10 Responses to “MLM Scams”

1. Melanie Kissell Says:
   August 26th, 2008 at 5:15

   There will always be schemes, shams, and scams on the internet as long as there are people who operate with greed and ego.

   One of the biggest MLM scams is “buying leads”. Lead generation companies sell the same names over and over again. Purchased leads are very costly, overworked, and totally ineffective. For those people whose upline sponsors have told them to buy leads, tell them to go pound sand!

   Here’s something to sink your teeth into …

   A lot of MLM company owners are the owners of lead generation companies. No wonder they want you to purchase leads!! They’re making huge amounts of money off the backs of decent, hard-working network marketers who are unsuspecting.

   The very best way to avoid MLM scams is to get educated and learn HOW to think. Become a “critical thinker”.

   To Your Online Marketing Success,
   ~Melanie Kissell
   http://melanie.bigmlmlies.com

2. Nicole Says:
   August 26th, 2008 at 8:04

   Great blog - Can I link it to my website? I’m an ex-MLM’er in Australia.

   http://web.me.com/nicole.hore/ResidualIncomeAustralia/Home.html

3. jake jacob Says:
   August 27th, 2008 at 1:20

   Nice post!
   Sounds like what you are doing will go hand in glove with the free too we provide.
   All the best,
   Jake
   http://thejakestershow.com

4. The Spider Web System Says:
   October 26th, 2008 at 11:56

   True indeed. I always skeptical on this get rich quick scheme. However I just gave a shot on this Spider Web System. They claims that 100% free (yes you don’t have to spend a single penny to setup the system) fully automated system (the system find the lead automatically for you) which help me attract 15,422 leads, and $63,518 in the first 7 weeks (i just started this for 3 weeks and I’m getting $1540)! Just give it a try. You don’t have anything to loose. The Spider Web System

5. Austin Says:
   February 22nd, 2009 at 2:25

   Please read this, it is very informative in my opinion and should help you make a decision on whether or not to join an MLM.. I tried to be unbiased and strictly informative as I could be without giving my own beliefs the best I could. But more importantly, although I do not own a company and am not involved in an MLM, I created a compensation of my own that allows 100% of the people to either break even or make a profit, and a much better profit with a much better chance of it than any Compensation plan I have seen. It only took me 30 minutes and im 22 years old with no business background and I wish MLM’s would use my model so they could stop being referred to as scams as most people consider them… so please read this if interested about MLM and want answers.. it’s a little long but full of meat and potatoes. J

   Alright, there are so many thoughts going through my head when the word MLM comes up I have to sit and write it out just to be able to sort through it all. The reason being that there are things in common with all MLM’s that for some reason or other don’t sit right with me. so to start off i have been doings hours upon hours of research with a very open mind to see if I can somehow answer the simple question of “can i morally be a part of an MLM and maintain my character, integrity and dignity?” It is not merely a point of if “i” can make money with MLM but rather can the “people” that I am forced to recruit into the business in order for myself to make any substantial income, also be profitable and not lose money.

   According to the statistic that 99.9% of all people that get into the business of MLM’s not only dont make money, but actually lose money, is the basis of what sends me on this investigation to see the reason why this statistic is a reality in all MLM’s. (The reference for the statistic is http://www.mlm-thetruth.com... also just from reading many other sources that agree, but what mostly convinces me this is true is that no MLM ever denies this fact, which in sense means its true cause what business would let that so called “lie” persist without a rebuttal if it was going to hurt there business as a whole.. however if anyone has information otherwise then please share, of course I’ am writing this primarily for myself just to get my thoughts onto paper and try to see the big picture, so I don’t know who or if anyone will even read this)

   99.9% is a pretty serious statistic to consider so lets quickly list the other things real quick that i would consider unsettling or fishy about MLM’s just to get them all out right off the bat and then dive into them specifically.

   Subject #1. - 99.9% of people that sign up with MLM companies LOSE money(more than what they have invested)

   Subject #2. - In order to advance in rank, in other words a higher paying level, you “must” recruit people into your business, who inevitably must also recruit recruiters in basically an endless cycle, which isn’t all that bad considering it is a word of mouth marketing plan which i believe is the best way to sell and promote a product with better customer service, but the problem lies in the fact that people make much of their money from recruiting instead of selling products the company offers, which also ties into subject #3

   Subject #3. - Starting cost to get into the business/”pay to play” or must personally continue buying products/services to stay in the business and make a profit, basically to stay “active”

   Subject #4. - A representative/distributor makes less than 50% commission off products/services they personally sell unless you are higher up in rank. Most of the commission made from that customer is received from that persons upline.

   Ok.. so with all these listed im going to try the best i can to play the devils advocate and work both sides the best I can and see what i come up with.. here we go

   1. “99.9% of people that sign up with MLM companies LOSE money(more than what they have invested).” Alright im pretty sure anyone with a moral compass would agree with me that if i was starting a company and i was aware that 99.9% of my employees/partners were going to actually LOSE money, that it would be wrong to tell these individuals that i had a great business opportunity that could make them money(read below to find why I recant half of this staement). So lets compare this to other businesses shall we? From what I’ve read on the internet, specifically the SBA-Small Business Assoc., most business experts conform to the theory of thirds which concludes that 30% of businesses make profit, 30% break even, and 30% lose money, and also that 65% of small business start-ups survive there first 2 years and only 50% survive 4 years. So judging by these stats, the stats of an MLM should be somewhat similar, but of course as we know they are not. As far as this subject goes it is hard to defend MLM’s that say the reason people failed or lost money is because they gave up, didn’t follow the plan, because if that were the case then we should generally see the same thing holding true for other businesses across the U.S., not just limited to MLM’s..etc.. In actuality i believe it not to be the peoples fault that they failed but rather the system on which the MLM’s operate because according to the SBA stats, the average entrepreneurs that got involved in an MLM should figuratively fall inline with the average statistics but instead of 30% on average losing money, 99.9% of people that become a rep/dist. lose money. Something is obviously wrong and I don’t believe it has to do with the people but rather the system in which the people get plugged in to. However, on a side note I can also see why much of the failure might be put on the shoulders of the people who signed up and made the decision for themselves for the fact that most of the people presented with this business opportunity are not business minded people.. they are just regular job working people.. cuz if they were business minded they would have most likely started their own business by now or were in the process of doing so.. So i think also that the people presented with this business for the most part, do not have the personality/mindset of a business man/women so these people in essence do not understand what they are getting into, whereas most business people look for partners/employees in a business related environments because they know that the person they are talking to is most likely a business minded person as well and understand what they are getting into as apposed to most “normal” people approached with MLM’s.. sorry for that long run on sentence but don’t know how else to say it. I can’t think of much else to say about this subject. WAAAIT.. actually I’m adding to this because i just found something that needs to be added to this subject.. the reference is on youtube: type in “Tim Sales” and look for the video called “MLM: Do most people fail?” He drives some very good points home which i guess now i have to somehow type out, so now i gotta go take notes on the video to type them.. yippie… Alright, to sum it up, most people “fail” at everything that they set out to do, and fail is in quotations for the fact that most people don’t fail at something, they quit at something.. Tim Sales analogy with golf was very good, watch the video.. also, Another excellent point is odds (like the 99.9% odd) are somewhat irrelevant because your success is not determined by your odds but by your performance.. some examples of this to understand better.. if I were to flip a coin what would be the odds of it landing on tails? because there is no performance involved you could say the odds are 50%.. if I were to roll a dice, what are the odds I would roll a 3?.. because no performance is involved you could assuredly say you have a 1/6 chance to roll a 3.. However if I were trying to putt a golf ball into a whole you could not determine my odds because performance is involved. And my performance is determined by how much practiced and the knowledge and training I have undergone.. So as far as your individual success goes, you do stand a good chance if you realize your odds are based on performance and you don’t give up.. However the fact of the matter still remains that 99.9% of people “fail” at MLM and lose money.. just like everything else in life I guess, im sure if you were to get a golf statistic somehow I would bet 99.9% of people “fail” at ever achieving success like the pros and lose money from purchasing all the stuff that golf requires because somewhere down the road they gave up.. do we blame the golf industry for this and write nasty things about them? No, we don’t, so can the same be said for MLM’s? Hmmmm.. I think your going to have to draw your own conclusion cuz that’s a tough one.

   2. “Making more money off recruiting rather than the sales of products/services to people outside of the organization/MLM.” This idea of recruiters recruiting recruits is in itself a very necessary part of everyday business across the world. When companies are in need of employees/partners, a company basically hires a person(s) to find other candidates to join their business. Some business have people come to them but i think many business now days use sources like the internet to recruit people into their business such as monster.com which im sure gets paid a commission by a company for successfully recruiting someone through their website. So what makes this common practice harmful when introduced with an MLM? I believe the underlying issue is that in common business practices, only a handful of people are hired/designated to recruit new employees for the company. And the people that they do bring into the company are not recruiters as well but rather are designated to work on 98% of the companies primary function of selling products/services to customers. So the problem with MLM’s in general is that everyone recruited is primarily taught to keep recruiting instead of selling products/services to customers which means in essence the company could make millions of dollars recruiting people because of start up costs and not even have to sell products/services to customers. So the “business opportunity” presented to people is the business of recruiting in which the MLM companies pay out bigger checks for recruitment rather than sales or they make sure that the commission you earn from sales is directly proportionate/associated with the number of people you recruit. Therefore if i were to join an MLM and strictly do nothing but sell products/services, my efforts would equate to nothing but pennies for the mere fact that i wasn’t recruiting people into the business as well. And again this idea of recruitment wouldn’t be such a bad idea if it wasn’t for the fact that 99.9% of the people recruited lose money from getting involved. All these subjects tie hand in hand with one another so it is unfair to justify one of these subjects by themselves cause they are all pieces of one picture.

   3. “Starting cost to get into the business/”pay to play” or must personally continue buying products/services to stay in the business and make a profit, basically to stay “active.” One thing about this subject it can be very controversial. The underlying argument is that instead of investing thousands/millions of $’s to start a business, MLM’s only require a very small amount in comparison. To start up most MLM companies, the founders/presidents have invested millions of dollars at their own personal risk of losing it all. So to help them make up for that initial investment they create a start up fee to get started in the business. Again, this idea by itself is a very common practice when starting a company which is getting investors to invest in your company or the price of getting involved in the business. The difference being typically there are only a handful of investors for every business that starts up where as with MLM’s, since everyone is told that joining an MLM is like starting your “own” business, everyone is basically recruiting “investors/ other reps/dist.” to get involved, turning everyone into investors instead of just a handful. So is there anything wrong with that picture? Cause it sounds pretty harmless, So lets put the pieces together. Although the idea of a start up cost sounds reasonable since the owners are providing basically everything for you to grow your business, the start up cost, when introduced with an MLM, creates a very unexpected chain reaction. You see instead of that money going straight to the owners of the company, this money is paid as a commission to people in that persons upline which in other words means the person that recruited you and the people above him made money off of recruiting you which basically starts this endless cycle of recruiters recruiting recruits because they get paid from it, instead of selling products/services to customers. You see this is not a concern in regards to companies which aren’t MLM’s but when everyone inside a company is offered the chance to make large dividends off recruiting, it will quickly escalate and get out of hand because now the primary function/goal of the company has shifted from selling products/services to customers, to continually making profits from recruiting. That is why the very idea of “recruiting” needs to be defined as bringing someone into your organization to help promote and sell the companies products/services, that is why companies that sell by word of mouth need to recruit. Not so “recruits” can recruit more “recruits.” So to reiterate, it is not morally wrong in my opinion for a company to ask for a start up fee to get into the business, the problem is using that money to pay the people that were associated with bringing that person into the business because now they could potentially stop selling products/services and continually recruit to make profit.

   4. “A representative/distributor makes less than 50% commission off products/services they personally sell unless you are higher up in rank. Most of the commission made from that customer is received from that persons upline.” This subject also can be looked at from many different perspectives. This is most likely the cause of why 99.9% of people that become a rep/dist. lose money rather than make money. The goal when joining an MLM is to advance in rank so you get paid a higher % of commission from your personal sales and the sales of those underneath you(your downline). The reason it is so hard to turn a profit when you join an MLM is the fact that you are the lowest rank in the system and therefore you make the least % off what you sell and those below you. Instead of making at least 50% commission off personal sales you are most likely making 5% while you upline is making 95%. To display this im going to do a quick example: Lets say a MLM company makes a product for $15 and is selling it retail for $100 but now the company needs to find a means to sell this product so instead of advertising on an expensive large scale they use an MLM model to sell it. So lets just say i got recruited into an MLM and now i make my first sale. I sell the product for $100 to a customer and in the companies compensation plan it states that at my current rank in the company i will earn 5% commission. So i just made $5, but what about my upline, how much did they make? I’ll use this model of A, B, C, D, and E. A is the lowest rank and E is the highest rank which gets paid the highest % of my sale that i acquired. And lets say each rank increases by 5% commission. So rank A(me) made $5, B made $10, C made $15, D made $20, and E made $25.. add them altogether and u get $75 commission was paid out and the person that made the actual sail only made $5.. the rest $70 was paid to my upline. You see this in itself is not morally wrong although it does suck that even though u made the sale that you get the least but that is why the company motivates you to earn a higher rank which is where the true problem occurs. Because now in order for me to increase in rank, according to the compensation plan, i “must” recruit people into the business and also help those people i recruited as well recruit more recruits. and the inevitable fact of the matter is that every recruiter has to live with is that 99.9% of the people that get recruited into “your” personal tree/organization will LOSE money no matter how persistent you are in training new reps/dist. in your business. Why? because there will come a point where there are so many recruits joining your tree/organization you cannot control what goes on inside of it since you have no right to fire people that may be misleading other about the business and no power to change the structure of the business when you see flaws in it. Also people have a free choice to do as they please and you can’t make anybody do anything they don’t want to, which is why bosses play such a key role, to govern what happens and do what must be done to ensure ethical and moral standards are being maintained. The idea that you “own” the business is misleading in the fact that the only rights you really have in the business is the right to sell products/services and recruit others under you. Although the potential to earn high income than a regular job is made available to you.

   Conclusion: Ok, after writing all this out I believe I have come to my decision. Although I like the idea presented by MLM, I do not think I can morally be apart of an organization that most people that join, LOSE money when in 30 minutes I came up with my own MLM compensation plan that not 1 person in my organization would lose 1 cent. Cause I don’t believe in pointing out problems without giving a better solution/alternative.. I simply did one thing, I took the four things I had a problem with and did the exact opposite, and guess what.. I created what I would see as a flawless MLM that not one person could lose money in and also where not 1 person got paid off recruiting some one (for the most part) but that is irrelevant when no one is losing money. So what is it? Here it is. (Just to clarify I do not have or own a MLM company, but rather came up with a comp. plan that I wish MLM’s would use instead)

   1. No start up fee whatsoever, also meaning they do not even have to buy your product/service to join business. And definitely no “pay to play” where they have to buy inventory consistently to stay “active.” There is no active or inactive status in my MLM.

   2. No payments shall be made for the act of recruiting someone into the business. No matter what. The only money to be made is by strictly selling products/services. Although you can make money from your downline who sell products/service but not from recruiting.

   3. No getting paid off an infinite dowline. In other words, you can only get paid off the efforts of 3-5 generations of people and no more. So instead of one gigantic “tree” you will have hundreds of smaller trees. why do this? This will eliminate the need for “rank/levels.”

   4. 50% commission/residual income will always be given to the person who made the sale, and the other 50% will be distributed among that persons upline.

   5. Every person that buys your product, inadvertently becomes a sales rep/dist… upon purchase they are given a code #(like every MLM) where if they choose to sell it, they can make money off that sale.. You can also sign up to be a rep/dist. without having to make any purchase or pay any start up cost.

   6. Every person that signs up or buys a product is put directly underneath the person who brought them in or sold the product. Meaning if I were a rep, everyone I signed up or sold to would go directly under me and no one else.. a long horizontal line in other words

   7. Could make bonus pools for people that sell a certain amount of products and also your downline that sells a certain amount of production. Like making a pool for reps. who personally have sold 50 products, or a pool for reps. whose downline sold 250 products. Just be sure NOT to make pools for RECRUITING!! very important.

   Ok now im going to put all these into play and give you an entire example, here goes nothing..

   My company is A.J. Inc. and im selling home video phones along with a service and nothing else. I’am able to manufacture these phones for $20 and am going to sell them retail for $200. My phone service will cost me $1 a month per customer and will sell my service for $30 a month.(cannot buy phone w/o the service). I decide to go with some 22 year olds crazy compensation plan I got off the internet to market my product using direct sales(word of mouth/MLM). So I contact this 22 year old and say “hey would u like to sell my product using your comp plan?” The compensation is as follows… 1st gen. commission is $20 for each phone, 2nd gen. $10, 3rd gen. $5.…. 1st gen. residual $5(from $30/month phoner service), 2nd gen. $2, 3rd gen. $1. He agrees and start immediately.
   In the first month he sells 10 video phones. Since these are 10 people he personally sold to, they are considered 1st gen. meaning he gets $20×10 phones= $200(com), but now he also starts making residual income from the phone service, $5×10 servies= $50(res.)/month. So the first month he made $250 and $50 of that is residual each month.
   In the second month he sells 10 phones again, but this time the 10 people he sold the phone to on average sold 2 phones per person selling a total of 20 phones in his 2nd gen. so the first step is exactly the same as last month except now he is making another $50/month residual. $200(com)+$50(res.)+$50(res.)= $300 from just his 1st gen. Now to calculate his 2nd gen. earnings. $10×20 phones=$200(com.), $2×20 services = $40(res.). So to add up this months earnings… $200(com1st) + $200(com2nd) + $50(res.1st) + $50(res.1st) + $40(res.2nd) = $540 for the second month. So in 2 months time he made $250 + $540 = $790, and $140 of that is residual each month
   in the third month he sells 10 phones again making $200(com1st) but $150(res.1st) because he has 30 people in his 1st generation now(directly under him who he personally sold to, 10peopleX3months=30 people in 1st gen.) The same thing happens this month as the last month, his 2nd gen. people(20 of them, not including the 10 he just brought in this month) on average sell 2 phones a person resulting in 40 phones from his 2nd gen. $10×40phones = $400(com2nd), $2×40services = $80(res.2nd). Now lets say on average the 20 people in 2nd gen. also sold products to 2 people, 20peopleX2phones = 40 phones. $5×40 phones = $200(com3rd). $1×40services = $40(res.3rd)… add all this together and u get.. $200+$400+$200= $800(com.) and $150+$80+$40= $270(res.) which means $1070 in just the 3rd month alone.
   So to conclude in 3 months time he made $1860 Total and $270 of that is residual each month, with an investment of $0 with a 100% of the people making a profit. This model is also without any extra bonuses from sales volume which of course could be put in place and is also only 3 generations deep, which could be up to 5 generations deep making much more profit to reps./dist. and less to the owner. Of course this example I used assumes that you get 10 personal sales a month and that of those 10 people, they each sell only 2 phones a months. So my example is pretty realistic if the quality of the phone and service is up to par, plus I believe people are about 10X more likely to join an MLM with this compensation plan and guidelines than traditional MLM’s. Call me crazy but this could easily work and could turn the tide against MLM scams J

   If a company were to follow these simple steps when creating an MLM, you would have the most successful MLM system ever made. I’m a 22 year old who has no background in business and in 30 minutes came up with a MLM system that 100% of the people that got involved in my business would either break even or make a profit… How come no other company has or is using something like this?(And if you are please let me know!!! I would love to know more about your business!!) Anyone that would try to say this was a scam would only make themselves look like a fool.. Also, you cold make so much more money with this simple compensation plan than with any other I’ve seen, unless your at the way top and have the highest rank/level in the company, which is a number of people you could count on 1 hand.

   Well although this was very long, I hope it gave a lot of insight, and u were able to draw your own conclusion. Like the guy from reading rainbow says, “Don’t take my word for it.”

   Sincerely from Milwaukee WI,
   Austin V.W.

6. careful investigatior Says:
   March 14th, 2009 at 10:13

   join a company you feel ok with and like the products. DO NOT GET PUSHED into anything and go at YOUR pace!!! Shop around and when you are in the company give the meetings, tapes and sponser a kick in the seat and move forward. That way you are able to build your way. Do not buy millions of products and if they require report to the FTC AND DSA.ORG without exception or excuse and you want a response to the complaint. Do not forget the Better business breau also. Get the application with the sponsors info and take it with you, and you send it in.

7. Cecilia Says:
   August 11th, 2009 at 2:01

   Great post. Thank you for your sharing. From this article I learned that some MLMs are scam.

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   August 26th, 2009 at 8:00

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   January 15th, 2010 at 7:53

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