Think you're going to make a million dollars in network marketing? Give me the next three minutes of your time.
Call it multilevel marketing, or call it network marketing; it's the business model that requires you to recruit people to compete against you selling some product. They've probably shown you indisputable math that proves it can't fail. I'm going to prove to you it can't succeed, because I want you to NOT be ripped off.
Usually the pitch goes that if you get just five good people - don't count the ones who flake out - five good people, and they each get five, and THEY each get five, and so on; and they all buy at least the minimum monthly purchases; the commissions that trickle upward MUST make you a millionaire. Nothing can go wrong.
Here's the simple reason that's never happened, once, ever. How many of these companies are there? Amway, Herbalife, MonaVie, Juice Plus, Nu Skin, Xango, and a thousand others: If just ONE of those companies ever had a SINGLE such downline that lasted only 14 levels -- that alone would have required the participation of more human beings than exist. 514 is 6.1 billion participants. It has never happened to a single one of these companies. Their pitchmen are lying to you to get you to make the minimum monthly purchases of their outrageously overpriced product, and to trick you into getting other people to do it too.
A fundamental reason that such networks fail is that they depend upon recruiting people to compete with you. If you own a shoe store, and you pitch every customer on opening their own shoe store instead of being your customer, very soon you're going to have a neighborhood full of shoe stores, with everybody trying to sell and nobody left to buy. It doesn't take an MBA to see that this is pretty much the opposite of a sound business strategy.
The nonprofit Consumer Awareness Institute analyzed available data published by the MLM companies themselves. The least successful was Amway/Quixtar where 99.99% of distributors lose money, and the most successful was Herbalife, where 99.42% of distributors lose money. The average is 99.95%.
However, only 97.14% of Las Vegas gamblers lose money by placing everything on a single number at roulette. So if you're thinking about joining a network marketing plan, and aren't discouraged by the facts, consider instead going to Vegas and placing all your money in a single pile on number 13.
— Brian Dunning
References & Further Reading
Bloch, Brian. "Multilevel marketing: what's the catch?" Journal of Consumer Marketing. 1 Oct. 1996, Volume 13, Issue 4: 18-26.
Coward, C. "How to Spot a Pyramid Scheme." Black Enterprise. 1 Feb. 1998, Volume 28, Number 7: 200.
Dokoupil, T. "A Drink’s Purple Reign." Newsweek. Newsweek Inc., 11 Aug. 2008. Web. 22 Aug. 2008. <http://www.newsweek.com/id/150499/page/1>
FTC. "The Bottom Line About Multilevel Marketing Plans and Pyramid Schemes." Protecting America's Consumers. Federal Trade Commission, 1 Oct. 2009. Web. 13 Oct. 2009. <http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv08.shtm>
Vander, N., Peter, J., Keep, W. "Marketing Fraud: An Approach for Differentiating Multilevel Marketing from Pyramid Schemes." Journal of Public Policy & Marketing. 1 May 2002, Volume 21, Number 1: 139-151.
Walsh, J. You can't cheat an honest man: How Ponzi schemes and pyramid frauds work and why they're more common than ever. Aberdeen, WA: Silver Lake Publishing, 1998. 183-202.