Multi-Level Madness

I’ll recruit 3 people and you recruit 3 people and they’ll recruit 3 people and we’ll all pay $75 for a bottle of magic potion…

Multi-Level Madness…

Today we will look at Multi-Level Marketing (MLM) to determine if you can mix God, business, Facebook friends, hashtags, and magic potions to come out the other side making some money that is worthy of your time and capital invested. We’ll pull no punches, so buckle up…

Joseph Smith Loved Him Some Melaleuca

Utah is a hotbed for Multi-Level Marketing companies (MLMs). Per capita, no state has more. MLMs are the #2 industry in Utah behind tourism. NuSkin, doTERRA, Young Living, Younique, and several others all call Utah their home base. Why is this? It appears very common to wrap an MLM around a religion to “juice” its user base.

Amway and Mary Kay are more prime examples of this from the more conventional Christianity side of things. Other companies, like AdvoCare, tend to align themselves with Christian communities and want to align their business model along the social and emotional ties of Christianity.

megachurch
Megachurch = Megabusiness = Megamoney

For example, AdvoCare training videos encourage its salesforce to approach potential customers with the line; “I’ve been thinking about you, and you’ve been heavy on my heart.” If that’s not some old-school passive-aggressive Christianity pick-up line, I don’t know what is! Be leery and cautious if this tactic is used on you.

One could write an entire book on MLMs (I’m sure there are hundreds) so I am going to cut right to the chase. The money. That’s what we’re here for, right?

Breaking Down The Digits – Oils:

Young Living, in its 2016 U.S. Income Disclosure Statement has stated the average annual income for its members is $25/year.  Twenty-five bones per year. I could go rake a lawn this afternoon and double that average salary!

Then the real kick in the pants; Note that the compensation paid to members summarized in this disclosure do not include expenses incurred by a member in the operation or promotion of his or her business, which can vary widely and might include advertising or promotional expenses, product samples, training, rent, travel, telephone and Internet costs, and miscellaneous expenses.” That sounds like the average member is losing money…

DoTERRA numbers are similar and show that 99% of its members earn less than $10,000/year and only 1% of members earn more than $200/week.  Again, this is before expenses, product samples, advertising, etc. You must spend at least $100/month on product at doTERRA to be eligible for commissions. “You gotta spend money to make money” – ever heard that line?

Breaking Down The Digits – Skin Care:

Rodan + Fields consultants do not fare much better according to their disclosures, with over 96% of consultants averaging less than $6,700 per year with 60% averaging less than $335 per year. Their footnote; “To be eligible for commissions on products you must have monthly sales to retail customers and/or personal purchases of roughly $100 worth of product.” Are folks spending $100/month to average of $335/year?  Ouch!

My Favorite – Yoga Pants!

Mormon-founded LuLaRoe is one of the biggest MLMs running today. They make a very popular line of leggings and some of the most ugly-assed clothes I’ve ever seen. Their clothes look like Spongebob Squarepants had explosive diarrhea in a textile factory (check link).

The company has more consultants working St. George Utah (12 consultants for a population of 82,000) than it does in Manhattan (10 consultants for a population of 1.6 million). It’s therefore no wonder over 70% of their consultants had gross sales of less than $5,000 in a recent monthly income statement reviewed by CBS, with 8% selling $0. Company representatives refuse to say how many consultants are making a profit, but they do admit that earning a profit on $5,000 worth of gross sales in a month would be “difficult”.

yoga pants
Yoga Pants – photo by Dominik Wycislo

The worse part? Their mandatory start up kit will set you back $6,000. Ouch! Their minimum continuing order is 30 pieces, and LuLaRoe requires their sellers to buy a minimum of 33 pieces a month to maintain an active status in the organization (try that math…). For some real madness (or sadness) there are currently 571 gofundme campaigns for people trying to start their own LuLaRoe businesses (probably people limited out on their credit cards)…

MLM Business Models

In looking at these business models I see two things. One, it’s going to be very, very hard to make money worthy of your invested capital – especially when you factor in your your time. Two, these are business models that are based on mass failure.

Are they pyramids schemes? Absent the products involved, I would probably yes. Look at their business structure and draw their various “legs”, “stems”, “trees”, or “upline/downline flows” on a sheet of paper and see if you see something that reminds you of King Tut. The FTC has some more things you can look for in an MLM here.

It seems to me it is the products that make these structures legal, profitable, and at the same time disingenuous. Take a look at doTERRA. By some calculations, over 60% of the price you pay for your products goes to your upline in the form of commissions. Their bonuses are paid to 7 levels, with the top 2 levels paid to infinity. This is a system that seems unsustainable when selling into a finite marketplace. Those at the top can only make money if those at the bottom are continually spending money and funneling it upwards.

What to look for in your MLM:

Dr. Jon Taylor of the Consumer Awareness Institute presents 5 red flags to look for when doing your due diligence of a MLM-based company.

1 – Constant recruitment of new members: If you see an incentive like bonus money, 10x commissions, “fast track” bonuses, etc. paid for new recruits in your downline that is your incentive for constant recruiting.

2 – Promotion through Recruitment: If you see higher ranks of the organization earning larger commissions and/or bonuses that means your promotion is based on the number of people in your downline and the number of ‘legs’ or ‘branches’ you have working underneath you to “push you up” the pyramid (for lack of a better word).

3 – Pay to play: This one is pretty obvious. When you have minimum amounts of purchases that need to be made on a monthly basis in order to qualify for other commissions or bonuses, this keeps money flowing upwards. Do you really need $100/month worth of oil or are you just buying it to qualify for incentive programs and/or a chance for bonuses down the road?

4 – Most of your rewards go to your upline: As mentioned above, sometimes 60% or more of the price you pay for your product goes to your upline in order to pay the incentives at those upper levels. Take a look at the bonus percentages of the levels above you…

5 – More than five levels in the organization’s payout plan: when you have excessive levels its a pretty good indication that the organization will only work when you primarily sell product to your downline, or yourself, rather than to the general public. It also creates an unsustainable business model.

The FTC has published a paper by Dr. Taylor outlining the fact that 99% of people who join MLMs end up losing money. You can read that here.

Personal Experience (Real Life):

I have some personal experience in the world of Rodan + Fields. Several years ago I was hired by an independent services company to run sound at a big national R+F conference held at the Gaylord Opryland Hotel. I spent 3 days sitting in mind-numbingly boring lectures controlling the volume of the microphones the presenters were using.

Not once did I hear anything spoken about the R+F products. Nothing to be said about their usage, their quality, their benefits, or their advantages. One hundred percent of the conference was focused on downlines, recruiting, selling the starter packages, how to approach friends to sell, how to approach strangers to sell, etc. The phrase “ABC – Always Be Closing” was mentioned often, along with tips to sell the most expensive starter packages to your recruits, and tips on how to pressure those you sign up to get on the ball with their own recruiting in your downline so that you will see more money.

One presenter spoke about how to dress your best even when running up to the grocery store late at night because your kids don’t have bread for their school lunch tomorrow. There’s a chance you could run into a poor single-mom making a desperate late-night run for milk and she would be an easy mark for your downline. Dressing nicely allows you to show her the success you’ve enjoyed with R+F and makes it easier to sign her up. I wanted to run from the building like it was on fire…

Several ladies spoke of the fact that their husbands were able to retire from their “mid-six-figure salaried jobs” due to their R+F success. This “mid-six-figure salary” phrase was a common theme mentioned in almost every lecture over the weekend. That’s curious when R+F’s own income disclosure statement points out that a mere 0.07% of consultants would ever reach this level of income. That pitifully low percentage was never “disclosed” to the captive audiences, but it was “disclosed” that their husbands really enjoyed relaxing and playing golf all day while the women valiantly supported their families for once in their lives.  That commotion at the sound board was me reaching for a bucket…

Bang For Your Buck:

I looked up some doTERRA 100% lavender oil (come on now, we all need more lavender in our lives…) on Amazon Prime and found a 15ml bottle for $25. I also found a 59ml bottle of NOW 100% lavender oil for for $12. That’s half the price for 4 times the oil!

lavender oil
photo by Sophie Ollis

For my money, 100% lavender oil is 100% lavender oil. NOW offers just as many data sheets and certifications as doTERRA does and I don’t know why you would believe doTERRA’s data over NOW’s data and somehow justify paying 4 times the price for half the oil.

The probable reason for the price difference? DoTERRA’s upline – that’s what! Remember, roughly 60% of the product price in doTERRA’s line is funneled upwards…

Alternatives:

Buying and selling clothes, skin care creams, and oils is all well and good, but why not create your own brand / private label and wholesale your product from one of a thousands of major manufacturers you may favor? For instance, if you like oils you’d be better off opening a wholesale account with a major manufacturer and creating your own private label to sell. You could still recruit friends to sell your brand but base the sales on commissions or flat salary where your company sees much more of the profit. You could build your own company, your own brand, and see the profits funneled into your own pocket – and create a sustainable enterprise.

As an example, you can wholesale 100% pure organic lavender oil with all types of ISO certifications at less than $90/pound. That’s a great price when you consider doTERAA charges $757/pound for their oil! Hell, I can wholesale the same 1/2oz (15ml) bottle of 100% organic lavender oil that doTERRA sells for $25/15ml bottle for a mere $5.15/15ml bottle. With a wholesale order of just 30 ounces (60 of the 15ml bottles) I could cut that price down to $3.46/15ml bottle. Can you say profit margin? Wanna get rich? There ya go – “Oils by Toddro” – Holla…

Conclusion:

While making money in an MLM is possible, it is rare. Making decent money is even more rare. Income averages hardly justify the capital & time you will have to invest to earn the average income. Tactics used to recruit “downlines” can be wrapped in societal elements intended to make saying “no” as difficult as possible. I’ll just tell folks, “I’m sorry but multi-marketing level is against my religion.” That’s usually better than a “no thanks, I am not interested” which leaves you open to proselytizing. Far better opportunities exist for small businesses.

Cheers, thanks for reading!

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