Posted by: coastcontact | July 17, 2013

Multi Level Marketing – The Big Scam

Pyramid of People

Those involved or in the know call these businesses MLM.  Three of the best known companies are Amway, Herbal Life and Mary Kay Cosmetics.

It’s all based on hope!  The people at the top do make a lot of money.  Despite what the Federal Trade Commission says MLMs are pyramid schemes where the people at the bottom make little or nothing.  MLMs grow primarily through recruitment of new sales people.

Multilevel marketing (MLM) companies employ a network of independent salespeople who sell products directly to people in their community. These salespeople earn income based on their personal sales, as well as the sales of people they recruit to work for the company.  The Federal Trade Commission says that a company only qualifies as a pyramid scheme if its salespeople are paid primarily on the basis of recruitment, as opposed to the sale of a retail product or service.

In 2011, about 25% of Herbalife’s salespeople achieved so-called “leader status,” qualifying them for commission checks. Of these top sellers, active leaders received a median annual income of $637. Meanwhile, the top 0.6% had a median compensation of $336,901, according to company filings.

Primerica Life, a life insurance company, has used a different twist to the MLM business plan.  Each year about 200,000 people pay $99 to be a Primerica agent.  The promise is that you can earn $100,000 per year.  About four people per month have achieved that goal out of the 15,000 who pay the membership fee each month.  The catch is that fewer than 20% pass the licensing exam.  They do not receive a refund of the $99.

Sources for this piece are Businessweek June 30, 2013 and http://money.cnn.com/2013/01/09/pf/multilevel-marketing-industry/index.html

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Responses

  1. Interesting perspective. I work for a large cosmetics company, and things here are not as out of hand as what you describe. But I used to work at an insurance company, where more of this disparity existed.

  2. In 2011, about 25% of Herbalife’s salespeople achieved so-called “leader status,” qualifying them for commission checks. Of these top sellers, active leaders received a median annual income of $637. Meanwhile, the top 0.6% had a median compensation of $336,901, according to company filings.


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