In the past few years, growth of network marketing has moved around the globe in a variety of product categories. Also called Multi-Layer Marketing, Pyramid Marketing, and Direct Selling, (although direct selling is a broader term which encompasses business models I will not discuss here), network marketing has touched almost everyone’s life in one form or another. There are many proponents of network marketing, although if you look carefully you will see why network marketing is not a business model but a scam based architecture disguised as a business.
What is Network Marketing?
Unlike direct sellers of the past, who would call potential customers at home or travel door to door, the primary aim of the network marketer is not to sell products, but to add additional distributors (direct sellers) into the company. This is often done using a high level sales pitch detailing how much money the speaker has made, and often includes market-speak to gloss over the risks. Words such as business opportunity, ground breaking, work from home, financial freedom, ground floor, etc. are all used to lure in a potential new mark. When a new person joins, they must pay a nominal fee or “investment” to begin their company, usually also with offers for add on products such as samples or kits. Once recruited, the marketer is then asked to try to bring in family and friends in the same way.
Selling the actual product is generally the secondary goal, and depending on the organization may be emphasized in differing amounts. Although some sales will occur, research has shown that the vast majority of people who buy the products network marketers sell are network marketers themselves.
Given the structure of a network marketing company, it is impossible for network marketing to be a viable business model for the independent marketer. In very rare cases (approximately 10 people per company), the marketer will make significant returns, although this is due to unknowingly scamming network marketers lower on the chain out of time and money.
Why Network Marketing Cannot Work as a Viable Business Model
Business models exist to generate increasing value for the largest number of people. In traditional companies, the business model will generate benefits for all stakeholders – customers are pleased with their purchase, owners and employees receive profits, and investors receive a return. It would make sense then, that a good business model would maximize value for all involved. The question is – Does Network Marketing increase value for everyone? To answer this question in a better way, I broke out the network marketing business model into groups of stakeholders with different value propositions:
- Customers – people who buy the product, but are not network marketers themselves
- Network marketers – For my purposes, those with 3 or fewer levels of downstream distributors
- Top of Pyramid – Those with 4 or more downstream levels
Now, lets take a look at how each of these groups might be affected by the network marketing model:
Customers are more likely to have a personal relationship with the seller, but because margins are suggested to be 20-30% for the network marketer, they are paying a hefty premium when compared to the more typical 5-10% in traditional retail. In addition, many products (think Amway Global) are priced higher then the competition at wholesale, and have less value to the consumer.
- Network Marketers:
Generally, the marketers themselves must purchase a large number of samples, workshops, materials, kits, and product for their business. This often offsets any income made by a substantial amount. Further, they tend to solicit friends and families to participate in their ‘opportunities’, which can lead in a decline of quality relationships. This is offset by the small chance that they will attain a large enough downstream that sales and residuals will offset costs.
- Top of the Pyramid:
Generally the top marketers in a chain. They may see large sums of money, although almost all of it comes from their downstream payments. The chances of attaining this are very small, given the high turnover of downstream sellers. In a study (related to a court filing) of the tax returns for the top 1% of Amway sellers, the average yearly income was negative $900.
Who Will Answer the Hard Questions?
I have yet to encounter a network marketer who will honestly answer the following questions. If you are currently a network marketer, then please, ask these of yourself and your bosses:
- Considering that other successful companies can cover global sales with only a few hundred sales staff, why are thousands of Network Marketers a better choice for this business/product?
- What is the actual average retail profit per sale for a marketer with no downstream?
- Do you keep detailed accounting logs of profit and loss related to your business? Are you profitable?
- What percentage of people who pay the sign up fee actually see a profit?
- Why are the incentives for recruiting new talent greater then incentives for direct sales?
- If the best salesman in the world joined your company tomorrow, but never recruited a single person into their downstream, who would benefit the most?
Why Network Marketing is Evil
Look, when it comes down to it, most network marketers have the same dreams everyone else has: to be independently wealthy, to have time freedom, and to be productive members of society. Network Marketing pitches play to all of these dreams, and are very effective at luring people in. Add to this the lack of basic business knowledge most people have, and it is a recipe for disaster. Most network marketers do not know basic accounting, and consider all income profit, without regard to money spent. So a few people get very rich while everyone else loses money. Evil.
The DSA (Direct Selling Association) includes so many network marketing companies that it is now a lobby group for them, and have worked to have network marketing exempted from anti-pyramid schemes (Yes, it is a form of pyramid scheme, which has been made legalized through excessive lobbying). Evil.
It encourages people to exploit those closets to them: friends and family. Evil.
The worst part is, most network marketers just feel they don’t work hard enough to make the big bucks, even though the deck is stacked against them.
Don’t take my word for it..
There are many people opposed to Network Marketing and the evil it represents. Please do not involve yourself with network marketing companies. If you need more convincing, read some of these sources:
- More then 99% of Network Marketers lose money – Gambling has a higher rate of return!
- The Mirage of Multi-Level Marketing
- No company can expand forever the way Network Marketing describes the model – What’s Wrong with Multi-Level Marketing?
- First Hand account of harm
- Consider this quote from the 5 red flags of product MLM:
“In a randomized survey of households in Utah County, Utah, where many MLMs are located, we found four MLM distributors for every one nonparticipating customer.”
What do these companies have to say in their defense? A little reading will find replies such as “They are wrong”, “Sales are strong”, “Work hard and it pays off” or my personal favorite “It is perfectly legal”.
Finally, if you listen to nothing else, please consider the non profit, pyramid scheme alert, and research whatever network marketing company you work with.