: Illuminaughtii), so that the potential customer could actually see how great Tupperware was for food storage.
For me, I didn’t even know Tupperware was a company, per se, until I started looking into all of this. I thought that the items were just called, “Tupperwares,” they’re sold in the grocery store under the, “GLAD,” label, and others, for a fraction of Tupperware’s asking price.
The Pampered Chef sells cookware, it’s expensive, but probably good enough. I’m not a professional chef, so I’m not too particular about what I use.
Anyway, they’re not illegal and some of them engage in the sale of legitimate products---albeit at generally ridiculous prices.
The business model (for new entries) seems like something of a scam. Who has to pay money to do a job? Who does a job without being guaranteed to make anything? Why can’t Avon just open up a chain of Avon Stores and pay employees like a normal make-up seller? I don’t know. I guess they think they would end up not making as much money by virtue of having to reasonably compensate every employee.
You Could Argue…
You could argue that people working as representatives in an MLM succeed or fail based on their own merits, but that sounds like a stretch. In the furniture store, if you were good at selling, you made more money and got to keep your job. If you sold nothing on a given day (Wednesday PM shift, anyone?), then you still got paid for the time you spent there.
An MLM is as if I got hired at the furniture store and the only realistic way to be considered, “Successful,” at my job was to recruit more people to work at the furniture store.
“I’m sorry, but you want me to do what? Isn’t that what Human Resources is for?”
And...some of the practices are unsavory, but the MLM’s will occasionally make a show at coming out against some of the more unsavory ones.
For example, it’s direct sales that is not directly supervised, so a person could basically say whatever the hell they want and they (not the company) are most likely to be held accountable. In my opinion, that’s probably most likely to happen in something like the nutritional supplement or dietary industries. They can just make a bunch of unproven claims and guarantees with no real oversight to stop them.
For comparison, in the furniture store, if I had said, “We have a twenty-year straight-up total warranty. Even if one of your little rugrats pees on your couch and stains it, we will completely replace it at no charge whatsoever!”
Yeah, that’s not true at all. We did have a, “Complete Protection Program,” that I would only make a halfhearted attempt to sell (because it was good for nothing and cost $150) if the customer directly asked...but no, any manufacturer’s or store warranty would definitely not cover your kid peeing on it and staining it. I imagine that I might as well sign my own pink slip as say something like that.
In the MLM model, they are representatives, but they’re not employees. In terms of direct conversation, in-person, who the hell knows what they are repping? Although, it’s debatable if they’re repping the products at all...more likely just trying to recruit a downline.
I imagine the people involved with MLM’s who, ironically, probably feel as though they wasted the most time (and sometimes money) are those who legitimately believed in a particular product and wanted to sell it on its merits. That is NOT how you make money there.
You can read about it on Consumer Affairs, if you want. I looked at it for Avon and it appears that actually trying to SELL their products...doesn’t always go well.
So...is it ethical?
All I know is that I wouldn’t want to run one, I wouldn’t want to sell for one and I don’t want to buy from one...so that’s good enough for me.
That ties it up with the job that is actually a financial gamble and, legally, not a job. It wraps it in a neat little bow and ships it to your house, S&H included, care of #BeYourOwnBoss Brandon James just in time for the holiday season, but only if you order now.
Anyone reading this ever had any success with an MLM JUST selling the products without recruiting a downline? Hit me up. I’d sure love to hear THAT story.