I had a very important realization, one I should have had many years ago… MLMs are an evolution of the Ponzi Scheme. They are legalized scamming, and it is my belief that they have been hurting the economy and leading to its downfall. I’m just disappointed in myself for not seeing it sooner.
The last friend to try to get me involved in a Multi Level Marketing (MLM) company ended up showing me exactly why they are inherently flawed. I’m sure he doesn’t appreciate how grateful I am to him.
At the time, I was dishing out $10/mo to a popular MLM called Global Domains. This company let’s you purchase a domain name and provides you with a very simple web creating system for only $10/mo. They have such a slick little video at the beginning that I was completely sold. I even endorsed it to my friends, something I had never done before (because despite my stupidity, I always maintained a healthy skepticism of MLMs). One friend was so shocked by my email that he thought my email had been hacked into.
Global Domains, because it is a simple MLM, makes it easier to see past the BS that is shoveled at you and actually do the math.
Global Domains is competing with other website companies that offer similar services. The most well-known of these is GoDaddy.com. GoDaddy gives you the same service for roughly $10/year, or slightly more than $0.83/mo. Compare that to Global Domains $10/mo, and for the sake of simplicity, we’ll say that it’s a difference of $9/mo. What could possibly justify this gross over-paying? The potential for unlimited residual income, of course!
That is the crux of the problem: in order for a MLM to be sustainable, it needs to over-charge by at least 2X, probably 3X, the cost of all its non-MLM competitors. With Global Domains, you’re paying $9/mo for the potential to make money. That might seem like a good deal, but let’s see what your chances of making money actually are…
First, let’s imagine that you are the very FIRST person in the chain. You get 5 friends to sign on. The way Global Domains work is that you get a $1 for every person that signs on, up to five levels down. Since $1/mo is actually going toward the service you are getting, we’ll calculate your investment at $9/mo. So now that you found 5 people, you’re getting $5/mo, so you’re only paying $4/mo. If each of them gets 5 people, then that’s 25 people added to your line. Now you’re actually making money! 5+25 = $30/mo - $9 = $21/mo.
You+5+25+125+625+3125. That’s the limit if you bring 5 and each person brings 5 people. You’ll be making $3896/mo, your 5 friends will be making $771/mo, the next 25 friends will be making $146/mo, and the next 125 friends will be making $21/mo. Everything seems pretty nice, except you’re forgetting that 625 friends are paying $4/mo, and another 3125 friends are now paying $9/mo. In other words, since no good or service is being produced, in order for the first 156 people to make ANY money, they have to scam 3750 people into PAYING FOR NOTHING! That’s a ratio of over 24:1. If you keep doing the math, that ratio never changes. There are always 24 TIMES as many people paying for an MLM than people making money for an MLM (in our example only. Depending on the cost and expenses, this ratio changes, but I can assure you it is never lower than 10:1).
The trick is, the MLM people always make you think you can be one of the 1 in 25 that actually makes money. At 6 levels, there were already 3905 people. If you’ve ever done the doubling math, then think how fast the 5x math gets into ridiculous number. At level 10, there are already 2.44 million people (and remember, only 1 in 25 of them is making any money). At level 13, there’s over 300 million people in the MLM (which will never happen). In other words, if you get approached by someone to join an MLM, you’re already near the end of the line. You can only make money in an MLM if you start one, or if you know the guy who knows the guy who started it. Even worse, even if you do make money, you’re doing it at the gullibility of others. You’re making money out of their wrong belief that they can also make money, so hopefully Karma will kick your ass.
A Ponzi Scheme pays out their dividends using the money that the newcomers bring in. This is only sustainable while there are more new-comers each year than people part of the scheme. Madoff’s Ponzi Scheme could last so long because he was only dishing out a 15% return. Even at 15%, the market eventually saturates, because of the simple law of exponential growth. What if, however, the newcomers DIDN’T get a return? Well, then, you could keep the Ponzi Scheme going INDEFINITELY! The new-comers could continually pay into the scheme, and not get any money in return… and so MLMs were created.
This comes the next ingenious step in MLM; what I like to call SUPER-HYPE!!!J!!!. You have to convince the bottom rung of the ladder that they have the potential to make as much as you do, so they don’t leave. That’s why ALL MLMs make a nice side business selling promotional videos and holding seminars. They register you as a ‘business owner’ and show you simple upside-down diagrams of your earning potential (upside-down because they show you at the top of the ladder instead of where you really are – the bottom). The worst part is that the people telling you this believe it themselves, because it worked for them (or is ‘working’ for them, since they are not quite breaking even yet...) They’re making money, so why can’t you? They don’t realize they’re promoting a system that is inherently flawed and unbalanced. The smartest ones convince you that their products are actually WORTH what you’re paying for them, and that there is plenty of room for growth. I actually had a MLM person, who was paying $50/mo for some kind of daily vitamin supplement, tell me that market saturation was impossible! I should have realized then how full of BS the whole thing was right then. Unfortunately, I was kinda caught up in it all…
If you are involved in a MLM, please get out. I promise you that you can find the same product or service you’re paying for at a much cheaper price. If so, then every $1 you’re spending over the true value of that product is going into the MLM Ponzi Scheme machine, and paying for someone else to get rich. Even if the person who brought you in is a close friend, get out for their sake as well. I promise you they aren’t making money either, and even if they are making slightly over their monthly payments, do you really want them to be making money at the expense of 24 other people? Also, do you really even WANT or need that product you’re grossly over-paying for?
If you think this post has any merit, and if you know someone who is involved in an MLM, feel free to tag them or copy and paste this onto anywhere you think it will be helpful.
Thanks for reading.
A brother and friend,
Youngil Ely Loew
