I have been solicited several times for various different MLM schemes, fortunately I have not wasted too much time or energy in realizing these claims and this whole business model was absurd. After getting sold on a $25 dollar ticket to go the rally by a friend, something did not feel right. I politely declined to join or any further involvement. It seemed to me the existing distributors exaggerated the income actually made from their efforts and the potential for success in "the business". That time my gut made the decision for me.
Why all multilevel, network or referral marketing business models are really pyramid schemes, and Why all Pyramid Schemes eventually fail.
Mathematically Multilevel Marketing Does not Make any sense, and never makes Dollars-This is my favorite example why any Multilevel Marketing, Network Marketing or referral Marketing “Business Opportunity” ultimately eventually turns into a “Pyramid scheme”. Lets assume for a second you have recruited me to join your new business selling the next miracle juice beverage products, this product has many glowing celebrity endorsements and positive media coverage. We are both pretty excited, the guy who recruited you into the business knows a guy who is making $100,000 a year, and that guy knows a guy who is making $200,000 a year. Here comes the math. Lets say you recruit 2 friends, they recruit 2, then each person recruits 2 more friends. The law of compounding says that eventually these numbers become very large and unable to duplicate. So if you get 2 friends, they get 2 friends, and those 2 friends get 2 friends.
Here it goes: 1...2...4...16...256...65,536...4,294,967,296
The Pyramid eventually falls apart because there are not enough new recruits too keep it going.
The six degrees of separation explains why most pyramid schemes fall apart at the 4th or 5th level. This is because there is simply no one left to buy into the idea of a “business opportunity”. If everyone in the world is interconnected by 6 or so people the connections are simply exhausted and there are no more ready, willing and able investors who have not been pitched yet.
The Federal Trade Comission makes vague distinctions between such MLM marketing organizations and official "Pyramid Schemes". They need After much inquiry, I believe that all MLM's are indeed glorified "Pyramid Schemes" in one way or another. The FTC advises that multi-level marketing organizations with greater incentives for recruitment than product sales are to be viewed skeptically. The FTC also warns that the practice of getting commissions from recruiting new members is outlawed in most states as "pyramiding". I'm not knocking the FTC, they are doing what they can.
Another "Business Opportunity" was brought to my attention recently, hence the Blog.
I don't want to name the names of any companies involved or persons involved because the people know who they are, and the companies will sue you. I have read the lawsuits.
The product is never the problem with Multilevel Marketing Schemes. The products are often good. At times even extraordinary. This is what creates the devotion and hope down the line of “independent business owners” to keep pushing forward when the going gets tough. No matter how useful, revolutionary or necessary the product or service sold, the flaws with the multilevel marketing business model are inherent, and eventually the inflated artificial demand for the business opportunity falls significantly.
Confusing/Unfair Compensation Plans The Compensation Plans of these Network Marketing business models can be very confusing and misleading. After taking a look at the compensation plan for a business opportunity I was told about, I decided that it would be difficult to build an organization on the backs of my least successful and profitable “leg” of new business owners I recruited. Why not giving profits based on the average of all people you have recruited? That seems a bit more fair.
Taking in too much Overpriced Inventory-This seems to be a common trait of MLM and Pyramid schemes getting the recruits to commit to taking in a certain amount of inventory at prices that are highly favorable to the distributor. There are many legal tests used on MLMs by the FTC such as the 70% use test for products purchased by the independent distributors. The Distributors in many cases have no margin to make money off from actually reselling the products. In fact many organizations discourage distributors from becoming retailers and instead encourage them to focus on recruiting more and more distributors. They say things like “your not selling products, your sharing the plan.” Lets assume thats true. Who eventually fills the void in demand for these products? The answer is no one. The product supply outweighs the product demand. If there is not sufficient consumer demand back up the purchases. Remember Boiler Room? For some of the more diversified MLM companies the distributors can survive, but on one or limited products it becomes more difficult.
Why sell products through a traditional retail channel and force the market to decide your prices when you can sell direct with no advertising costs, and for a higher price? When retailers get a product they have the Manufactures suggested retail price MSRP to go off, but they are free to charge their own price on most items. Some charge higher prices some lower, these different prices create different values and choices for consumers regarding where they choose to shop. When any retailer buys a product they are looking for at least 50% mark up or more. If your margins are not at least 30% you are probably being scammed and its going to be very hard for you to make any money "retailing" items.
I bet they told by cutting out the "retail middle man" you will be getting paid for bringing products directly to the people.
The Real market price for these “exclusive products” can be found on 3rd party retailing Internet sites where the real laws of supply and demand rule. Some people selling on these sites are likely trying to unload their excess inventory and cut their losses.
Don't ever purchase your inventory for more money than on other internet sites or else your never going to make any money. This is one little tip to let you know you may be getting ripped off.
Who is really making money here? My favorite thing about the Pyramid scheme is the “success stories”. These are the everyday people who are turned into larger than life inspirational tales for the masses of recruits to follow. They are usually a couple who were once bankrupt, destitute and starving on the mean cold streets. Now these people are living in a tropical paradise, spending endless amounts of quality time with their family, and have more money than they know what to do with. They talk about the perks of big houses, sports cars, fancy clothes, the lifestyle someone can achieve if they just follow the plan. These people are the exception to the rule, they are on the near top of the Pyramid, your opportunity by default is not as good as theirs because you have less people to recruit into the scam and less time before it collapses. You can bet anyone higher in the pyramid than you is making more money than you are. How many people are really making the kind of money that is promised? And how are they making this money? Is it from selling products, recruiting or getting paid for speaking engagements?
For a select few this is a great business-If you can invent, market and effectively run a “successful” pyramid scheme or if you can get yourself to the top of the pyramid you can make lots of money. Imagine if you could convince people to order more of your product than could ever be consumed, at a price you control? Who would not want to be in this business? Without considering the legal, ethical or moral consequences of such actions, it sounds good to me. Let's assume you know that new product XYZ is a multilevel marketing/pyramid scheme, but you think the products are great, and believe you can make some serious money. You think a fool and his money were lucky enough to be together in the first place. As PT Barnum says “a sucker is born every minute”. For you seeing a sucker parted from his hard earned dollars is the simply the universe doling out justice. It is survival of the fittest. The lazy, dumb and clueless should be left to soup line while you eat sushi, shrimp and steak.
Getting in early matters-Even if you have the best idea for a product, with the fastest growing network marketing company in the world, getting in early is what really matters. The sooner you are able to get into the pyramid the greater your chances of “success”. The more people you have above you, the less people you have available to recruit. If you get in the next great pyramid scam early enough you could be one of their success stories. However the longer down the line you are, the less able new people you have available to recruit . Think about if you were the last man down the line, How are you supposed to make any money? All Multilevel Marketing is eventually a game of musical chairs where there is not enough seats to for everyone to sit down. The hard part is determining when the scheme is its incline of membership and when the numbers start going south. Getting in at the right time ensures less risk on the part of the distributor. The more people who are already involved the riskier the opportunity is. The later you get in to the game, the more risk you assume.
Unless your Inside your Outside with this one. If you not at the top of the pyramid you have no idea how far you are from the bottom.
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