The Pleasures and Pain of MLMS

Looking for an extra source of income? One of the first suggestions made usually involves a MLM. For you non-acronym-loving types, that’s Multi-Level Marketing: a sales strategy that not only involves selling something, but also recruiting others to sell under you.

Those recruits (also known as a downline) are the real secret to profits. Every bit they sell brings a tiny bit of profit to you. And the people they recruit also contribute to your profit, as well.

Keep this up, and assuming that your recruits will be just as dedicated, you’ll soon have a literal community selling product — and you’ll be getting a share of it, even if you don’t do much.

That’s the sunny picture presented by MLM gurus. Sometimes it works (sort of), but the real truth is harder to figure out. Certainly some MLMs have survived and grown for decades: Amway is one of the best examples of this. Originally founded as Ji-Ra in 1949, it was reorganized as Amway in 1963 by Richard DeVos and Jay Van Andel. (If you’re from the Grand Rapids, MI area, you’ll recognize these names right away — they’re plastered on various buildings and arenas.) DeVos and company introduced a ‘sister company’ named Quixstar, but by 2001, were using Quixstar to sell Amway’s products through a parent organization named Alticor. (Seems a little complicated on purpose, doesn’t it?) As of 2007, the Amway moniker has come back with ‘Global’ tacked on.

You name it — Amway sells it, from furniture to vitamins to cleaning products. That versatility has most probably helped them thrive. It certainly has let them advertise as a variety of companies, rather than one nationally-recognized (and sometimes railed against) title.

What helps even more is that they’ve been officially declared a non-pyramid scheme. In 1979, the Federal Trade Commission ruled in their favor, saying that payments were made for recruitment — leaving them in the clear. According to Wikipedia, “In addition, Amway (and later Quixtar) rules required distributors to sell to at least 10 retail customers per month, or have $100 in product sales…in order to qualify for bonuses on downline volume…Furthermore an IBO [that’s Independent Business Owner] must also personally sell or use at least 70% of the products personally purchased each month.”

The difficulty in mentioning MLM companies is to settle on which one — there are a blizzard of MLMs out there, selling everything from milkshakes to gas improvers (for your car, not you!) to protein bars. Pick any product, and you’ll be hard put not to find an MLM that not only sells it, but advertises it as the answer to all your dreams and prayers.

Sometimes those dreams crash — like the recent implosion of and Zeek Rewards, a penny auction site that gave extra points for signing friends and family up.  Forbes Magazine reported that Paul Burks, Zeek’s founder “was cooperating with authorities and had agreed to pay a $4 million civil penalty and relinquish all interests and assets in the company — all without admitting or denying any culpability.” Small comfort to the one million-plus investors who are thought to have invested. Do the math – $4 each back. (If the lawyers didn’t take their share, that is.)

One user wrote, “I don’t feel we were scammed or anything. I thought if I could make easy money by clicking a few buttons – why not?…We were warned recently that an investigation was taking place and were told it was only a civil complaint and not to be alarmed because the owner of the company had nothing to hide. If I don’t get any money back – so be it – I can only blame myself for my own naivety [sic].”

What to do? Should you get involved in an MLM, or not? 

*Have you thoroughly checked it out? Don’t just take the word of the person who’s trying to get you to sign up — do an Internet search. Read everything you can…both good and bad.

*Will you actually use the product? Like Amway, you’re most probably going to be required to buy a certain amount of product every month. Will you use that much? Can you afford it?

*Is it a good product, to begin with? Amway’s “Legacy of Clean” products have a vocal following, helped in part by their designation as ‘green’ products. One of my uncles swore by Herbalife’s vitamin and nutritional supplements. (He also invested in a water filter product at the same time. People selling for one MLM may well be distributors for a number of others, as well…sort of traveling department store salesmen.)

Pick a few products — the ones you’re most interested in. Google for reviews: good and bad. Amazon is outstanding for finding a range of reviews in one spot. (It’s a great place to compare pricing, too. Can you actually sell the product for what the company says you can?) 

*Can you look at the situation realistically? You’re going to hear the most glowing tributes — not comments from the person who isn’t doing well. Listen to all of them. Not only will they tell you the company’s true financial picture — but they’ll keep you from jumping into the deep end, and putting all your money into it. Remember: if it sounds too good to be true…it probably is.  (Related note: don’t start spending those wonderful $$ promises until you actually have the money in hand.) 

*Do you have the time, money and energy to put into it? This is not only not going to be free — it’s going to take a considerable investment in several ways to grow your business. Do you have other income that will keep you going, in the meantime?

*Can you get your original investment back? Can you sell enough in a short time to pay yourself back for the money invested? Don’t count on company promises, especially verbal or website ones. Cousins who invested in Zeek Rewards were told they could pull everything out — in September of this year. The SEC shut Zeek down in late August. Oops.

And finally:

Are you willing to be up-front about it? In my married college student days, we had another couple invite themselves over for supper. He was a fellow engineering student with the Brick, and I was looking forward to getting to know them better. Instead, we got a high-powered presentation on why we should sell for — I can’t even remember the name. After we said no, they suddenly lost interest in being friends.

If you’re going to sell for a MLM, make sure you know what you’re doing. Be careful how much you invest — and whether the product you’re selling is even worth investing in. But most of all, be honest about your motives.

After all, your friends and family don’t exist just so you can make a profit off them.

Charles Ponzi, the guy whose art gave the pyramid scheme its most famous name. He specialized in international reply coupons for postage stamps. After it all crashed, his investors lost more than $20 million. Ponzi represented himself, and was so persuasive that it took three different trials to convict him. While on appeal, he started up a company selling Florida swampland — some of it underwater. (He promised a 200% profit in 60 days.) 

     In his last interview, given not long before his death in 1949 (after jail, and yet more scams), he said:

    “Even if they never got anything for it, it was cheap at that price. Without malice aforethought I had given them the best show…It was easily worth fifteen million bucks to watch me put the thing over.”

Notice the smirk…

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