A Eulogy for “Multi-Level Marketing” (MLM)

Now of course I have to lead off with a standard disclaimer.  One could argue that my involvement with CarbonCopyPRO makes me a biased observer of the various home-based business models.  Myself I would argue that being a successful home-based business owner makes me a very keen observer of the various models.  Whatever the case I do hereby disclaim that I own a web-based direct sales business that is not multi-level marketing.

On a daily basis I am asked either to explain the difference between direct sales and MLM or more generally what do I “think” about MLM.  Well, the short and slightly sarcastic answer is that I try not to think of MLM at all.  But if I did, here are some thoughts I might have…

Multi-level marketing is a dated business model that has officially unraveled thanks to the internet.  There are myriad resources on the internet that explain how the internet has killed MLM but in a nutshell here it is.

Wikipedia defines multi-level marketing as “a business-distribution model that allows a parent company to market its products directly to consumers by means of relationship referrals and direct selling”.  The key part of this definition is “relationship referrals”.  MLM-ers are encouraged if not required to refer (sign up) their friends and family to become sales reps as well.

Most MLM compensation plans are heavily weighted towards the rewarding of recruitment efforts, rather than the selling of products.  In order to not be labeled an illegal “Pyramid scheme” MLMs do have to sell a product, and most of them do.  But the products tend to be lower priced items that generate small commissions that are then divided into many smaller pieces and distributed “up the line” of referrors.

MLM models rarely generate significant returns for anyone not highly placed in the pyramid for two reasons.  First, the individual commissions are not substantial and they are further eroded by being divided across multiple levels (hence the name “multi-level”).  Second, MLM tends to create lazy business people.  The idea that one can be paid off of thousands of other peoples’ work means that most people in an MLM organization are expecting other people to generate the money.  But everyone else is thinking the same thing so your organization is flooded with “do-nothings”.

Now of course there are people who have been successful with MLM, and not always just the ones who “got in early”.  But the numbers of people who are succeeding within MLM has dropped off sharply in the last ten years.  Why?  Simple.  The internet (which by the way is the same factor that causes CarbonCopyPRO to be so successful.)  As mentioned, MLM compensation plans tend to be heavily centered around recruitment (and the offshoot of recruitment, retention).  And this is where things have gotten quite a bit tougher since the internet.

In the “good old days” of MLM a sales rep would invite an associate to a meeting, usually at someone’s home, where they would get to experience the camraderie and enthusiasm that supposedly all practitioners of X business enjoyed.  They would be regaled with stories of profit and freedom and probably have little reason to doubt the sincerity of most of the people involved.  Ultimately before the internet the only people that could vouch for an MLM business are the people involved in it so who was to say that it wasn’t what everyone said it was.  The idea that they were all saying how great it was because they were absolutely dependent on you and people like you to keep signing up probably seemed a little harsh, so we just took them at their work.

That was then…

Now what’s the first thing you do when approached with a new business idea (or the first thing others do when you approach them)?  We Google it, right?  It’s called crowd-sourcing.  The internet allows us to instantly find an amalgam of other peoples’ opinions on just about anything.  It’s the reason I never call a tech-support line anymore and it’s also the reason I’m much less likely to get scammed.  There are no secrets!  The Wizard of Oz would have had a tough time in the 21st century for sure.

So that same scenario plays out a little differently now.  You come home, fire up the desktop, and search the name of whatever business you were just solicited by.  And here the entire MLM model breaks down.  MLM by definition creates a majority of disappointed people.  This is a fact supported by any rudimentary mathematical analysis of the cash flows.  Now all these disappoointed people weren’t at that meeting you went to but they are sure as heck on the internet.  And they’re pissed…

Suddenly any interest you may have had in joining is dashed by the hundreds of people on the web claiming to have gotten burned or ripped off or overpromised to.  And then another factor kicks in…

Negative press is a great sales tool.  This is why Search Engine Marketing was so controversial in the early days, people and companies could literally buy access to people who were looking for their direct competitors.  It was like a Circuit City (RIP) employee hanging out in front of Best Buy with a car running and some coupons.  Well whatever the ethics of it marketers loved it (and still do).  And what better way to lure that prospective customer of your competition than with supposedly unbiased reviews about your competitor that just so happens to paint them in a negative light.  This is what the internet did to multi-level marketing.

A Google search for just about any multi-level marketing company will bring up hundreds of disgruntled people.  Better than half of those are probably people who are trying to sell you an alternative MLM opportunity.  And unlike when you buy a toaster oven or a car there is no Consumer Reports Magazine where you can go get a real review.  Left to yourself it is almost impossible to decipher the facts from the fiction.  So most people just don’t get involved in MLM and those that do are so bombarded with competing “better deals” that they often defect in only a few months.

And that’s what happened to MLM.

For a table that briefly illustrates the difference between MLM and direct sales visit our personal site FAQ page.