FitzPatrick Robert Lawrence - The myth of "income opportunity" in multi-level marketing

Author : FitzPatrick Robert Lawrence
Title : The myth of "income opportunity" in multi-level marketing Including Special Supplement Income Analysis of Amway/Quixtar and its Secret "Tools" Business
Year : 2005

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Introduction and Overview. The claim by multi-level marketing (MLM) companies of offering consumers a viable "part time income" or an "extraordinary income" greater than most other businesses or occupations is their hallmark attraction. It is also their greatest defense against persistent charges of pyramid scheme fraud, mind control and deceptive promotions. The question is whether MLM is a social and financial blight or a benefit to consumers. Legitimacy of this business ultimately hinges on the truthfulness or falsehood of its income claims. It is a question that affects the fate and fortune of more than five million new recruits in North America every year and countless more in other countries. This report reveals that 99% of all sales representatives each year in the sample of companies analyzed earned less than $14 a week in rebate income. This figure is before all business expenses, inventory purchases and taxes are deducted. The figure therefore represents a significant financial loss for virtually all that join these schemes. Additionally, the report shows that on average no net income is earned on average by MLM distributors from door to door "retail" sales. MLM companies seek to obscure their devastating failure rates by disclosing the number only of "active" participants and limiting the income figures to a one-year or even shorter time frame, thus concealing the factor of the ongoing and mounting losses of new investors. Most MLMs do not reveal any data at all on actual average incomes. If all the participants over a five-year period are included in the calculations, the failure rate rises even further. Less than one in one-thousand will be shown to have gained any profit at all. The so-called successes in MLM are in the same small group positioned, year after year, at the top of the recruitment organization. The business model and business practices of most multi-level marketing companies directly cause the financial losses suffered by millions of consumers, not normal competitive factors or the levels of efforts or talents of the participants. The collective losses represent an enormous transfer of money from several million people in the US each year to a handful of owners and recruiters. Like any other force that contributes to general impoverishment, this income transfer damages credit worthiness, breaks up marriages, ends friendships and degrades communities. Of the two categories of the MLM income opportunity, rebate income and retail sales income, the most publicized are the rebates, commissions and bonuses paid out on the purchases by "downline" recruits. This is the source that the companies claim has "unlimited potential" based on the opportunity to derive payments from an "endless" chain of recruits. MLM allows all distributors to recruit others and qualified distributors to receive rebates on the purchases made by multiple levels of recruits that recruit more recruits. This report analyzes data from eight representative MLM companies. Seven of the companies that are analyzed are major and very well-known MLM companies and are members of the Direct Selling Association. One is newer and growing and not a DSA Member. Charts are provided showing the actual commission payouts on a per-10,000-sales-representatives basis for seven companies. The data show not only that virtually no recruits earn rebate profits but also that the MLM payout schemes transfer the lost investments of the great majority of participants to a tiny number of organizers at the top of the recruitment chains. A special supplement is provided on the rebate data from the oldest and largest of all multi-level marketing companies, Amway/Quixtar, which is also a member of the Direct Selling Association. The analysis for Amway/Quixtar is presented on a per-300,000-distributor basis. It reveals the same pattern of 99+% annual loss rate and a concentration of payments to a tiny number of promoters at the top. Amway/Quixtar figures must be considered separately because an additional business is run by its top distributors that provides more of their income than payments from the Amway/Quixtar business itself. The operation of this second scheme inside the sales organization of Amway/Quixtar – known as the "tools" business and involving the sales by the kingpin distributors of books, tapes and seminar registrations to new recruits – affects the Amway/Quixtar pay plan and its recruitment tactics. Operated without the knowledge of new recruits, this "secret" income source has been revealed in lawsuits and websites for many years. In May 2004, the highly respected national news program NBC Dateline brought hidden cameras into Amway/Quixtar recruitment meetings and exposed the scheme. As the report showed, the Amway "kingpins" make most of their money by deceptively recruiting people, not from selling Amway products. ...

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