Multi-Level-Marketing: Scam or Legitimate Business?

I have done research on Multi-Level-Marketing Businesses (MLM) also known as Direct Sales Businesses. On the one hand, it sounds like a great opportunity, a company needs to sell a product and they are willing to trust you to represent them and sell it to friends, family and neighbors and pay you a moderate fee. For a reuseble product, one that gets used up like cleaning supplies or make-up it makes sense that the people you sell to would come back for more and you could build a clientele base and earn a regular income. A simalar business model is a hairdresser or manicurest. The drawback that I have found with MLM's, and they all seem to have this in common, the focus is on selling the job instead of the product. What I mean is that you decide you like the product enough that you think you could sell it. You decide to sign up for the business and then you are told that for every person you sign up to become, not a client, but a business owner like yourself, you will recieve more money and incentives. So you think, okay I will sign up my friends, but then your friends sign up their friends, and they aren't buying the product for themselves, but to sell it to the market, except that they want to sign up more workers, and not clients. It won't take very long for all the would-be clients to become would-be sellers with no one left to buy the product for the retail price. That is called Market Saturation. Also Pyramid Scheme. So, when you get invited to your next party that is going to sell a product to you and they switch from selling the product to selling you a job, you have been warned.

Here is an example of what a real business model should look like. I started a Lemonade Stand in my front yard with my son. The goal was to keep the school kids walking by my house to stop leaving their trash in my yard and give my son an opportunity to earn some spending money. I had no idea how much money we would make until I did the math. First I created a product. I made my favorite chocolate chip cookies. We took those outside and offered the big ones for 50 cents, the medium size for 25 cents and the small for 15 cents. We got seven dollars the first day and couple requests for lemonade. The second day we made 12 dollars and got more requests for lemonade. Thus far I did not know how much I was spending to make the cookies, but I decided to find out. My tree was not in season so I got a mix from Costco for 5 dollars and the smallest cups for about 10 dollars. We sold the lemonade for 25 cents a cup and changed the price of the cookies to 25 cents (I was getting the sizes more uniform). Also I cut a few of the cookies into quarter sized pieces and my son handed out free samples. We doubled our sales and made about 10 to 20 dollars a day. Of course we were getting generous people but we also had plenty of kids walking by our stand.

Now I will tell you how I knew what our profits were. I checked the prices of all the items we were buying and figured out how much each ingredient cost individually. For a large batch of cookies I was spending about 10 dollars. I made the cookies fairly large and with the free samples, we were earning about 7 cents per a cookie sold. The lemonade on the other hand cost so much less because I was adding a mix to cold water. I was going through about 4 gallons per a day so I would freeze them overnight and let them start melting a couple hours before we set up shop. It cost about 3 cents per cup to make the lemonade so I was getting a 22 cent profit. At the end of each selling day (we would sell to the kids walking home from school and were outside for about an hour or two) I would count up the money and pay for the cookie batch and the lemonade and then we would pull out 10 percent of the profit to pay our tithing money and I gave an equal amount to my son to keep in his bank for spending on anything he wanted. The 80 percent leftover was put into a saving fund. First for a bicycle, then for spending on birthday presents and Christmas presents. In a two month period we had made 200 dollars. All told, we had a great operation.

Why couldn't I just do this every day, why not now? Well for one thing my son is in school for the full day now so I can't get him home early enough to catch the rush. Part of my plan was that we set up while the parents were walking to the elementary school so they saw us on the way, could try a free sample and decide if they wanted to spend some quarters after they picked up their children. Secondly, the set up is a box, the cookies and lemonade, two chairs, (I do not leave my child unattended!) and an umbrella in a bucket full of rocks to give us shade. It is a lot of back and forth and that bucket is very heavy. At the time I was also in my third trimester of pregnancy. Now that I have a baby it is a lot harder to find time to bake a few dozen cookies. Also, we can't have the same consistency as before. I found that selling on day one was not as lucrative as the second consecutive day. Ususally, I had many people (especially the high school kids) say that they would bring money the next day to buy, and if we were there, they kept their promise.

So in my micro-cosmic business model, we had a real product, we had a real market, with real costumers that turned into clientele. (I literally had the same people come and spend 5 dollars on cookies each day.) The profits were real. The business paid for the supplies. The labor got ten percent of the profits. Ten percent was donated to a good cause (God) and the remaining 80 percent was held back to support the laborers for big bonuses (the bike, various other presents). This is how a real home based business should work. The next summer I had other moms asking around for work for their sons. I offered to hire them to help work our business. I thought, it would be worth it to share half the profits so I could just sit in the house and make the cookies and someone else could heft that bucket of rocks for me. Unfortunately, those other moms thought they would be not earning enough or that it would take business/money away from my son. Hey 5 dollars is still better than zero, I said, I couldn't do it everyday because I was getting tired, and it was really hard to take care of the baby when she was awake and help my son sell cookies. One mom said she asked her son if he would do it and he flat out said no. Even though we were really earning money (up to 50 dollars a week) he didn't want to do it.

So my question is how, can these Multi-level Marketing businesses sell their business to other people and still make profits, when they have no clientele, just business owners? It is because the business owners are paying the company more to be a part of the company than to be customers! This is why the MLM wants their employees to sell the job and not the product. They get paid more by their employees than their consumers. If you pay attention to the success stories you hear that they make a ton of money and support their family and have a lot of incentives from the company. What they don't tell you is how to succeed to their level until after they have sold the job to you. Why? Because to succeed in an MLM you sell the job and not the product!

So far, I have noticed the same lies about any con. You can be super rich...right now...without doing anything (hardly any work). The truth is "You can be super rich, right now, by changing your perspective." Look at anyone who is suffering and in absolute poverty, no food, no clothes, no warm place to sleep, and you will feel enormously rich. You can be even wealthier, in years to come, by spending less than you earn, working hard and saving your money and staying out of debt. That is the truth. But the beginning of any sale is dissatisfaction. You need greed to make a sell. Especially a sale where the consumer gets nothing for their money.

The typical MLM begins with the same sort of lie. You can become rich selling a product for us and it doesn't take very much work because we already have a simple technique for you to sell it. Then they show you success stories which are people who got really good at selling the job to people like you and me. As skeptical as I am I really thought there were good MLM's out there. I still haven't found one. If you google scam with any popular MLM company name you will find out from the honest people like me, who tried to sell the product and not the job, that you can't make money in the business unless you sell the job. Unfortunately, it is not obvious to everyone why they shouldn't sell the job, so I will use my business model to demonstrate why this should not work.

So here is my lemonade stand. A customer approaches to buy lemonade for 25 cents. I tell them, you can buy a gallon from me and sell it to other customers from your house. I will sell you a gallon and the cups for 5 dollars and you can sell it for 25 cents just like me. He says okay and I hand him the supplies. He goes to his house next door to mine. Later he comes back with 2 friends who want to sell lemonade just like me. I sell them each another gallon and cups and they go back to their houses all on the same street. Now remember before, I said that I typically sold 4 gallons in a day. Now I have one left. Those other guys paid me 15 dollars, and I just have to sell my one gallon and direct other customers to them. Instead they each bring me 2 more people who want to set up shop on the same street. Do you see the problem yet? If we are all selling lemonade on the same street and each person just wants to buy a gallon from me, I will make a ton of money and they will make none because all the customers are becoming salespeople.

I hope this simple model has opened your eyes to the con market. I have had many arguments with these sales people. They are really persistent so don't give in. You just tell them no, you are not interested in their business. Remember the truth. Earning money is hard work. It takes time and effort. If getting a million dollars was easy everyone would have a million dollars. Also, when someone tries to sell you dissatisfaction, remember your blessings.