Pyramidding: Who Gains?
November 24, 2010 12:08 PM Subscribe
I'm trying to find accurate data on the viability of a pyramid distribution company.
My mother has been a long-time distributor of natural health products through downlines. She has made, probably since I was little, a modest (very modest) amount of money on these things, but recent financial issues have forced her to turn to them as a significant chunk of her income. I'm not particularly interested in arguing with her about the science. I know that it's garbage, I think magic wands are ridiculous, but I really don't have the heart to argue with her about this at length. It's her thing, she's getting old, and it really doesn't seem worth it to me. What does concern me, though, is knowing whether she's devoting massive amounts of time and energy to something that may be a scam (obviously, at the level of, "Does this work?" it's a scam, but given that most of capitalism is predicated on believing that products will give you more than they actually do, I can't say this is particularly disturbing). So I want to be able to find accurate data on specific companies. With these pyramid companies, most of what can be found on Google is directly tied back to the companies themselves. The information on them is very narrow. Would she, I want to know, be better off (financially) working as a secretary in an office than she would be trying to market these products?
My mother has been a long-time distributor of natural health products through downlines. She has made, probably since I was little, a modest (very modest) amount of money on these things, but recent financial issues have forced her to turn to them as a significant chunk of her income. I'm not particularly interested in arguing with her about the science. I know that it's garbage, I think magic wands are ridiculous, but I really don't have the heart to argue with her about this at length. It's her thing, she's getting old, and it really doesn't seem worth it to me. What does concern me, though, is knowing whether she's devoting massive amounts of time and energy to something that may be a scam (obviously, at the level of, "Does this work?" it's a scam, but given that most of capitalism is predicated on believing that products will give you more than they actually do, I can't say this is particularly disturbing). So I want to be able to find accurate data on specific companies. With these pyramid companies, most of what can be found on Google is directly tied back to the companies themselves. The information on them is very narrow. Would she, I want to know, be better off (financially) working as a secretary in an office than she would be trying to market these products?
Agreeing with valkyryn. Companies like Avon, Pampered Chef, and Kitchencraft Cookware are absolutely legitimate, and overpriced you just have to be a charming, overbearing salesman to make any money. The MLMs are a different ball game, and very sketchy.
posted by Melismata at 12:52 PM on November 24, 2010
posted by Melismata at 12:52 PM on November 24, 2010
MLM organizations don't work because at about nine layers in their required customer base exceeds the earth's population.
posted by dfriedman at 12:53 PM on November 24, 2010
posted by dfriedman at 12:53 PM on November 24, 2010
You asked where to find specific information on specific companies. The Better Business Bureau is the usual place to go for this; you may also be interested in MLMwatch and Pyramid Scheme Alert.
FWIW, I know people who made a decent profit at this for a while. They do exist, though they are a small minority, and it sounds like your mother may be one. So it might be worth emphasizing to her that this sort of MLM scheme is also unstable. After all, if she's one of the few people who are making money at this, then "most people never make money at it" is unlikely to dissuade her — but "everything you're working so hard for could collapse tomorrow" just might.
Companies like these pay their debts entirely out of the money they suck "upstream" from their exponentially-growing network of new recruits. If they ever stop pulling in new recruits, even for a few months, they can collapse very quickly under the weight of those debts. If that happens, your mom's downstream network will become utterly worthless, and her income will vanish overnight. (This is in fact what happened to my own briefly profitable friends: the company went bankrupt with basically no notice, and I believe they lost a lot of money in commissions that hadn't paid out yet.)
An office job (at a reputable company with a good business model) would certainly be a much safer bet for her, even if it turned out not to be easier or more profitable.
posted by nebulawindphone at 12:55 PM on November 24, 2010
FWIW, I know people who made a decent profit at this for a while. They do exist, though they are a small minority, and it sounds like your mother may be one. So it might be worth emphasizing to her that this sort of MLM scheme is also unstable. After all, if she's one of the few people who are making money at this, then "most people never make money at it" is unlikely to dissuade her — but "everything you're working so hard for could collapse tomorrow" just might.
Companies like these pay their debts entirely out of the money they suck "upstream" from their exponentially-growing network of new recruits. If they ever stop pulling in new recruits, even for a few months, they can collapse very quickly under the weight of those debts. If that happens, your mom's downstream network will become utterly worthless, and her income will vanish overnight. (This is in fact what happened to my own briefly profitable friends: the company went bankrupt with basically no notice, and I believe they lost a lot of money in commissions that hadn't paid out yet.)
An office job (at a reputable company with a good business model) would certainly be a much safer bet for her, even if it turned out not to be easier or more profitable.
posted by nebulawindphone at 12:55 PM on November 24, 2010
Best answer: It seems like you'd want to compare the viability of her MLM efforts to selling non-MLM products in the same manner, rather than comparing it to a 9-to-5 job... in investigating this question I've found that there is an enormous specialized industry centered around designing and launching MLM companies or marketing projects. There are legal firms that specialize in MLM legal services, software companies that specialize in MLM software, etc.
I think what you want to do is compare the "compensation plan" of your mother's MLM to that of other MLM and direct sales programs. There are a number of basic forms of the compensation plan: unilevel, stairstep breakaway, matrix, binary, and Australian. Compensation is calculated off of "personal volume", the dollar value (or some other metric) of the stuff you personally sell, "group volume" which is the combined PVs of everyone "downline" from you, who you've recruited, and other measures. If you Google these keywords you can find lots of pages about how to evaluate compensation plans, like here, here, and here.
Of course, I can't seem to find any online comparisons of the various MLMs by the above parameters. But for some examples here's some notes on Shaklee's PV metric and here is an explanation of the compensation plan for Comfi, an MLM that sells calling cards. Here is a short description for a company testing different compensation plans from MLM software vendor Infotrax which has some example numbers in it, though who knows how real they are or what sort of company they'd correspond to.
Also of interest is a list of MLM companies by number of representatives from a 2004 book.
The Direct Selling Association is some kind of industry association that has existed for several decades at least, and they provide a web site www.directselling411.com that offers advice to people looking into MLM-type stuff, but I don't know if they're good or evil. (Oh, come on... it's sales, they're probably evil.) Notes on various web sites seemed to indicate that at some point they had a directory that compared companies by compensation plan details, but their member directory doesn't currently contain that info.
posted by XMLicious at 2:43 PM on November 24, 2010
I think what you want to do is compare the "compensation plan" of your mother's MLM to that of other MLM and direct sales programs. There are a number of basic forms of the compensation plan: unilevel, stairstep breakaway, matrix, binary, and Australian. Compensation is calculated off of "personal volume", the dollar value (or some other metric) of the stuff you personally sell, "group volume" which is the combined PVs of everyone "downline" from you, who you've recruited, and other measures. If you Google these keywords you can find lots of pages about how to evaluate compensation plans, like here, here, and here.
Of course, I can't seem to find any online comparisons of the various MLMs by the above parameters. But for some examples here's some notes on Shaklee's PV metric and here is an explanation of the compensation plan for Comfi, an MLM that sells calling cards. Here is a short description for a company testing different compensation plans from MLM software vendor Infotrax which has some example numbers in it, though who knows how real they are or what sort of company they'd correspond to.
Also of interest is a list of MLM companies by number of representatives from a 2004 book.
The Direct Selling Association is some kind of industry association that has existed for several decades at least, and they provide a web site www.directselling411.com that offers advice to people looking into MLM-type stuff, but I don't know if they're good or evil. (Oh, come on... it's sales, they're probably evil.) Notes on various web sites seemed to indicate that at some point they had a directory that compared companies by compensation plan details, but their member directory doesn't currently contain that info.
posted by XMLicious at 2:43 PM on November 24, 2010
Best answer: The entire MLM business model is a scam.
posted by rhizome at 4:11 PM on November 24, 2010
posted by rhizome at 4:11 PM on November 24, 2010
I found the MLM Companies Wiki, which although full of spam does have a little bit of compensation plan and startup and ongoing costs for some companies.
posted by XMLicious at 5:26 PM on November 24, 2010
posted by XMLicious at 5:26 PM on November 24, 2010
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Note that there's a difference between true MLM companies and direct-sales companies. The former are just scams and usually spend a lot of time talking about how much money you can make by getting other people to work for you. The latter tend to focus a lot more on getting out there and beating the bushes, staying upbeat and optimistic, etc. The differences can be hard to detect if you aren't familiar with the materials, but they aren't the same thing.
I did direct sales for a summer. Made about a grand or so, too. I hated every minute of it--the whole marketing ethos drove me completely batty--but it's a legitimate if unconventional approach to moving your product. I have a good friend who makes a modest lower-middle-class income doing direct sales and could probably do better if she were a bit more organized.
posted by valkyryn at 12:46 PM on November 24, 2010