Also people say they ruin lives, how?
In: Economics
MLM stands for Multi-Level Marketing, which is a fancy way of saying ‘Pyramid Scheme’.
Essentially, as someone working for an MLM brand you have two means of income: Sell products yourself, or recruit people and get a cut of what they sell.
The problem with MLMs is that in the first option, generally you are a “re-seller”, that is you buy a bunch of products at wholesale cost, then sell them for a higher price. That can be difficult, especially if you are not at the top of the pyramid and you have to pay a percentage of your commission in the form of higher wholesale costs. Another downfall is that every person you recruit is now also selling the product, and now you are going to have a tougher time selling because they are direct competition. On top of that, *you* are making the financial investment, so if you can’t sell your product, well you just bought a lifetime of charcoal face cream.
Lastly, MLMs depend on exponential growth. Let’s say you recruit 5 of your friends, and each of them recruits 5 of their friends, and so on. Because of the nature of exponential growth, after the 14th iteration you would have more than 6 billion people trying to sell this product – and that’s only if you can get effectively everyone in the world on board. At only 9 iterations, you’d have ~200,000 people selling this product which is more employees than multi-billion dollar companies (Apple, Google, Microsoft etc.) employ. It is very unlikely that a special kind of herb is going to be more sustainable than some of the world’s largest companies (marijuana excluded for obvious reasons). This means the selling market gets saturated very quickly, so if you’re not at the top you’re likely not going to find people to recruit yourself that haven’t already been propositioned. Another pitfall of being too far down on the pyramid is that those above you can sell for cheaper because they don’t have the mark-up you do, so as someone that has been recruited you are already at a disadvantage. Not *everyone* will want the product, so it will quickly reach all of the potential buyers and quickly fizzle out. To boot, everyone trying to sell the product does not want to buy the product, and generally people who love the product want to show the world how great it is, and so the high-volume buyers will likely not be buying from you, but from themselves.
The MLM business model is beneficial for those at the top, and incredibly poor for those on the bottom, and even bad for those in the middle. They sell you on the idea that “if you can hustle, you can make lots of money”, but the caveat there is that it only applies if only a *few* people are hustling. Instead, it preys on people not understanding this concept and investing their life into a model that is doomed from the get-go.
They should be illegal, I’m not exactly sure why they are not.
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