Pyramid shaped businesses or MLMs

Multilevel Marketing companies are big business around the world and they have rightfully attracted much criticism for questionable business practices. Many have called them illegal pyramid schemes. These companies continue to operate in most developed countries around the world and rake in billions of dollars in profit in any given year or with the blessing of local trade authorities. So what are these businesses? Let’s part personal opinions and how annoying it is to be roped into. Some of these MLM meetings for the moment and assess the fundamental economics behind these businesses so. Let’s start with what kind of businesses are they? Many businesses have referral programs. It is likely you have seen offers such as refer a friend and enjoy 50% off your next purchase or even refer a friend and receive $50 cash. These kinds of offers are pretty commonplace in general business world because any business person will tell you positive word of mouth is the best marketing one can receive. It is pretty likely that most people don’t have any major issues with this type of market. If you and your friend both enjoy product like pizza from a local pizza shop taking advantage of these referral offers is probably seen as a win win. Multi level marketing companies have in a sense is pretty benign business model and stretched into its absolute limits. Most multi level marketing companies work by getting a referral incentive, mostly in the form of cash to its members, who get other people to purchase product business but then go one step further and your referral incentives for the people that are signed up by the people You signed up and on and on until you get the mother of all referral programs. That is no longer just a marketing exercise, but the fundamentals of the business itself. This kind of referral program when laid out does tend to make a curious shape. OK, so the companies themselves could get away with calling their structure a very very complicated referral scheme. What kind of business is being formed by the individual participants in these kind of companies? The basic idea behind someone joining a multi level marketing company is that they will buy the products of the company at a discounted rate and sell them to friends and family. This in effect simply makes someone at best a Commission only sales person or at worse an individual retailer for a narrow group of products, which is often very different from the kind of opportunities that are presented to applicants upon joining these companies. This direct sales and retailing aspect is just one side of the business though, and the real opportunity is often presented as building your own sales team. Which more directly translates to convincing your friends and family to also sign up to the company and purchase products that they will then hopefully go out and sell. The big floor in all of this, though, is that most people don’t want and don’t have the experience to be salesman and or sales team managers. This is made worse by the fact that even a highly experienced salesman would find it very hard to sell no name products at a very over inflated price to an increasingly small group of friends that don’t seem to be returning their messages for some reason. Beyond this the fundamental structure of the business runs into a very real problem. Most multi level marketing companies will note that if you sign up for friends and they sign up for friends you will very quickly build a strong team so that you won’t have to worry about going out and selling products, door or friend a friend anymore. That all sounds great, but with that model you only have to repeat that cycle 17 times before you run out of people on Earth. Making the foundation of this whole business a little shaky. Now, a common remodel from hundreds of these businesses is that when you go into business there is always risk involved. Successful spokespeople will often point out that these kinds of companies give people the opportunity to go into business for themselves for only a few $100 it costs to sign up and purchase inventory of product as opposed to the 10s of thousands of dollars it can cost to start a regular business up here right now. On paper, this actually sounds pretty reasonable compared to starting your own business. Even the most expensive multi level marketing companies represent a lot smaller investment up front. This all starts to boil hard though when you consider that First off, not everyone really wants to go into business for themselves, and even if they did, it is likely that they don’t want to go into business selling whatever specific product, but they will be forced to sell here essential oils or vitamins or skin care products or anything else. The multi level marketing companies might deal in. The second factor is the likelihood of success. Now most businesses fail. It is a hard truth for the business world, but only about 40% of new businesses  ever end up making any money and this statistic is even worse for people starting a business for the first time. in the world of MLMs, it gets even worse. Fortunately, multi level marketing companies are obligated to release an income disclosure statement every year. This document details the payment of bonuses and how much is paid to what group of people. This breakdown of bonuses is of course different from every company, but the average from the top 10 multi level marketing companies reveals that only about 30% of active members in a multi level marketing company get paid anything at all, of which only that 12% make more than $1000 a year, 2% make more than minimum full-time wage and a few dozen make more than $100,000 in income in a company that could have hundreds of thousands of members. This income is before even factoring in the cost of products that members along we required to buy to maintain their bonus payments, meaning it is likely that these incomes biggest are overly optimistic.

Let’s say we ignore all of that and assume that you will start being most successful multilevel marketing business in the world. The most successful member of any of these companies worldwide is hard to pinpoint, and it does change frequently given the fundamental sales based nature of these businesses. My best estimate. The title belongs to Holly Chen.She is a member of the Amway Corporation, one of the oldest and currently the largest multi level marketing company in the world. From information gathered about her, it notes that she was one of the first members of Amway. When opened up shop in China. Today, China is the single biggest market for multi level marketing companies worldwide and holly chen was in the right place at the right time to ride the wave of this growth in the top of the business that she has today. Her annual income is calculated to be around. $8,000,000 a year, based on the bonus structure of an like this is on top of an additional $12,000,000 that she gets from the style of books and seminars and online courses that she sells. Although this figure is harder to say with certainty, two things become apparent here. First of all, a majority of this income is not actually coming from the business itself, but rather from running seminars on how to do well in the business. And it also has to be noted but $20,000,000 a year is actually not that great. Don’t get me wrong, $20,000,000 a year is a huge amount of money for someone at the top of a market as big as this. It’s a little bit underwhelming. It is estimated that there are around 18 million people involved in multi level marketing companies in the USA alone. Assuming that the top burner was making that $20,000,000 a year ago. It gives us a good idea of the pinnacle of success in these organizations. Now give other thing, United States has a population of 327 million people in 2019. That means that a staggering 5.5% of the population is involved in one of these companies. If we extrapolate this group of 18 million people out and just assumed it was a random sample of people rather than the MLM members, that would mean the single highest income earner from this randomly selected group would in all probability in the top 20 richest people in all of America. Even if we assume we got the lowest estimated from that list, that would mean we’re looking at an individual like Rob Walton with a net worth of 44 billion dollars. That is more. Is that this randomly selected group of 18 million people is likely to have over 30 billionaires in it and 3000 individuals making more than $20,000,000 a year. What this means is that you are, statistically speaking, 3000 times more likely to be as rich as the top multilevel marketing member by just not joining a multi level marketing company at all.

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