Why multi-level marketing schemes are bad

My wife ran across this article on multiple-level-marketing businesses that shows why they tend to explode in nasty ways (or just leave “distributors” with enough inventory to clean their car for the next 15 years).

“Let me tell you about an incredible ground-level business opportunity,” and you are invited to a house or to lunch for “a discussion.” Funny enough, you feel sick in your gut that there is some hidden agenda or deception. “Probably a multi-level marketing (MLM) organization,” you think. Suppose it is? Should you trust your instincts? Is there anything wrong with MLM?
 
This article will analyze four problem areas with MLM. Specifically, it will focus on problems of I) Market Saturation, II) Pyramid Structure, III) Morality and Ethics, and IV) Relationship Issues associated with MLMs. Thus, you can properly assess your “instincts.”

http://www.vandruff.com/mlm.html

I have a warning light going on anytime someone pitches an “opportunity.”  There’s a basic law of business that says  returns = risk + safe rate of return.

The safest way to use your money is to buy a T-Bill or put the money into a savings account.  Anything that pays out at a higher rate does so because it involves risk.  If you (or the seller) don’t see a downside, it just means you haven’t found it yet.

Whenever someone pitches an idea with a higher rate of return, you should be looking for the risk (e.g., the angle)

  • You can buy a $500,000 home by just paying the monthly interest!  (What are the odds of the housing market collapsing? What if the loan payments go up?)
  • You can earn money from home doing social media for our product!  (If the product is that great, why don’t you hire a full-time sales team with more experience, higher skills, and that are much easier for a business to manage?)
  • Everyone needs cleaning products! All you have to do is by at least $50 a month and them to your friends!  (Do I really use 50$ a month? If we all sign up as distributors, who will we sell to?  Why don’t they sell this in stores if it is so great?)

Products that rely upon friends as a distribution channel are especially suspicious.  Anything where the reward is significant, and you can’t see a downside, should set off an internal alarm. The person selling to you may truly believe in their product, and think it’s a great opportunity for you.  But, that doesn’t make it safe — it means they’re just as much a sucker as you.

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