How the MLM Income Myth Is Maintained
Confuse the Consumer
Consumers have had little or no useful data on MLM income claims. Consumers are, however, subjected to barrages of personal "testimonials" and "success stories." Multi-level marketing employs a seemingly indecipherable language to explain its trademark “compensation plans" and business model that permit unlimited authorization of sales representatives and that pay rebates based on purchases by new recruits who are recruited by the earlier recruits in an endless chain.
▲ They refer to the model as consumer direct marketing, one-to-one marketing, personal
franchising, network marketing and many other colorful but ultimately misleading terms.
▲ Some MLMs describe their pay plans as unique or much more beneficial than others in the industry. They use specialized terms as stair-step breakaway, legs, binary and trinary, PV and BV, yet most of these pay schemes are essentially identical and yield the same ruinous financial outcome to the average participant.
▲ Circles and diagrams are drawn at recruitment meetings and a complex organizational
hierarchy is presented, including as many as 12 levels with names such as Regent, Platinum, Diamond and Blue Diamond.
▲ There are leadership bonuses, breakaway bonuses, production bonuses, multiple commission levels, and numerous types of “rebates.”
▲ Often a “suggested retail price” is applied to goods that are never retailed.
▲ Rebates, which are only discounts on the investor’s own purchases, are classified as
“income.”
▲ “Distributor markup” is sometimes used interchangeably with “gross profit” as if they are the same.
▲ Qualifications to earn payments or rebates depend on a complex factoring of "personal group" purchase volumes, the rank of the sales representative and the size, configuration and purchase volumes of the “downline.”
Other methods of confusing the consumer include:
Information on income put forth by some MLM companies or the MLM industry at large often mixes income data from MLM with statistics from traditional direct selling companies such as Avon and Tupperware.
Nearly all data that is presented by the MLM industry omit estimates or averages of normal business costs such as auto, telephone, travel, training or postage and shipping to operate an MLM business. In this way "gross income" is confused with "net profit."
Inventory purchases are also ignored as business costs and are mingled or confused with
purchases for "personal use or consumption."
Many MLM companies offer "average incomes" that are actually mean averages that meld the huge incomes of those at the top with thousands of others that make nothing at all. This leaves the impression that the "average" MLM participant actually earns a "profit", when almost no one does.
Some use data only on "active" participants and exclude all those that had earned nothing and quit – the majority in some companies – thereby reducing the number of sales people divided into the total payouts and increasing the "average income."
A similar misleading device is to count only the "active" distributors in a one-year time frame. This ploy conceals that the top level distributors who profit year after year are the
same people whose numbers do not increase, while the new recruits that lose year after year are a revolving group whose numbers mount each year. The actual number of "losers" multiplies year by year. The number of "winners" remains the same and does not grow. If a longer time frame were used, a true ratio of gainers to losers would emerge that would shock and discourage any new recruit.
Figures are almost never revealed on how many consumers join and quit the program each year, thus concealing the "revolving door" nature of the scheme and the fact that no stable customer base exists.
And, for most companies, percentages of rebate payments that are paid to each level are not disclosed nor is the percentage of money earned on offshore sales. When the payout per level is disclosed in a manner that is understandable, the gross concentration of payments to the top organizers is revealed along with the massive losses to all others.
In short, MLM solicitors do not disclose the basic financial information needed to make an intelligent investment decision. Many people therefore join on the basis of hope or the personal recommendation of someone else who has also joined on the basis of hope or on the blind faith in the claims made by the company about the "income opportunity."
Confuse the Consumer
Consumers have had little or no useful data on MLM income claims. Consumers are, however, subjected to barrages of personal "testimonials" and "success stories." Multi-level marketing employs a seemingly indecipherable language to explain its trademark “compensation plans" and business model that permit unlimited authorization of sales representatives and that pay rebates based on purchases by new recruits who are recruited by the earlier recruits in an endless chain.
▲ They refer to the model as consumer direct marketing, one-to-one marketing, personal
franchising, network marketing and many other colorful but ultimately misleading terms.
▲ Some MLMs describe their pay plans as unique or much more beneficial than others in the industry. They use specialized terms as stair-step breakaway, legs, binary and trinary, PV and BV, yet most of these pay schemes are essentially identical and yield the same ruinous financial outcome to the average participant.
▲ Circles and diagrams are drawn at recruitment meetings and a complex organizational
hierarchy is presented, including as many as 12 levels with names such as Regent, Platinum, Diamond and Blue Diamond.
▲ There are leadership bonuses, breakaway bonuses, production bonuses, multiple commission levels, and numerous types of “rebates.”
▲ Often a “suggested retail price” is applied to goods that are never retailed.
▲ Rebates, which are only discounts on the investor’s own purchases, are classified as
“income.”
▲ “Distributor markup” is sometimes used interchangeably with “gross profit” as if they are the same.
▲ Qualifications to earn payments or rebates depend on a complex factoring of "personal group" purchase volumes, the rank of the sales representative and the size, configuration and purchase volumes of the “downline.”
Other methods of confusing the consumer include:
Information on income put forth by some MLM companies or the MLM industry at large often mixes income data from MLM with statistics from traditional direct selling companies such as Avon and Tupperware.
Nearly all data that is presented by the MLM industry omit estimates or averages of normal business costs such as auto, telephone, travel, training or postage and shipping to operate an MLM business. In this way "gross income" is confused with "net profit."
Inventory purchases are also ignored as business costs and are mingled or confused with
purchases for "personal use or consumption."
Many MLM companies offer "average incomes" that are actually mean averages that meld the huge incomes of those at the top with thousands of others that make nothing at all. This leaves the impression that the "average" MLM participant actually earns a "profit", when almost no one does.
Some use data only on "active" participants and exclude all those that had earned nothing and quit – the majority in some companies – thereby reducing the number of sales people divided into the total payouts and increasing the "average income."
A similar misleading device is to count only the "active" distributors in a one-year time frame. This ploy conceals that the top level distributors who profit year after year are the
same people whose numbers do not increase, while the new recruits that lose year after year are a revolving group whose numbers mount each year. The actual number of "losers" multiplies year by year. The number of "winners" remains the same and does not grow. If a longer time frame were used, a true ratio of gainers to losers would emerge that would shock and discourage any new recruit.
Figures are almost never revealed on how many consumers join and quit the program each year, thus concealing the "revolving door" nature of the scheme and the fact that no stable customer base exists.
And, for most companies, percentages of rebate payments that are paid to each level are not disclosed nor is the percentage of money earned on offshore sales. When the payout per level is disclosed in a manner that is understandable, the gross concentration of payments to the top organizers is revealed along with the massive losses to all others.
In short, MLM solicitors do not disclose the basic financial information needed to make an intelligent investment decision. Many people therefore join on the basis of hope or the personal recommendation of someone else who has also joined on the basis of hope or on the blind faith in the claims made by the company about the "income opportunity."