Multi Level Marketing Secrets
by Peter Anderson
BrokeSucks.com Editor
Have you ever had a friend approach you about a great opportunity to make money, you just had to come to a meeting? Or what about those tv commercials with actors saying how they make $7000 a month from home? What you are seeing are multi-level marketing offers.
MLM is very lucrative and extremely profitable -- for the owners.
Neither the companies or the concepts are new. One offer I'm seeing over and over again as an infomercial is for a company called "The World's Greatest Vitamin." Right now the offer goes something like send 20 new users and get $1,000. The variety of these offers is very wide, I've seen them for internet e-commerce "businesses", diet products, and more.
What is the same is the core concept -- a multi-level-marketing company generates the bulk of its revenue from new business "owners" or "associates" buying the "right" (more like inventory) to sell their product.
In the case of "The World's Greatest Vitamin" you only have to spend $35 to join, where as other companies may charge you $100, $200, $1000, or more. Companies such as Amway also rely heavily on selling additional products beyond that initiation fee.
A visual illustration of how a MLM company works
This hypothetical example is for a MLM business that has a $500 mandatory inventory buy-in.
Starting at the top is the owner of the multi level marketing company. These are the guys getting the bulk of the revenue. Granted, they are also spending a lot on media buying, administration, and may be even a little on the product (you would laugh if I told you how much it costs to get private-labeled bottles of health supplements.)
The first tier of "associates" may or may not have to pay anything to get in to the company. Hell, they may even be employees on a payroll.
So, lets say one of the first tier guys recruits 12 new members, each paying $500. This is a total of $6000 in revenue for the company. Assuming that the first tier guy receives $100 every time a new member joins, he has no made $1200. This leaves $4800 that goes to the top.
Multiply the same scenario by four and the MLM owner has brought in $19,200 of revenue. No one has actually yet bought or sold the product for consumption yet. For the owner, this is a great deal.
Next lets drop down to the second tier. The reality is a good percentage of these people who bought in are not going to break even on their "investment." Lets ignore that for now.
The hypothetical example, circled in gray represents an associate who has managed to recruit 5 new associates out of his circle of friends and family. Like the first tier he is only getting paid $100 for each recruit. However, the first tier is also getting a kick-back of $50 for each new member.
Jumping back to the first tier guy, he made $1200 recruiting 12 new customers, and now an additional $250 because one of his recruits brought in another 5 members. Lets do the math -- first tier has a profit of $1450; second tier has broken even. All 5 of the second tiers recruits are out $500 (unless they too can bring in another 5 members.)
The MLM owner now has made $6550 of revenue off of the work one first tier person accomplished, and only one second tier person bringing in new customers.
Lets hypothetically assume out of those 12 new members each brings in 5 new associates, for a total of 60.
Now 60 new "associates/independent owners/insert-whatever-name-here" have paid in $500. The first tier associate makes $50 off of each, making $3,000. This brings his total earnings up to $4,200. Not too bad. The owner now makes $350 of revenue on each of these 60 new associates (remember, $100 paid to the second tier person who recruited them, $50 to the first tier who recruit the second tier individual.) $350 times 60 is $21,000.
This is $21,000 the owner has made without a single product actually being sold.
Now multiply the $21,000 by 4 ($84,000), plus $19,200 for each second tier buying in. The owner has now made $103,200. Dreaming of a six figure income? Recruit another 1,000 associates or so and you'll be there too. The difference is the owner has made six figures in a month or two, while it is going to take you a few years.
This was just a hypothetical example. Different companies have different entry requirements and payout structure. The core concept is clear -- make the owner money. Log in to eBay and see if you can find the MLM companies product for sale. Chances is that its there -- for a lot less than the "associate" originally paid for it.
Is MLM a legitimate business?
Despite all of this I believe that multi level marketing is a legitimate business. Its hard, you'll lose friends and family in the process, and you'll work your ass off trying to make just a modest profit. Of the people who start only a small percentage will really make it big.
This chart above shows 10 tiers. This assumes that every member recruits 10 new members and makes a very, very, modest profit of $500. New recruits are waved high-five to low-six figure numbers, not $500. As you can see, by tier 10 the number is bigger than the entire worlds population. Realistically if you pooled together the number of people who would be potential leads, you are going to max out far beyond there.
As I said already, just like few succeed in real business, the same is true in MLM, so I don't think that this is a very legitimate argument against it.
What I do believe is that if you have the drive and ambition to be successful in MLM you can do far better owning your own business. At the very least -- get a sales position at a company where you can pull in six to seven figures a year right away.
Lets put it this way. If you own your own business you have two sources of revenue. The first is the immediate income you earn from the business. The second is the pay off after you sell the business. I know people who have sold their business for 10, 20, 30+ years earnings! That's not happening in MLM because you don't own it.
Additionally, the MLM industry seems to be populated by a disproportionate number of crooks and con artists. If you can be bothered to do even a few searches about the owner and the company on Google it will go a long way toward saving you money. A search for "The World's Greatest Vitamin" run by Don Lapre brought up this article at the American Chronicle.
Business is hard and the reality of ultra-success is often ugly. If you are dead set on MLM start your own company, don't buy in to someone else's.
..