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Is Network Marketing (MLM) a Business Opportunity or a Scam?

Updated on December 12, 2013

"Of the MLM companies surveyed, the least successful was Amway/Quixtar where 99.99% of their distributors lose money, and the most successful was Herbalife, where 99.42% of its distributors lose money." — Consumer Awareness Institute

What Is Network Marketing?

Lured by the promise of "passive income", "multiplier effect", and more, I joined Amway in 1982, after being persuaded by a friend. Personally, for me, the magic was the multiplier effect where I would not only be compensated for sales that I personally generate, but also for the sales of people whom I recruit, as well as the people whom they recruit. Amway would pay me up to 3 levels of compensation. The proposition sounded so good! However, I did not put in much effort then, as I was planning to go overseas for my Master's degree. I joined merely to please my friend, as well as to find out more about what network marketing is all about.

In the late 1990s, I joined Enrich International and thought I would put my best foot forward this time round. At that time, I still believed that network marketing was a sound business concept. I tried to recruit an ex-colleague who, instead of joining me, persuaded me to join him instead. Since he had been doing multi-level marketing for a long time, I was convinced by what he had said and soon joined SkyBiz 2000.

In 2000, Enrich International was acquired by Royal Numico N.V., just as I was about to be 'promoted' to "manager level". Royal Numico changed Enrich's commission structure to 2 levels of compensation, and my stockist closed shop within a few months.

In 2001, the Federal Trade Commission instituted legal action against Skybiz 2000 and subsequently shut it down for operating an illegal pyramid scheme wherein earnings were derived primarily from recruiting other participants into the program, and not from the retail sale of products or service.

Since then, I've been very wary of network marketing, not only because I don't know the law, but also because MLM companies can change its commission structure at any time. In 2001, for example, Amway closed down Amway North America and transferred its North American marketing activities to Quixtar, a new company that it had formed, with the Quixtar business model differing significantly from the earlier Amway business model in many aspects. However, in 2007, Amway announced that its Quixtar brand would be phased out over a period of 18-24 month, and would be replaced by Amway Global, a unified Amway brand worldwide. Were the pioneer-distributors shortchanged, as a result of all these manoeuvres, I wonder.

Amway Business Plan

Is Network Marketing a Scam?

Since multi-level marketing has been touted as a lucrative home-based business opportunity, the best way to answer the question, "Is Networking a Scam?", is to find out whether their distributors are really making a reasonable income for their efforts.

Analyzing available data published by the MLM companies themselves, the nonprofit Consumer Awareness Institute notes: "Of the companies surveyed, they reported the least successful was Amway/Quixtar where 99.99% of distributors lose money, and the most successful was Herbalife, where 99.42% of distributors lose money."

In a 1979 ruling, the Federal Trade Commission (FTC) found Amway "guilty of [retail] price-fixing and making exaggerated income claims". The FTC further pointed out that more than half of Amway's distributors did not make any money, while the average distributor made less than $100 per month.

MLM-TheTruth.com says:

"In 1980, as part of a suit against Amway, an investigation was undertaken by the Office of Attorney General for the State of Wisconsin, led by Assistant AG Bruce Craig. Out of approximately 20,000 distributors operating in Wisconsin, state tax returns were obtained for all of the Amway “Direct” Distributors in Wisconsin, which numbered about 200, which approximately represented the top 1% of distributors. Attached to the returns were the federal forms, which revealed a breakdown of revenue and expense information.

Though these were supposedly the top distributors in the state, with an average gross profit of about $12,500, the average net income after subtracting operating expenses for these 200 top Amway distributors was approximately minus $900. This information was reported on the nationally televised “60 Minutes” show."

Pyramid Scheme Alert (PSA) says: "Pyramid marketing schemes disguise themselves as "direct selling". All such scams operate as "multi-level marketing (MLM)... They employ mass meetings to entrap consumers. They falsely promise income to all that join, based on the trick of "geometric expansion" of an endless chain. They claim to offer viable income opportunities, while inflicting losses upon 99% of all participants each year."

Why I Quit Amway

The chart shows how pyramid schemes can become impossible to sustain.
The chart shows how pyramid schemes can become impossible to sustain. | Source

Why Network Marketing Cannot be a Viable Home-Based Business Opportunity

Have you ever thought that it doesn't really matter how much commission or rebate an MLM company compensates you for the sales that you personally generate? The reason is very simple. If your prospective customers want to buy your company's products, they might as well join the company as your distributor and keep the distributor rebate for themselves. Is it any surprise, then, that "on average, no net income is earned by MLM distributors from door to door 'retail' sales", according to Robert L. FitzPatrick in his article, "The Myth of "Income Opportunity" in Multi-Level Marketing".

This, by itself, would not have posed a serious problem (as you can still earn overriding commissions), had it not been for the fact almost every consumer is already a distributor and it's so hard to recruit. The chart on the right shows how multi-level marketing (MLM) schemes can become impossible to sustain. The jump from Level 6 to Level 7 is from 46,656 to 279,936 and from then on, each jump is mind-boggling. Is it any wonder, then, that the market gets saturated very fast?

A survey conducted by MLM-TheTruth.com in Utah County, United States, where MLM is most concentrated, showed that only 1.1% of households actually made purchases from an MLM company and 4.6% actually joined. What does these figures mean? It means that in a city of 1 million people, only 46,000 will join an MLM network. Even assuming that your company is the only MLM operating in the city, this means that your city will be saturated by Level 6, possibly within 6 months. And if you have to split the total MLM distributor market among 3-4 companies, saturation would be reached even faster.

To top it all up, MLM products are almost invariably overpriced. Because of product differentiation (differences in product features, real or imagined), it is not possible to compare apple to apple (i.e. the prices of its products with other products), unless you are an expert in that particular field. Since MLM companies require every of its distributors to maintain a certain minimum sales volume every month, it has a ready captive market. As such, prices are set well above market value, such that after rebate, it is still usually more expensive than what you can get for similar products in the supermarkets. It is a lose-lose proposition for distributors all the way.

Conclusion

So is network marketing a scam? To me, it doesn't matter whether it is legit or it is not. Point is you won't make much money, if any, out of it.

Skeptoid.com says:

"On average, 99.95% of network marketers lose money. However, only 97.14% of Las Vegas gamblers lose money by placing everything on a single number at roulette. So if you're thinking about joining a network marketing plan, and aren't dissuaded by the facts I've presented, consider instead going to Vegas and placing all your money in a single pile on number 13. Sooner or later you're going to have to take my advice and just stop now."

ADDITIONAL READING: What's Wrong With Multi-Level Marketing?

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    • Chuck Bluestein profile image

      Chuck Bluestein 2 years ago from Morristown, AZ, USA

      The above got messed up in formatting since the window is too tiny so I will do it on notepad first and transfer it. I got into Shaklee first and bought a kit for a few dollar but talking to people was free. So I made about $200 from talking to my friends. When I first got into Shaklee, I did nothing for the first year. You will find that 90% who join do nothing. You cannot expect to make money doing nothing. Then I want to a Amway meeting in a hotel. That motivated me to do Shaklee.

      The guy talking at the hotel was an M.D. At first his wife was the only one doing it contacting other MD's, lawyer's, dentist's and accountant's wives that she knew. Then when she started making more than her husband then he started doing it. That motivated me to do Shaklee. Many in the room were doctors and lawyers. So your chance at making money in MLM is increased if you are president of the U.S., Donald Trump, a doctor or a lawyer. Say your doctor says that he has got a good business opportunity for you, wouldn't you listen closely. What if your garbage man did the same thing?

      Then I got into Universe Foods and made nothing, but I was doing it though the mail now. I got into Meadow Fresh and made nothing. I got into Country Light and built a downline of 200 and was making about $30 a month. I got into Sunrider and after a few months I was making over 1,000 monthly and it kept growing.

      It got very large but many years later Sunrider severely reduced their bonuses but I got into another one.

    • Chuck Bluestein profile image

      Chuck Bluestein 2 years ago from Morristown, AZ, USA

      I got into Shaklee first and bought a kit for a few dollar but talking to people was free. So I made about $200 from talking to my friends. When I first got into Shaklee, I did nothing for the first year. You will find that 90% who join do nothing. You cannot expect to make money doing nothing. Then I want to a Amway meeting in a hotel. That motivated me to do Shakelee.

      I got into Universe Foods and made nothing, but I was doing it though the mail now. I got into Meadow Fresh and made nothing I got into Country Light and built a downline of 200 and was making about $30 a month. I got into Sunrider and after a few months I was making over 1,000 monthly and it kept growing.

      The guy talking was an M.D. At first his wife was the only one doing it contacting other MD's, lawyer's, dentist's and accountant's wives that she knew. Then when she started making more than her husband then he started doing it. That motivated me to s Shaklee.

    • pocono foothills profile image

      John Fisher 3 years ago from Easton, Pennsylvania

      The term "network marketing" takes in a lot of territory, and it pretty much includes ANY business that markets anything to anybody through any type of marketing channel. Suppose their was a business where nobody ever had to sell a product, where there were no distributors, and where the retention rate is 95%, and where no one can ever lose money. Actually, there is such a business.

    • juansamsel profile image

      Juan Samsel 3 years ago from Charlotte, NC, United States

      You are awesome article sharing buddy thanks and please share more then article related of mlm

    • WalterPoon profile image
      Author

      Poon Poi Ming 3 years ago from Malaysia

      KSChang, MLM is over for me... I got my hands burnt, no matter how promising it looks at first.

    • kschang profile image

      kschang 3 years ago from San Francisco, CA, USA

      Slight correction. Solar City is rounded by the Rive brothers. Elon Musk, who is their cousin, served as the first CEO and provided a good amount of starting capital, but he's not the founder.

      Viridian has nothing to do with SolarCity other than a cross-marketing agreement where Viridian reps can also market SolarCity stuff starting in late 2013.

      Viridian,is MLM, but at first glance, not one you're likely to get rich from, as there's really not that much margin to give in the home electricity business. And the initial enrollment fee ($99 for one state and $399 for all states?) is a bit worrisome, but apparently you are NOT getting paid for merely recruiting reps, but actual electricity customers who want to switch. Still, you're not going to make much, according to their 2012 disclosure.

      http://www.viridian.com/assets/marketing/EDS_PR-2....

      It says that the bottom 3 ranks, which comprised of 70% of all reps, made annually less than 1000 dollars. Given that you paid $399 to get in, sounds like a bad investment to me.

    • WalterPoon profile image
      Author

      Poon Poi Ming 3 years ago from Malaysia

      Thank you Kamasu for your upbeat response. Actually, most MLMs are legit. I participated in three, with disastrous results. (One turned out to be non-legit.) Hopefully, you will make it because SolarCity is a different product, compared to selling health supplements.

      There's nothing like having a personal experience, especially if the capital involved is affordable. $500 is a lot, compared to Amway's $62. But then again, this would cut out many people who are not serious in the business and may turn out to be good because it prevents flooding of the market. Wishing you all the best and hope to hear from you again!

    • profile image

      kamasu 3 years ago

      Yes Walter that is my plan. total investment for all associated fees is less than $500. so for me that is a one a small price to gamble away if it is a complete scam and I then can give my opinion on future discussions on MLM's from a first hand perspective. My strong feeling is that is legit and in that case $500.00 is actually a very small price to pay to start a business in the US. So I will definitely keep you posted. Very nice corresponding with you and I look forward to sharing an update with you good or bad.

      Cheers,

      Kamasu

    • WalterPoon profile image
      Author

      Poon Poi Ming 3 years ago from Malaysia

      Kamasu, you are right. I am not from the United States, but from Malaysia. I can't give you much advice, other than the fact that almost all MLMers don't survive. In all the MLMs that I know of, it's only the manufacturers and some pioneer distributors who make tons of money.

      Since the entry level (cost of joining) is not high, you may decide to give it a try to then let us know a year or two down the road. If you succeed, I believe there may be Hubpage contributors from the U.S. who may want to be your downline.

    • profile image

      Kamasu 3 years ago

      Hey Walter,

      Thank you as well for your response. If you are not US based then it is very possible you have not heard of SolarCity. They are actually the largest distributor and installer of solar units for home and commercial buildings. They were also founded by the CEO of TESLA Elon Musk. SolarCity is well known in the US and several of the top tier auto manufactures here have business relationships with them that help you get solar for your home when you purchase one of their Electric Vehicles.

      As far as the constant customer search or every prospect just becoming an associate to avoid the up charge. I totally understand how that would happen more times than not with a small quantity that can be consumed or used up, but its kinda hard to run out of Sun light. The way it works is for every lead the viridian associate generates that moves forward and gets a SolarCity unit installed on their home the associate receives a small up front commission and then a small residual commission for the length of the financing of the equipment. This usually ranges from 7-20yrs which seams like a long time to finance something, but remember we are talking something for a home that people live in often for 40+ years. So yes you continue searching for additional customers to keep getting the initial commission, but also to add to residual pot that your customers are paying into every month when they pay the utility bill for the Solar power that is almost always cheaper than just buying energy from the local utility. As far as all your potential customer prospects just become reps themselves to get the wholesale price and not the retail price. There is no difference. The Solar consultation is 100% free and the installation of the equipment is free. There is a variance in price based on what equipment is needed per home as my above example mentioned, but this is not always a bad thing either. The more available space, means the more potential for capturing more Solar energy, which could result in a positive flow into the grid. There in which the local utility company actually buys this energy from the home owner in the form of credits. The credits offset the homeowners energy usage bill and in some cases completely take care of it. But there is no employee discount on your unit for being an associate that puts the solar unit on vs just being a home owner who has the solar installed. There is not a slot to put your associate ID# on the purchase order to receive your associate discount. The price of the unit is the price of the unit. Sure some standard customers do become reps after to make for themselves, but this does not afford them some inside associate ability to uninstall and then re-install the solar unit or refinance their unit at some new associate price like they would receive if they were selling juices, toothpaste, video phones or vitamins.

      Now one thing that I have discovered after talking to a SolarCity direct rep( not a SolarCity rep via Viridian) that I met as he has a kiosk inside Home Depot ( if you are not familiar with them, they are a big box retail chain for home improvement materials) . After speaking with and building a bit of a friendship as I shop their often, he shared what he makes per unit sold. I am not going to quote his exact commission, but it was much much higher than the initial commission per unit that the Viridian rep receives. It was also variable as it is based on a % of the price of the unit sold vs the Viridian was a set amount regardless of the size of the unit sold. But the he did not receive any type of residual pay on that unit. So just like selling cars, he was always looking for that next customer to keep his pipeline full. The Viridian rep gets a much smaller piece of the pie up front then the SolarCity direct rep, but also gets morsels of the pie every month for the life of the purchase agreement, which the payments can be spread out up to 20yrs.

      So I am still really trying to understand where the MLM scam portion comes into play. I have read a few other articles where people utilized some of Viridians other energy products and didn't fully understand all the terms and conditions and felt like they got scammed. I read them and although I didn't necessarily feel like they got out and out scammed, I could see how they could feel that way. But as far as the Solar goes, it seems pretty straight forward to me.. Your thoughts.

    • WalterPoon profile image
      Author

      Poon Poi Ming 3 years ago from Malaysia

      Thank you, Kamasau, for your long and level-headed comments. It has been said that the bulk of Amway's profits comes from starter kits. Someone mentioned 70-80% (see the first comment in the link below). I read a more authoritative source that says 60 odd percent (to 2 decimal points). Was trying to dig out that article from an anti-MLM organization, but as always, it is hard to find when you need them, LOL.) Point is you can hardly sell anything since everyone who wants to buy will become a distributor himself. And isn't that logical? Why would you pay for a price which is much higher than paying for the starter kit and then buying it at distributor price?

      As for SolarCity, I must admit that I have never heard of them. But it sounds to me like basically a one-off time business. No one buys their products every other month. As you may be aware, MLM companies depend on regular repeat business for their revenues. It sounds tough to me to be a SolarCity distributor because you need to find new customers every day. And what is worse is that, after you talk until your mouth is dry, he decides to become a distributor himself and you earn a pittance... unless SolarCity charges a high price to become a distributor so that it is not worthwhile to be one, unless you are serious in the business.

      https://malaysia.answers.yahoo.com/question/index?...

    • WalterPoon profile image
      Author

      Poon Poi Ming 3 years ago from Malaysia

      QUOTE: "Maybe the failure rate is 99% because 99% of people fail at life in general so why would they be successful in MLM business?"

      Am I then to expect that 99% of students drop out from schools and universities?

    • profile image

      Kamasu 3 years ago

      I really enjoy reading all of your comments as positive and negative in regards to network marketing as they are concise and backed with supporting articles and links. I am well aware some shady MLM's out there and many have tried hard to recruit me. I have been lucky to dodge them as I quickly see that like some of the above comments that the product is either way over priced or has little to no real value. So the only way to actually earn is by selling the pipe dream to people. I must admit one of them has piqued my interest. I am personally very interested in Solar power and Electric cars, so that's why out of all of the MLM's I have seen, I gave this one a second look. I am curious to hear the opinions on Viridians Solar program and direct partnership with SolarCity. I know there are various pro/con debates on their other greener electricity and natural gas products that they offer and I have read I believe all of them at this point. This is why I am asking specifically about the Solar program. The reason is that I have two friends who both have Solar systems installed on their homes. One directly from SolarCity and the other SolarCity as well via Viridian. The two homes are track homes in pretty close proximity to each other( basically the both homes owners were pitched by the same Viridian associate another friend of ours and one went directly through SolarCity looking for a sweeter deal. It was the elephant in the room for a while, but now we all laugh about it, which is how the pricing comparison data was collected) so the installation and amount of sun the receive is roughly the same. excluding the price of a few minor equipment additions needed on the SolarCity direct home, there overall purchase contracts and what they pay per kilowatt is almost identical( obviously household energy use is not) So where is the big MLM scam or mass mark up from Viridian..?? Second piece I like to hear people way in on is the Veteran and non profit programs. Sure the standard person has to pay their fees to join, but there is a program for the existing rep/assoc./partner ect.. to help active duty & veterans as well as Non profit organizations join with no up front or renewal fees. So how does this factor in the pyramid scheme game plan of the reps only making money off of other people paying their sign up dues and not on moving the actual product which in this case is Solar installations?

    • profile image

      Jordan 3 years ago

      Maybe the failure rate is 99% because 99% of people fail at life in general so why would they be successful in MLM business?

    • profile image

      Jason 3 years ago

      I got involved with an MLM company when I was 17 years old and was earning substantial income by age 19. I was with the same company for 11.5 years.

      I had over 5,000 distributors and customers but in the end it dwindled down to 56 people ordering all together. I lost my house and my business. The long term residual income i was promised was never there long term; the same reasons many other top earners left.

      Whether you are currently involved with an MLM business model or not, you need to hear this information in regards to earning long term residual income. Watch the video we created that shares exactly why top earners leave and what they are doing now to create financial security.

      Watch the video by clicking this link http://www.viddler.com/v/d760ee1b.

      If the information in the video makes sense to you like it did to me, I would love to hear from you.

      Feel free to email me at jasfish24@gmail.com.

    • The V-2 profile image

      The V-2 4 years ago

      To me, network marketing only makes sense if you have a secondary use for it.

      I decided to join The Empower Network because I wanted to polish my writing and online formatting skills. I'm a junior editor at an online sports site that does very well -- http://www.daily-player.com -- so the extra experience works for me. As blogging and marketing are the activities, this business plays to my strong suits, I have no hassles about physical product inventory, and I leave the selling to the proprietors. Meanwhile, I've had others join who decided to do so after a pro-con discussion with me and they're happy, so I'm ahead of the game.

      What also works for me is I'm hands-on in helping them with their blogs. It seems to work for them, too.

      Network marketing will only yield what one makes of it. There is no substitute for diligent research, efficient effort, and viable incorporation into an overall financial plan.

    • WalterPoon profile image
      Author

      Poon Poi Ming 4 years ago from Malaysia

      Hi sickofmlm, thank you for dropping by. You do sound really cheesed off. But I doubt a restraining order really helps, even if you can get one. At the most, they keep changing their telephone number. Blocking the number would be much easier, if they are using the same number. We, here in Malaysia, get a lot of calls from banks, selling credit cards, who won't take "no" for an answer, LOL.

    • profile image

      sickofmlm 4 years ago

      This may seem extreme, but I will get a restraining order against the next person in an MLM who starts calling our cell phones repeatedly. My husband and I have had problems with people giving out our cell numbers to people in MLMs who are trying to recruit us or sell us stuff. We have to use our cell phones at work (for work related business) during the weekday. There have been a few MLMers who call my husband repeatedly on his cell phone when he is in important work meetings. I have begged them to stop, and also begged my friends to stop giving out our cell phone numbers. Getting a new cell number is not an option for my husband right now. He doesn't like being interrupted in the middle of a busy work day about some silly "Mary Kay cosmetics" sales event, "Pampered Chef" or anything else. Is it easy to get a restraining order, because I will seriously do this. I am sick of the breach of boundaries that my friends seem to think is okay.

    • kschang profile image

      kschang 4 years ago from San Francisco, CA, USA

      If you popularize the startup by lowering the bar even further (by calling it "start your own business") by portraying MLM that way it will spread the bell curve even further and make the stats even worse. It's certainly something they don't talk about. In one of my hubs, "9 things they don't tell you about MLM" the first item is one of their "heroes" telling everybody that it will take YEARS to make any significant money, and you're likely to lose money the first year, even if you give it all you got, going beyond full-time and all that. So in a certain way, it's... false advertising.

      I don't worry about my blog ratings. :)

    • WalterPoon profile image
      Author

      Poon Poi Ming 4 years ago from Malaysia

      Kschang, look at the failure rates:

      - 99.95% of network marketers lose money;

      - 97.14% of Las Vegas gamblers lose money by placing everything on a single number at roulette; and

      - 75% (3 out of 4) venture startups failed (according to WSJ).

      How's your blog doing? Looks like you are doing pretty well with an Alexa ranking of 965,382, given that you started your blog only around May 2012!

    • kschang profile image

      kschang 4 years ago from San Francisco, CA, USA

      One *could* argue that the same lousy odds exist in ANY business. At least MLM sets the bar low, rather than thousands of dollars to start a "regular" business. (Just playing devil's advocate here.) Wasn't there a stat somewhere that 90% of all startup businesses fail? I'm pretty sure that's in the US. In the rest of the world it may be worse. The failure rate in itself is not proof of fraud (in itself). Once must take the context of the number into account.

      As for that income from sales tools... I'm pretty sure Amway had long since stepped back from that and limited the role of Amway Support Organizations.

      The problem now is these "MSOs" (MLM support organizations) are basically "feeders" to MLM programs. Shawn Dahl (Herbalife) controls at least one, if not three of these MSOs called "IncomeAtHome" and advertises on national syndicated radio shows in the US that uses deceptive tricks like "$9.95 to start", which is actually only shipping and if you keep the package they charge $39.95 more, then you can pay $400 to actually join. When The Verge caught them with an investigative piece they quickly swapped to Vemma (another MLM).

      http://amlmskeptic.blogspot.com/2013/06/why-did-he... (from my blog)

    • WalterPoon profile image
      Author

      Poon Poi Ming 4 years ago from Malaysia

      In "Amway: The Untold Story", it is said: "For every 400 people who pay $71.95 for a sales kit and become distributors, only one will make it up the first step of the Amway hierarchy to direct distributor." And that's a mere 0.25% success rate, just to reach the first level.

      In lawsuits filed by high-level distributors, Amway admits that the majority of their income is made from the sale of tools and not from Amway products. It has also been said elsewhere that Amway appoints people to pretend to reach the highest levels, lends them the use of executive jets, and pays for their vacations to attract new recruits.

      http://www.cs.cmu.edu/~dst/Amway/AUS/tools.htm

    • kschang profile image

      kschang 4 years ago from San Francisco, CA, USA

      The truth is Income disclosure is only required because the IBOs need to use them to sell the "opportunity". And even then the company pump out only the barest amount of info to satisfy the regulations (and sometimes, even less than that) and tried to spin the numbers in the most positive light, like "annualized numbers" (i.e. projected from only a few months, who knows if that's really "representative") FTC had stated that anything the company claims, even by its reps, must be based on SOME fact. Totally made up **** is NOT permitted. If somebody talks about income, then the company had to published income disclosure. It doesn't say income disclosure had to be easy to understand. This ain't that "credit card required disclosure in standard format".

      So yes, I know how businesses spin the numbers. As I said, I criticize MLMs (you'll see when you look at my hubs).

    • WalterPoon profile image
      Author

      Poon Poi Ming 4 years ago from Malaysia

      KSChang, thank you for your clarification. Now, I get what you mean. As for presenting a false picture to distributors, it's not just Herbalife but also Amway. I was reading some articles, years back, that Amway Ambassadors, the highest level, are paid promoters! Cannot imagine that Amway was taking all of us for a ride and treating us like fools!

    • kschang profile image

      kschang 4 years ago from San Francisco, CA, USA

      Herbalife is pretty infamous for counting only 'supervisors' in their disclosure statements, because supervisors have to reach a certain sales goal (and qualify for multi-level payouts), and only 25% of all distributors reach "supervisor" level. And their disclosure statement only covers supervisor or above. So they just conveniently ignored 75% of their distributorship.

    • kschang profile image

      kschang 4 years ago from San Francisco, CA, USA

      You read me wrong. The companies exclude dropouts to make their numbers look better. They counted stuff sold to them in their sales, but excluded them from the roll call for IBO headcount.

      For example, if a company claims 10000 IBOs, but 4000 had quit that same year, that means their actual staff count is 14000, not 10000, and thus, their "average earnings" would be MUCH LOWER.

    • WalterPoon profile image
      Author

      Poon Poi Ming 4 years ago from Malaysia

      QUOTE: "...the practice of not counting ALL who signed on as distributors (agents, consultants, etc.) in the population of recruits who attempted to make the program work for them, but instead counting only those still active i.e., deleting all dropouts in the calculation."

      Kschang, are you implying that if the dropouts were included, the results would look rosier? Judging by what you've said, it seems like you do not know much about the subject of statistics. No one counts everything. All that is required is just a sample. As a rule of thumb, a sample size of 30 data is the bare minimum to give a meaningful conclusion, and survey companies usually do around 50 . What anyone can argue is not the sample size but whether the sample is biased.

    • WalterPoon profile image
      Author

      Poon Poi Ming 4 years ago from Malaysia

      Kschang, thank you for your long comment. Normally, when comments are as long as my hub, so to speak, I don't publish. But I'll make an exception in this case, since you brought up a number of contentious issues. And since I make an exception in this case, I should also make one exception for Myshaklee, to be fair.

      Skeptoid is not the only source which says that. There was actually a Wisconsin court case in 1980 where the Office of Attorney General carried out a survey of 20,000 top distributors and came to the same conclusion. See also MLMTheTruth.com "Who profits from MLM? Tax preparers have the answer" where Consumer Awareness Institute performed a telephone survey of over 200 tax preparers in Idaho and Utah in 1996 and then in 2004 and came to the same conclusion. See also "Report of Violations of the FTC Order for NuSkin to Stop Misrepresenting Earnings of Distributors", filed with the FTC in January 2003.

      Of course, MLM is not PURE evil. Nothing is, but the statistics show that MLM makes gambling a little more virtuous.

      By the way, do you have some price comparison to share? As far as I know, Dynamo, a biodegradeable detergent that is sold in the supermarket, sells at a fraction of the price of Amway's SA8.

    • kschang profile image

      kschang 4 years ago from San Francisco, CA, USA

      To be clear, Skeptoid's reference about that "99.5% lose money" is linked from Dr. Taylor's website and it comes with several caveats

      (NOTE: I am a MLM critic, not a fan, but felt the need to set the facts straight)

      The way Dr. Jon Taylor's figures worked (the way he came up with the 99.5% to 99.9% "failure rate") has 3 caveats you actually have to read in the footnotes of Dr. Taylor's website:

      (1) the practice of not counting ALL who signed on as distributors (agents, consultants, etc.) in the population of recruits who attempted to make the program work for them, but instead counting only those still active i.e., deleting all dropouts in the calculation,

      COMMENT: This is an proper observation, as MLM stats always refer only to "active" or "current" reps, not on any one who have dropped out. However, the question then is, how much do they count? Do you keep them on the rolls "forever"? If so how can you evaluate progress from year to year? And what is the "churn rate"?

      (2) not subtracting expenses, especially products and services purchased from the company to qualify for commissions, plus minimal operating expenses

      COMMENTARY: all of these disclosure statements ONLY address the amount of commission paid from company to IBO, that's true. However, this gets into the "sticky issue" of self-consumption, i.e. is what an IBO purchased for him or herself commissionable? FTC was not very clear on this, stating that it had to do with the "intention" of purchase. If it's purchased solely/mostly to qualify oneself for commission, then it's illegal pyramid scheme. On the other hand, if it's genuine self-consumption, then there *should* be commission paid on it, even if it's to oneself. DSA has NO intention to clarify this, but instead, tried to lobby individual states to make self-consumption legal, thus trying to weaken the Koscot test for pyramid scheme. And that is BAD for the industry.

      (3) assuming legitimate sales of products (to customers not in the network) that did not occur.

      COMMENTARY: Most MLM companies pay commission on the amount the affiliate/IBO bought, not on the amount SOLD (by the affiliate/IBO) the way it was supposed to be. Companies that don't know or care have a hard time explaining themselves (much like Herbalife is doing now). While most companies do the Amway safeguard rules by requiring 10 retail sales, this is not always enforced or audited. So there is a chance that the retail sales did not occur, but it's not a certainty.

      Well, enough ranting. :) MLM can be a very DANGEROUS business to get into, but it is not PURE evil as many people made it out to be.

    • WalterPoon profile image
      Author

      Poon Poi Ming 4 years ago from Malaysia

      Myshaklee, I'm sorry for not being able to publish your response because it is longer than my hub, LOL. I've read your reply and am glad that you're doing well. I've an ex-colleague who was doing very well in Shaklee's too. According to her, she left Shaklee, after Shaklee changed its commission structure. (I met her around the year 2000 when she told me this. And I believe she did well, merely because she had a captive market. Her partner was a health officer, and factories were obliged to join to avoid trouble.)

    • WalterPoon profile image
      Author

      Poon Poi Ming 4 years ago from Malaysia

      Alphadogg16 and Billybuc, thank you for dropping by. I went into MLM three times and got my hands burned: first degree burn from Amway, thanks to my Philippines' degree program, third degree burn from Enrich, and fourth degree burn from Skybiz.

    • Alphadogg16 profile image

      Kevin W 4 years ago from Texas

      @myshaklee - The question was how many people lose money, I'm sure your company makes money or they wouldn't be in business, but if 3% of the people/distributors is getting 95% of that "3 billion in payouts", your only strengthening Walter's point.

    • billybuc profile image

      Bill Holland 4 years ago from Olympia, WA

      Your article only echoes what I have heard from others about network marketing....whether it is a scam or not, it really is not worth the time and effort.

      Very objective review here my friend. Thanks for the insider information.

    • Alphadogg16 profile image

      Kevin W 4 years ago from Texas

      Very Interesting hub Walter, the numbers for failure are staggering, Ive never been into the MLM thing, not really the salesman type. I've always stuck to that motto, if its too good to be true, it probably is. If making 10k a month was that easy, everyone would be rich.

    • WalterPoon profile image
      Author

      Poon Poi Ming 4 years ago from Malaysia

      Myshaklee, I'm glad for you. You must be one of the top performers in your company. Do you have any statistics of Shaklee's overall success rate among its distributors for comparison with Amway's failure rate of 99.99% and Herbalife's failure rate of 99.42%?

      The below website says: "The US Federal Trade Commission finds that the average Shaklee distributor earns less than $790 per year. (Now subtract the thousands they spend to join the Shaklee Scam)".

      http://shaklee-pyramid-scam.blogspot.com/

    • myshaklee profile image

      myshaklee 4 years ago

      What I know That Shaklee Has Its Best rates http://thehealthyway.myshaklee.com/us/en/shop.s.ht...