Multi-Level Marketing Companies Are NOT Pyramid Schemes (They Are Worse)

-----
Edited By: Andrew Gonzales

Music Courtesy of: Epidemic Sound

Select Footage Courtesy of: Getty Images

All materials in these videos are for educational purposes only and fall within the guidelines of fair use. No copyright infringement intended. This video does not provide investment or financial advice of any kind.

#mlm #business #scam
-----

Multi-level marketing companies like Herbalife, Avon, Lu La Ro and Amway are often mischaracterized as pyramid schemes, an illegal structure whereby people pay a fee and then try to make their money back by taking a share of the fees that new members pay to join the scheme under them. But I in good faith can no longer sit by and watch the good reputation of pyramid schemes be ruined by comparisons to multi-level marketing companies.

MLM’s are not pyramid schemes… they are worse…

The business structure of every multi-level marketing company is slightly different, and the same companies use different structures in different markets to skirt around local regulations, but the basic concept remains the same…

You sign up and join the company as an “independent business owner”, you pay a fee which can range from twenty dollars to five THOUSAND dollars depending on the company. For that money you get given a sample pack with the company’s products. You are encouraged to sell those products at a markup like a traditional business, but your ALSO told to sign up friends and family under you to share in a cut of their commission. Commissions structures are intentionally made confusing so that new recruits can’t understand how badly they are being screwed. Most of the money get funnelled to the very top of the program to people that will flash a lot of money around as proof of the system working. If you think this sounds like a pyramid scheme your not alone, even the Federal Trade Commission after it concluded a year’s long investigation into Herbalife the third largest MLM in the world concluded that the company was “not determined not to be a pyramid scheme”.

But really these companies are a lot worse for three reasons.

The first reason all comes down to what actually legally separates them from a fraudulent pyramid scheme, their products. The legal argument is that money only changes hands when a product is sold so they are no different from commissioned salesmen.

Unfortunately, it’s exactly that product that makes MLM’s so much worse than pyramid schemes.

The average return of the from the victim of a pyramid scheme is around 90%. For every one dollar a victim puts into the scheme they can expect a return of ninety cents, a bad investment, but not financially crippling. The returns remain surprisingly high because early investors get paid out and when the whole thing falls apart the money hadn’t really gone anywhere and a portion of it can be recovered by authorities and returned to victims. Bernie Madoff ran the world’s largest Ponzi scheme, and even most of his investors ended up getting most of their money back because after Madoff used the money to buy a penthouse apartment, a private jet and a house in the Hamptons he had nothing left to do with it besides keeping it in the bank and paying it out to investors.

Pyramid schemes are different to Ponzi schemes, but the results are the same.

HOWEVER, the average return of a multi-level marketing company is around thirty percent according to their OWN marketing materials promoting their bonus structure.

The actual returns for most people are far lower than thirty percent and sometimes even the highest ranks of MLM members struggle financially but we will get to that soon. The reason the numbers are so bad is because of the product, for the people at the very top of the MLM to collect everybody’s money LEGALLY they need to move a lot of products, but product has overhead that syphons money out of the scheme. Some money goes to manufacture and ship the product and some money goes to the MLM company itself.

MLM products are priced well above market competitors even after the discount given to their members because the companies need to add the overhead to pay out bonuses. Somehow having returns three times worse than the most infamous corporate fraud in history is only reason one.

So it’s time to learn How Money Works to find out why multi-level marketing companies are actually much WORSE than pyramid schemes.

[camd]

Finally now these evil companies can stop hurting the reputation of my pyramid schemes

[magicmagic]

This is so disheartening. These MLMs target vulnerable people and then isolate them. We need more people who earn money ethically, like my uncle who robs banks

[notvenom]

It's a scam that doesn't meet the legal requirement of a scam.

[tomsmith]

Years ago, I worked for a Big 4 accounting firm, and we were the auditors for a major MLM. I was shocked to see that a HUGE portion of the revenue (and Profit) from the MLM was selling training materials - tapes, books, seminars, rallies, etc. NOT from selling products.

[HPSmugscraft]

Rule of thumb: if the company you're applying for or interviewing with can't tell you what their business does in plain English, it's probably a scam.

[ADarkMindsArt]

I've had people pretend to be my "friends" and women pretend to be interested in me or even dating me, when in reality they just wanted to sign me up for their MLM. Thank god I never did.

[frankuever]

My wife and I got involved in the Herbalife scam and I ended up over $15, 000 poorer. Finally it dawned on me the only one making serious money was our upline. The couple had a beautiful home in a gated community as well as a cabin in Idaho. I finally realized that all we were doing was to fuel their lifestyle. So I pulled out and my wife left a couple of months later.

The really reprehensible thing, though, is how they are scamming poor Latinos. I attended a couple of seminars and saw the hope in those people's faces. Most of them end up poorer than when they started MLMs are despicable.

[EugeneTChu]

I am a military veteran and know of some military spouses or veterans that joined an MLM. They mistakenly believed that it would provide entrepreneurial opportunities with flexibility. They sadly quit when they lost money from bad products, bad structure and too much competition.

[lam]

When I was in the military one of our Sergeants got involved in one of these companies. I knew her before she joined the MLM, and the change in her personality (from hard core no-nonsense type to befriending everyone in the unit) was part of what tipped me off that this wasn't a good idea.

She tried to get me to join and (being the naive junior Marine I was) I went to a few meetings. I eventually got out after a few weeks, but in hindsight it was really messed up for her to abuse her authority and our trust in an NCO to shake us down for money.

[TomMcMorrow]

"Back when Vice was good"

This snark is why I keep tuning in. A+ shade right there.

[wertywerrtyson]

You lose money and friends and family. Sounds a lot like drug addiction. It’s a disgrace that MLMs aren’t illegal.

[jaynycha]

"You are not selling clothes, you are giving people freedom" 🙄

[jacobjensen]

Another reason MLM's get Latter-day Saints so often is because they pitch it to the young members who just returned from their missionary service as a job where they can use their missionary skills and make money. Working your way up MLM's is all about recruiting, and so the MLM will convince them that this recruiting is similar to what they did on their missionary service.

[faaaaah]

I didn't know what Herbalife was back then but I went to their office for a 'free lunch session'. I sat there listening to these people hyping up a chocolate shake they gave us (it's a meal substitute for dieting), all the while wondering when is the food coming. Took me way too long to realise that they're saying the stupid shake IS lunch, and that this was a sale/recruitment session. I went away hungry and upset and I hated the company ever since.

[garreswe]

I was considering one MLM (went to a couple of meetings and bought some products) and joined another and the first thing they tell you is to contact your friends and family to invite them to meetings. I felt super disingenuous and awkward while calling and reading the script and I'm glad I only talked to a few. These things can really mess up your relationships if you do what they tell you.

[miguelinop]

As a latino in Latinamerica, there was a wave of Herbalife in which my older brother fell into, and only stopped pushing it to us as his family after his aunt scolded him hard for "tricking" him into a wine tasting session which was actually a herbalife session

[fredwebster]

You can thank former Speaker of the House Gerald Ford for pushing legislation through Congress to make Amway legal and not a pyramid scheme...Yep that Ford

[WDSimp]

When you started talking about MLMs isolating people from their families and convincing them to turn to the company ecosystem for human interaction is when it clicked for me.

That's a thing that cults do.

[DeannaJacksonDJsDelectables]

I have family that fell for an MLM. My mom was in Tahitian Noni International. A cousin was sold Cutco knives while he was in high school. I got told that I'm "being negative" when I questioned anything. One of my favorite books on this topic is "Ponzinomics: The Untold Story of Multi-Level Marketing" by Robert L. Fitzpatrick.

[benkeller]

A co-worker started getting into this multi level marketing scheme and tried pushing it upon everyone at every opportunity.
It totally changed him as a person. It seemed like he saw everyone as a potential sale.
He ended up losing quite a lot of friends due to his involvement in an obvious scam.