Why Multi level marketing fails

Multi Level marketers would have you believe the only way to get rich is to buy into one of their unpyramid schemes. Today I am going to show you how and why MLM schemes rarely mean success for those not at the top of the pyramid. I used the word pyramid on purpose.

MLM marketers will tell you that every business is a pyramid and they have a point, MLM they will proclaim is not a pyramid because there is no top down structure, Every participant is equal. There are no chiefs and indians, there are only associates, They are deluded.

Traditional Business

Let's look at a typical business and it's pyramid. At the top you find the founders or owners. In some businesses these could be shareholders. The ownership is sometimes controlled by an individual and sometimes by a board.

Below them would be senior management. Strategy and planning is usually done at this level at this level and below that we have junior management. Junior management are generally implementer of strategy formed by senior management. Senior Management May be the Marketing director who would control the sales manager, the advertising department and the marketing department. Each of these departments would employ multiple staff. Generally everyone in the pyramid is remunerated by salary, wage or commission.

MLM Business

The main business would still have the board, the senior management and even the jubior management, but the get people to pay for the pleasure of "owning" their own business. They have a product that they sell but the profits in this business do not lie in selling the product but rather in convincing suckers to buy the business who in turn shall sell the business,

The products change hands in bulk and this is what legitimises the "business" Many people have garages full of cleaning products, health products and other products that there are no customers for, Based on the remuneration plans people are buying product to meet targets and ensure that they remain at a certain level in the organisation. You are only a distributor if you move certain levels of stock every month.

Reward systems designed to fail

It is said that MLM companies expect a churn rate of 95%. That's right 95% of all people that buy into one of these MLM companies fail. Facts are that if this did not happen MLM companies would run out of suckers overnight.

Lets look at a structure if each person recruited only 5 people.

1 Originator
5 plus 1 = 6
25 plus 6 = 31
125 plus 31 = 156
625 plus 156 = 781
3 125 plus 781 = 3 906
15 625 plus 3 906 = 19 531
78 125 plus 19 531 = 97 656 This is the population of a small town
390 625 plus 97 656 = 488 281 This is the population of a city
1 953 125 plus 488 281 = 2 441 406 This is the population of a big city
9 765 625 plus 2 441 406 = 12 207 031 most provinces don't have as many
48 828 125 plus 12 207 031 = 61 035 156 There are not this many people in South Africa including babies, old folks, married couples and every economically inactive bum on the streets.

So assuming you have 12 levels and each individual recruits only 5 people on level 10 a country like South Africa has 10 million too few people. Why don't you continue the calculations and tell me at whet level you need to start recruiting space travelers because we will have run out of earthlings to recruit.

Fortunately for the MLM companies there are enough people out there that cannot count. They will fail at one blame the system and try another until they have spent enough money to make the guy at the top of the pyramid fabulously wealthy.

This is the reason that the balancing power bracelet sold so well. As PT Barnum said "There's a sucker born every minute" If the MLM crowd find this article they will attack it in a religious fervour trying to dispel the maths. They all know someone that got rich. For every someone that got rich 19 lost money and at least one of those lost his shirt.

What is the dead leg you ask. This is a system that MLM Companies use to ensure that individuals can almost impossibly gain success. Your first client or convert would normally be your best but this one doesn't become part of your downline, it goes to your sponsor.

See the illustration to the right for more details, MLM is essentially a system that needs recruitment to survive. Every person has a family member that will buy in to either shut you up or stop you preaching. Every person has a friend that will join to do the same, but very few have friends or family that are going to be dedicated.

None the less let me tell you a tale about my friend Lee-Anne who got religious fervour and recruited like a demon. Her upline got lucky, here was someone who worked at it. Lee didn't have many options, she needed this because she had no work.

Lee Anne worked hard for months and knew she was selling and being successful but the income didn't tally. Lee recruited me after she had been doing this for a few months. Being the cynical sod that I am, I crunched the numbers and I did it again.

Using a spreadsheet I checked all the figures over and over and then called Lee. I showed her my calculations and she suddenly realised why her numbers did not tally. Why her work had not in fact earned her as much as she was expecting.

If someone has meetings to sell you a product, or invites you to dinner asking you to watch a short movie or presentation and those meetings tell you how much you can earn, don't make an emotional decision, do what I did, do the math, the math cannot lie.

Let's look at how this works in detail, refer to the image. There are three colours, the brown, the blue and the green. The first recruit you recruit becomes a part of your sponsors downline, the next recruits are yours.. The first recruit or Down 1 gets lost to everyone except the owner of the MLM business because officially the blue recruit doesn't have an upline.

So the work that your recruit is doing benefits neither you nor your sponsor for down 1, It only benefits the MLM company. Let's think about this you are working with a 95% attrition rate so for every successful down line you need to recruit 20 people, We already saw the maths in the first section at just 5 recruits, where are you going to find 20?

So as if that's not enough to make it damn nigh impossible, The MLM company is stealing 1 in 6 recruits by using snaky tactics,

As long as you were working within limitations there could be a degree of success for all the early adopters, but if you get in late you haven't a hope of winning. Just like a traditional pyramid scheme eventually you will tin out of possible recruits.

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