Wednesday, January 05, 2011

Roxy von Foxio and the Pernicious Product Pimps

Everyone wants to be successful.  At least everyone I know.  With the markets down, and unemployment up, people get pretty desperate for stability and success in their life.  Suddenly a friend tells you that success can be yours without the time and money that many people "waste" on college.  Next thing you know, you're going to meetings across town and voila!  You are in an MLM.  

This is one subject where I can claim to know what I am talking about.  In my more foolish days, I did time in several MLM companies.  They all have a different name for their system:  Direct Sales, Direct marketing, network marketing, etc (they changed the named to protect the guilty).  But don't be fooled- they are basically all MLM companies even if they deny it.

Utah is the capital of the U.S. for suckers (not the candy kind).  No kidding. Utah has as much fraud and mlm as the South has fried chicken.  So let's remove ourselves from the sucker category by getting the Skinny on MLM companies.

What is an MLM?
MLM stands for Multi-level Marketing, and is a technically legal method of encouraging current sales people to recruit other sales people under them.  If I get 3 friends to sell under me, I get a piece of their commissions and a piece of whoever they recruit etc.   These commissions get racked up pretty fast because all the distributors are required to buy product every month from the person in their up-line, and product prices tend to be much higher than market norms.  For example: Mona Vie, discussed in a past Daily Skinny, is many times more expensive than regular fruit juice.

 The company promises many things as a result of owning your own "business" through them: freedom of time, lots of money, and one company even promised my group of recruits e a better sex life (these are creepy people).  I think nearly everyone has either been part of an MLM or knows someone who is.

When you get paid more for recruiting than you get for selling product, there is a name for it...  It's called a pyramid scheme and is against the law. (Legally speaking, there is a small difference between an MLM and a pyramid, but let's not get lost in obscure details). If you are in a company where making a decent profit is contingent on recruiting other sales people, it is more of a scheme than a business plan.  MLMers will claim that their business is different because pyramid schemes aren't sustainable and their model is.  This is a stupid thing to say because some pyramid schemes have lasted more than 20 years!  Tell the recruiter to come back when their company is 20 years old.

Sometimes a Cult is good clean fun
I'll be honest.  One reason I left the last MLM because it was getting pretty culty (Oh! And I never made any money).  :) Many of the speeches were more about emotion than fact.  All the meetings involved loud music, televangelist-style speakers and fervent testimonials. I noticed that they had numerous ways of pulling me away from family and friends who were not interested in the "opportunity".  In addition, people who appeared to be doing well in the company attained a God-like status while those who struggled were said to not have "the stuff".  In more than one company I found out in private conversation that some of the "successful" people were not doing any better than I was, and in one case, the company was force-feeding people into certain down-lines so that the company would have a success story.

Don't Improve Yourself
I have been encouraged numerous times by MLM acolytes that I was wasting time by going to school.  Several people said I should drop out so I could focus on the "opportunity".  I got the exact same speech from 4 different companies.  I even saw one "cost/benefit" analysis of how going to school compared to working in a local MLM.  Naturally education lost in their analysis.  I know several people who dropped out of highly respected schools to work in a certain MLM.  For all the praise they got, you would have thought they had cured world hunger.

Spoiler Alert!  Last I heard, all of them had quit the MLM and were struggling to find jobs with their lack of education.

The only way dropping out of school to work in an mlm leaves you better off is if you were going to Liar McScheister's "school" of homeopathy or something.

Why do people stay?
People stay in MLMs for varying lengths of time.  The company keeps you there using emotion, an illusion of prestige or superiority over those not involved, and mostly because you have already invested a lot of money.  Once you have paid them, most people keep working for as long as they can stand to try to get their investment back out.  People don't want to be a "failure" by quitting.  What people forget is that an MLM is a vegas-style game.  It's designed to make you lose.  People also stay, because many companies recruit using well dressed, attractive people with charisma.  If you had to choose between going to a recruiting meeting with Roxy von Foxio, or doing statistics homework for college classes, which would you choose? 

People Lie (Duh)
I found out after I left a particular company, that one man who was claiming to make lots of money with the company's "system" was a paid actor.  Basically, his pants were on fire.

I have seen all sorts of so called endorsements from accountants, lawyers, doctors, and government officials detailing why one particular MLM is not like the rest and is a uniquely safe and profitable opportunity.  They all have some spiel about why they are different than other MLM companies.  Don't believe any of it.  It makes no difference if the product is great or the Pope endorsed them.  You are not going to make any money.

The Math (A mostly-true story with the names changed)
The Pernicious Product Pimp is sitting on my in couch, and asks for a piece of paper.  He puts my name at the top and draws 5 circles under me, explaining that all I have to do is get 5 people below me.  Since the company requires purchases of $100 of product per month, and I get a 25% commission, I get $125 per month in commissions!   Now, if those 5 get their 5 recruits, and so on, I get $3800 per month in commissions!  And that is assuming we all sell only the $100 minimum!  He then goes on to show a "normal" sales volume.  He does what appears to be some mathematical voodoo, and next thing I know, he is talking about me making $250,000 per year!  "You'd have to be stupid not do this!" He says.  He further explains that it is such a good opportunity that he dropped out of school to do it. 

In my most Southern accent I say, "It's too bad you dropped out of school before they got to math, John-Boy.  How many people are between you and the person who started this?"

He confidently points out that he was brought on by the recruit of a good friend of the president.  He's like a dog trying to prove his pedigree. 

Before he has time to pee on my carpet I ask him how many people are in his level of the organization.  Proud to be in the upper echelon, he points out that only 10 people are on his level.

He stares blankly when I point out that counting the fictional recruits he just gave me, the commission structure is 7 layers deep.

"Do you know what 5 to the 7th power is, Sherlock?" I say.  "It's over 78,000 people!  In order for all 10 down-lines to have 78,000 people, there would have to be almost 1 million people signed up to sell for your company!  In fact, if only 1 person got 14 levels under him, EVERY PERSON IN THE WORLD WOULD HAVE TO SIGN UP!  The bottom line is that the commission structure you just described to me is nearly impossible."

We can tell which MLM companies are performing the best by looking at the tax returns of people who work in them.  One MLM company is the most successful by far!  The company is Herbalife.  Guess what percent of their "distributors" (AKA product pimps) make back their initial investment and go on to make profits?  .58%!  That means in the MOST SUCCESSFUL 'network marketing company', 99.42% of their employees LOSE money.

In Utah, an estimated 6% of the population participates in an MLM company.  6%!  Out of a sample of 300,000 tax returns of people in mlms, guess how many made money:  Zero.   Newsweek has shown that Less than 1% of Mona Vie distributors qualify for any commissions and less than 1 in 1,000 people get enough on their commissions to cover the cost of their monthly required purchases.

In fact, many MLM companies (like Amway) have been sued for making exaggerated claims regarding how much income you'll make.

Why I gave up MLM
Obviously, I gave it up because I never made any money.  I worked myself to the bone too.  I am not a lazy person.  But the real reason I quit is that I mapped out the compensation structure, and realized that my getting paid was contingent on me getting someone else to sign up when I knew they would never actually make any money.  My conscience was not okay with that.  Do a few rare people make money?  Sure.  But they make money by watching other people lose money.  That's not a business. It's gambling.

A class action lawsuit has been filed against eFusion for fraudulent down-lines, exaggerated advertising claims, and fraudulent marketing.

MLM company Ad Surf Daily has been shut down by the Secret Service (this is both weird and cool).

MonaVie and some of their distributors were sued in 2008 for $2.75 billion in false advertising claims.

Herbalife is currently being sued for fraudulent practices and product negligence.

Famous MLM Amway has been sued so many times for pyramid schemes, false advertising, and fraudlent recruiting that when one lawyer subpoenaed copies of all lawsuits filed against Amway, their response was: (this is a real quote)

"The request imposes an undue burden in that the number of lawsuits filed against Amway Corporation... represents literally thousands of lawsuits, with the file on each lawsuit varying from several pages to entire rooms filled with documentation."

What's the Skinny?

Basically all MLM companies are a bad deal.  Even if the product is great, the company is structure is designed you get your initial investment and then churn you out.   MLMs have an average annual drop out rate of 70%!  These people aren't dropping out to retire on their riches.   The first people into an MLM make all the money  and the last people in lose their investment.  That is same concept as a pyramid scheme.  MLM companies often use deceptive math and drawings to trick the listener into thinking it is easy to make a lot of money.  It isn't. No matter what people claim, their tax returns show that the only people making money are the top 1% or less. It's a waste of time and energy.  If you want to make decent money, get an education.  If you want to own your own business, do it!  But make money off your products, not your employees.


Chelsea said...

I read your post and am in your position but on the opposite end. Craig, my husband, ho you knew, joined an MLM, called ACN 8 years ago, and yes, it has been around for 20 years, and no, we don't have to buy a monthly "quota" from our upline, and no we didn't get in early (like you're probably thinking). No, it is not a get rich quick deal, it takes hard work and a lot of it, but I can attest that it does work. ACN is our only source of income and has been for 7 years now. I can honestly say that we have never lied or deceived anyone to get to the position we are in. In fact, we have helped a lot of people become financially independent with us! I appreciate your post, but I do want you, and others who read your post to know that it does work if you don't quit. Of course people like you will quit and become bitter. There are people like that in EVERY industry. Hopefully you can see from Craig and I, whom you have known for a long time, that ordinary people can make MLMs work, and it has been a blessing in our lives. I think that the majority of the people who join think that they can make money quick and get rich, and although that can be true, MLMs are designed to be a long term plan B income. Good to hear from you! Take care! Chelsea

Kristin said...

Yea! The Skinny is back! I will think of you every time I drive by my neighbor's car which is plastered with Monavie logos. Ick!

Danny said...

Good to see you making posts again. Well done.

Anonymous said...

im glad you posted this. mlms piss me off. its just a bunch of fake people roping you in. im glad you posted again.