The Multilevel Marketing Scam

I don't have a big audience, but if I did, I would expect a lot of backlash from what I am about to write.  If you come across this and your knee jerk reaction is to call me an idiot who is trying to take away your chance at success, please take a step back, and consider everything I am about to write objectively.  If you can find a flaw beyond unintentionally insulting your intelligence, feel free to call me out on it.  Otherwise, perhaps you should consider rethinking some of your choices.

Multilevel marketing is inherently dishonest.  If you are involved in multilevel marketing, odds are really really good that I am not saying you are dishonest.  A vast majority of people involved in multilevel marketing do not recognize the dishonesty.  If they did, they would realize that they are the ones getting ripped off.  Over 95% of Amway distributors lose money in the system.  If you are losing money, you are probably not part of the dishonesty; rather, you are a victim of it.  The 0.5% of Amway distributors (Direct Distributor and up) are the dishonest ones, but even many of them don't realize it.  While Amway is probably the worst culprit, all multilevel marketing schemes are dishonest at some level.

The first dishonesty of multilevel marketing is the lie that participation makes you an independent business owner.  If you don't have a business license, you are not a business owner.  Businesses are legally protected property.  If you cannot sell it, it is not a business.  If you cannot transfer the right to the profits coming to you from your downline (those who you have recruited) to someone else, it is not a business.  If it is a business, you should be able to sell it and then notify the company, and from then on, the checks will be sent to the new owner.  "Why would I want to do that?" you might ask.  It does not matter!  If you can't, then it is not a business that you own.  Nearly all multilevel marketing companies use the word "distributor" or "consultant".  Why don't they say, "franchise owner" or "business owner"?  Because you aren't!  As a distributor, you are nothing more than a sales person, and in the typical scheme for multilevel marketing, you are not even selling the product.

The second lie is the recruitment claim that you are being recruited to sell product.  Nobody cares if you sell product.  Most multilevel marketing companies don't even try to teach you to sell product.  The first thing they tell you is that you need to use your own product, so that you can provide objective assessments when you sell it to people.  This makes sense, if they are going to teach you to sell it, but they aren't, because they don't care.  The secret is this: Multilevel marketing is about recruiting customers, not distributors.  They say you are an independent business owner, they give you the title of distributor or consultant, but in reality, you are just a customer.  This is the secret to multilevel marketing.  Note that it is not called "multilevel selling".  That is because it is not about selling products.  It is about marketing the "dream" to recruit customers.  All of those conventions that teach how to run your business focus heavily on recruiting other people, because that is what the business is about!  As a distributor, you are not distributing product.  You are buying product for yourself, and you are lying to other people, weaving grandiose dreams for them, for the sole purpose of getting the company another customer.  "You will be your own business owner."  Congratulations.  You just told your victim the first lie.  "You can make a lot of money through your own hard work."  You just told your victim the second lie.  Odds of making any money is 1 in 200.  You are not pitching a business opportunity.  You are marketing a lie to recruit a customer.

The third lie is that there is a significant chance of making substantial amounts of money.  Only about half a percent of Amway distributors make a significant amount of money.  Over 95% lose money.  Less than half a percent make more than about $1,500 a month (which is not enough to live on in most of the U.S.).  Barely over 0.1% make more than $60,000 a year.  (With a 4 year CS degree, I can make starting wages significantly higher than that for only 40 hours a week, not including benefits, and I am actually doing something valuable to the world.)  And less than 0.004% of Amway distributors make $120,000 or more a year.  (Within 2 years in industry I could make more than that with my bachelors degree in CS, and given my teaching experience and skill level, I could probably start fairly close to that.)  The chances of making enough to live on with Amway is far less than 1 in 200.  The chance of making a decent middle class income with Amway is around 1 in 1,000.  The chance of an upper middle class or higher income is 1 in 25,000.  It's a better gamble than the lottery or a Las Vegas casino, but given the cost of running an Amway business (in annual dues, conventions and other functions, various fees, and the recurring costs of products like tapes and books), the actual risk is not a lot lower.  The fact is, a vast majority of people lose money on Amway.  Out of those that do make money, most would get a higher income working as a manager at a fast food joint, and with less time and energy spent working.  Amway is not the only option though.  There are other multilevel marketing schemes with significantly higher chances of making money.  Among them are Doterra (and other essential oil companies), LuLaRoe, and Mary Kay.  These companies are focused more on selling than Amway.  They still push the dishonest marketing aspect harder than selling, but their product lines are far narrower, meaning that distributors (or consultants) will build up a stock, and that will help motivate them to sell stuff to avoid consuming too much space.  Like Amway though, a vast majority of distributors lose money, and the focus of the businesses is on recruiting customers, not selling product directly.  In general, the odds of making money with multilevel marketing are very poor.

Those are the three main lies of multilevel marketing.  It sells itself on dreams of becoming an independent business owner, selling products, and making lots of money, but in reality it provides none of these things.  Now, to be clear here, I am not trying to bash these goals.  Becoming an independent business owner, selling valuable products, and making lots of money are great goals, but multilevel marketing won't help you achieve them.  "Distributor" or "consultant" is not the same as "owner".  Selling products is not the same as recruiting people who will buy the products entirely independently of you.  Making lots of money is not the same as a 1 in 200 odds of making what you would at an entry level job or a 1 in 1,000 chance of making a middle class income.  There are better ways.

This is not all though.  You may or may not have that 1 in 1,000 odds of making a middle class income or better.  Even outside of multilevel marketing, most businesses fail within the first year.  There are some essential things that are almost required to create a successful business.  The first is a solid business plan.  Businesses without a solid business plan have a much higher chance of failing within the first year.  The second is market research.  It does not matter how good your business plan is, and it does not matter how good your product or service is, if there is not enough demand.  Market research involves finding out who your most likely customer demographic is and then determining if that demographic is big enough in your region to provide enough business for you.  For example, a posh British tea house is far less likely to be successful in a city of mostly middle and lower class residents in the Western U.S. (for example, Wasilla, Alaska) than it is to be successful in an East Coast city with a significant population of upper class (like Boston, Massachusetts).  Likewise a cheap, discount clothing store probably won't be successful near an upper class neighborhood, but it probably would be near a lower middle class or poor neighborhood.  Market research includes culture (in the tea house example, East Coast culture is more likely to be interested than West Coast culture), income (rich people can afford an expensive posh tea house, but they are less likely to be interested in cheap clothing), and availability.  For example, attempting to sell expensive, high quality household products, cosmetics, and wellness products in a college town where Melaleuca already dominates part of those markets is probably going to fail.  First, trying to start a new business in an already saturated market is not the best decision.  Yes, you might be able to compete, taking business from established businesses, but they have the advantage of brand loyalty, and if they are larger businesses, they have a price advantage due to economics of scale.  In short, you are not going to get much.  Second, college students don't have much money.  They are not going to care much about quality, if it costs more.  And in general, if a household product or cosmetic does its job, no one cares about quality anyway.  Trying to market more expensive products to poor college students is just plain a poor decision.  College students are looking for convenience (they are already going to the store to buy other products, so they are not going to go out of their way to buy something somewhere else that they can get there) and cheapness (they don't have much money, and getting their clothes washed cheaply is more important than the quality of detergent they use).  The market research suggests that in a college town, a business buying and delivering the cheapest products would be more profitable.  Your customers don't have any choice in brands (perhaps there could be an extra fee for that, so that students who need special products, like hypoallergenic detergents, still have an option), and that means you can shop around, buy in larger quantities from the cheapest store in town for each product, and then you can save your customers a little bit more money and save them the time they would spend shopping.  A few extra hours a week for homework or recreation might be valuable enough to college students for a reasonable delivery fee.

The takeaway from all of this is that when you get into multilevel marketing, you are a customer.  You are not a business owner.  You are a product buyer, not a product seller.  If you are selling anything, it is a dream that is largely a lie.  Your odds of making money are worse than your odds gambling in horse races.  If you are still determined, instead of picking the most attractive option, at least do your market research, because otherwise, your odds are very likely to be even lower than what I stated above.  Your odds are far better if you pick a multilevel marketing scheme with high odds of success in your area.  Better yet though, drop the multilevel marketing entirely, and actually start your own business.  Good market research will often help you to identify needs in your area that are not well met, and that will have higher odds of success than the best multilevel marketing scheme in the best location, and you will probably start making a profit far sooner as well.  And don't forget a good business plan.  No matter what you are doing, business owner or not, if you are in charge of your own schedule and your own work create a business plan and follow it.  This should include a budgeting plan and an exit strategy if you find your business is not profitable enough to justify continuing.  Because sometimes, McDonald's is the better option.



I used this article as reference for the numbers.  It is an excellent analysis of multilevel marketing in Amway, from someone who was a distributor for three and a half years.  If you want more solid evidence against Amway being a profitable option, read this.

https://www.cs.cmu.edu/~dst/Amway/AUS/stats.htm