ELI5, what is multi level marketing?


i’ve been doing some research but i don’t understand it fully

In: 4

Basically, some ideas are easier to sell to salesmen than to customers. So the idea is you sell your concept to salesmen, and have them sell it to other salesmen (and cut you in, obviously). The reason it’s so transparent is that many people think to ask “wait, if this thing is so good, why are you cutting me in on it instead of selling it yourself?”… and the other folks get fleeced.

1. You are recruited to sell stuff. Typically you pay.
2. More profitable for you to recruit more people than actually sell stuff.
3. This continues for future recruits.

People in early may make lots of money, but there are typically *very* few towards the top. No one else really can.

I.e., You probably will be out money/time for bothering.

I have a widget. I sell it and make some money for each sale. I recruit you and three other people to sell widgets and get paid for recruiting you and also make a percentage of each sale you make. You recruit four people and make money from their sales. Some portion of that gets passed up to me too. So now I am making money for each of my 4 recruits as well as everyone that my recruits recruit. Pretty soon I’m making more money from recruiting people to sell widgets than from actually selling widgets. I then require everyone who sells widgets to buy a certain amount of product each month, regardless of what their sales and inventory are so that I and other people with many recruits beneath us make lots of money. People who are near the end of this chain (or at the bottom of the pyramid) don’t have enough recruits to make good income without selling widgets but as it becomes obvious that the widgets are poor quality it becomes harder and harder to sell them. These people have to buy stock in order to maintain their salesperson status but they can’t actually find enough buyers to actually sell it.

If you map out the shape of this kind of recruit commission strategy, it makes a pyramid shape, which leads many to accuse these businesses (rightly or wrongly) of being illegal pyramid schemes.

MLM schemes are “advertised” as joining a business to earn money in a familiar and reasonable way. Like investing in stocks or selling goods.

However, actually doing those things is very difficult. 100s of companies go bankrupt trying to do that every year.

These companies don’t earn money by doing that. They earn money by charging people to “be a part of the next big thing”.

In the stock example, the “return” comes from the money people who joined after or under you “invest”.

In the goods example, the people you are selling to are the lower distributors and you are selling them goods, you are “distributing merchandise”. It only becomes profitable when you “distribute” enough merchandise to the people below you to get the distributor price. Most people have to “quit” because they have a house full of useless products they can’t pass onto another sucker and no money to buy more after all their friends and family make their one time pity purchase.

The people at the top spend as much money as they can to “appear” rich. Which is why it seems like such a good idea. Most companies have too many costs and actual numbers to backup their claims, these companies need to fool you.

I used to work for a DS Max affiliate, here’s how it works from a new recruit standpoint.

Day one orientation, you’re told how you’ll sell stuff and earn commission on everything you sell. The comission doesn’t look like much, I made about 60-80$ a day selling 60-80 items in the 5-10 dollar range. You’re sold on the idea that if you’re chosen to ne promoted, you’ll be making like 20 cents per sale of everyone under you for invaluable training you provide them. They tell you that the franchise owner makes over 1800$ per week, 10 cents commission at a time from everyone working for them, and that there’s more franchising opportunities in this city than there are people in this room! So just sell more and you’ll rise, and become rich!

What you don’t see is that your team leader actually paid for the ad you answered to in the newspaper (that was a long ass time ago) himself, he shifted from selling dollar store quality merch to people on the street, to selling you a potential lifestyle so far as you pay the fee to get in and can sell really well.

It’s worse than a scam because it’s legal and it’s still run like a scam.