Typical Misrepresentations Used in MLM Recruitment

Law enforcement agencies seldom require honest and understandable disclosure of essential information to MLM prospects. I have examined the compensation plans of over 400 MLMs and found that virtually all hide the near-zero odds of making a profit, and in fact almost certain loss after subtracting minimal operating expenses and purchases of products necessary to qualify for commissions and advancement.

WARNING: If you are investigating MLM, and you read this page with an open mind, you likely will not be able to look at MLM as a credible business opportunity.

During the FTC v. Amway trial in the 70’s, FTC officials warned that MLM poses “an intolerable potential to deceive” – which proved to be powerfuly prophetic – as this paper proves.

MLM is the direct descendent of classic, no-product pyramid schemes. With expansive pay plans and an endless chain of recruitment, MLM assumes both infinite and virgin markets – neither of which exist. MLM is therefore inherently flawed, uneconomic and fraudulent. In fact, In a 1974 ruling, the FTC found in the very structure of “multi-leveling” or “pyramid selling” (now called multi-level marketing, or MLM) “an intolerable potential to deceive.” Unfortunately, the FTC backed off from that observation in the 1 979 Amway case, which opened a Pandora’s box of pyramid selling. Nonetheless, over 35 years’ experience has proven the 1974 ruling to be correct. It is hard to imagine any business model that is more deceptive than MLM. However, my observation is that even TOPP’s (top-of-the-pyramid participants) are not usually engaging in theft by deception deliberately. They are victims of their own self-deception and must of necessity justify their flawed programs. Below are typical misrepresentations used to lure new recruits into joining an MLM.

After reading somo of these typical misrepesentations used in MLM recruitment, be sure to read the conclusions at the end.

Typical MLM Misrepresentations The Truth
1. MLMs are often presented as a great “business opportunity,” with huge incomes reported for many 1. MLM’s nearly always lead to certain loss for new recruits. The founders and a few are at the top of their pyramids of participants are enriched at the expense of a multitude of downline participants, approximately 99% of whom lose money.
2. “Everyone can do this” – and earn a good income. 2. Holding up top earners as examples of what others can do is deceptive. It is unfair to sell tickets on a flight after the the airplane has already left the ground.
3. Products can be resold at retail prices for a handsome profit. 3. MLM products must be priced high enough to support a bloated network of distributors, so prices are seldom if ever competitive with alternative retail outlets. (See “High Prices of MLM Products.”) MLM products are sold primarily to recruits to “do the business,” rather than to persons outside the network of participants. People who shop around and are not buying products for the “opportunity” are not likely to become customers.
 4. Every MLM Is presented as a legitimate business – “not a pyramid scheme”  4. MLMs, or product-based pyramid schemes, have been found to be the most harmful and extreme of all the types of pyramid schemes, by any measure – loss rates, aggregate losses, number fo victims, and degree of leverage. MLM loss rates (approximately 99.6%) – are far worse than for no-product schemes, or even than most games of chance in gambling casinos. (See shocking statistics.)
5. MLM offers true “time freedom.” For those who work at it, MLM can provide an income that is reliable, leveraged, residual, long-term – even permanent income. This will allow you the “time freedom” to quit your job and to spend more time with your family or to do whatever you want.  5. These catchwords are used by MLM promoters to appeal to the desires for “easy money” that keeps on growing and providing for the comforts of life – and the resources to do what we want, when we want. However, one of the stark realities of MLM is an extremely high attrition rate. Available statistics suggest that 90-99% of recruits terminate or are inactive within a few years of joining. Those who do “succeed” must be constantly recruiting others to replace a revolving door of hapless victims of these deceptions. This can become totally consuming, leaving little time or energy for anything else.

And for those who choose not to do MLM, is there anything immoral about hard work for honest rewards?

6. Work for only an hour or two a day to supplement your income to help meet expenses or pay down debt. 6. To profit at a recruiting MLM, one must work long hours and be willing to continue to recruit to replace dropouts. One must also be willing to deceive large numbers of recruits into believing it is a legitimate income opportunity. New recruits seldom profit, but are instead only fattening their upline’s commission checks and enriching founders  and the “first ones in.” They are, in fact, being sold a ticket on a flight that has already left the ground.
7. With MLM, you can just work seasonally, such as for Christmas or vacation money. 7. Since MLM compensation plans primarily reward downline recruitment, and one cannot maintain resultant “residual income” on a seasonal basis, this is an empty promise – about as empty as they come.
 8. “The job market is terrible.” The stock market is even shakier. MLM offers reliable, leveraged, long-term, permanent, residual income.” 8. MLM is far more risky than either the stock market or the job market. It even makes gambling look like a safe investment by comparison. With over 90% attrition within a few years, long-term residual income from recruiting a downline is a myth for almost all MLM recruits.
9. Standard jobs are not rewarded fairly. In MLM, you can set your own standard for earnings.  9. Fair? Most MLM compensation plans are weighted heavily towards those who got in early or scrambled to get to the top of a pyramid of participants. MLM is the epitome of an unfair and deceptive practice.
10. “If not legal, the program would have been shut down long ago.” MLM’s have survived legal challenges. The fact that they are still around tells you they are legitimate. 10. Consumer protection officials are typically reactive, not proactive. Since victims of endless chain schemes rarely file complaints, law enforcement seldom acts against even the worst MLM schemes. Victims don’t complain because they blame themselves, and they fear self-incrimination or consequences from or to their upline or downline – often close friends and family. (See Law Enforcement)
11. If you fail at this program, it is because you failed to properly “work the system.” 11. The system itself dooms nearly all participants to failure. MLM is built on an endless chain of recruitment of participants as primary customers. It assumes both infinite markets and virgin markets, neither of which exist. It is therefore inherently flawed, fraudulent, and profitable only for founders and those at or near the top of their respective pyramids of participants. Even with their best efforts, the vast majority will always lose money. (See 5 Red Flags-summary. To be more fully informed download and read the full report.)
12. “In any business, one must invest time and money to be successful.” Like anything else, you can expect to get out of it what you put into it.  12. Independent research, supported by worldwide feedback, suggests that the more a person invests in an MLM in time, effort, and money, the more he/she loses – which is true of any scam. Committed MLM participants may continue investing thousands, and even tens of thousands of dollars, over many years before running out of money or giving up.

Conversely, in legitimate companies, sales persons are not expected to stock up on inventory or subscribe to monthly purchases. But in MLM, incentivized purchases (required to participate in commissions and/or advancement) are merely disguised or laundered investments in a pyramid scheme.

13. Average earnings statements on official reports make MLM’s appear highly profitable for participants. For example, one MLM company report of “actual income” of distributors may state that “.16% of active distributors have achieved the level of Blue Diamond,” whose average earnings exceed $500,000 a year. This is made to appear to be respectable odds of success 13. This is a mathematical trick MLM promoters play on unsophisticated recruits. MLM reports of average income of participants are full of such deceptions. When statistics are presented without deception, the “opportunity” is not so attractive. The “.16%” is 0.16% – or0.0016 (dropping the % symbol). This is equivalent to odds of one in 625. And for statistical integrity, ALL who signed up as distributors should be factored in, but MLMs eliminate dropouts in their statistics – a huge deception. With less than 10% remaining after five years (the minimum time those at the top in the pyramid have been in the scheme), the number should be reduced by at least 90%. This leaves odds of 0.00016 of reaching the top level where the money is made, or odds of 1 in 6,250! This looks far worse that “.16%” (See the book “How to LIe with Statistics.”)
14. Company payout to participants is reported as “earnings” to them. 14. The fact is that every MLM requires “pay-to-play” or a quota of minimum purchases in order to qualify for commissions and/or advancement in the scheme. In addition, in order to climb the ladder in the hierarchy of distributors to a level where actual profits are realized, one must recruit aggressively. In a one-year test of the cost of conducting a successful recruitment campaign, I found the operating expenses to be significant – just like for any recruitment-oriented business. The combination of “pay-to-play” and operating expenses raises the breakeven bar such that it is extremely rare for any MLM recruite to actually earn a profit after subtracitng such expenses. Again, see full “5 Red Flags” report.
15. MLM is the “wave of the future.” In fact, “Our MLM is experiencing phenomenal world-wide growth,” etc. “So get in on the ground floor of this great growth opportunity.”  15. MLM’rs have been saying this for over thirty years, but MLM still accounts for less than ½ of 1% of consumer purchases – in spite of the fact that the number of MLM companies has totaled in the thousands. MLM’s come and go, as do new recruits, over 90% of whom drop out. Significant long-term MLM industry growth is a myth.
16. Saturation – and the resultant market collapse – never happens with MLM. Many MLMs have been around for over 20 years, and the market is far from saturated, with less than 1% of all sales nationally coming from the MLM industry.  16. The issue is not TOTAL saturation as MLM apologists suggest, but MARKET saturation. In a town of 10,000 people, the notion of 10,000 distributors to serve them is absurd. Realistically, the MARKET could be saturated with 5 or 10 distributors. Each added distributor would reduce the opportunity for existing distributors, and resistance would build up for those who have been approached several times. In fact, market saturation occurs rather quickly. And the fact that such a small percentage of sales nationally are through MLM, after over 30 years of promising to be a major player, should tell you something. (Again, read the “5 Red Flags” – especially “The 8 Rs of MLM Durability” in the full report report cited above.)

In MLM, market collapse is manifested in CONTINUOUS COLLAPSE, meaning that the market is constantly collapsing, requiring contintual recruitment to replace those continually dropping out at a very high rate. If the MLM could not find new recruits in new markets, or recycle through old markets with new generations of prospects, or with new products, it would collapse entirely.

17. Turnover, as in any business, is a reality that assures an ample supply of available prospects.  17. Again, with few real customers, MLM products are sold by recruiting a revolving door of new “distributors” who buy products to “do the business.” And since people perceive the opportunity as dwindling with each new “distributor,” market saturation requires promoters to recruit elsewhere. So MLM’s quickly evolve into Ponzi schemes, requiring the opening of new markets in foreign countries and/or new product divisions to repay earlier investors, as has happened with Amway (now Quixtar) and Nu Skin (which became IDN, then Big Planet and Pharmanex). It’s not turnover, but continuous churning of new recruits to replace dropouts.
18. The demand for these MLM products is growing at a rapid rate. “They literally sell themselves.” 18. The sale of products is distributor-driven, not market driven. Most products are sold to new participants to get in on this “ground floor opportunity.”
19. MLM is direct selling, which has a long history of independent selling by door-to-door selling and of selling to friends, neighbors, and family members. It is this person-to-person relationship selling that is one of its great strengths. 19. MLM should more properly be considered chain or pyramid selling, as few sales are made to customers outside its network of distributors. MLM promoters have sought legitimacy by joining the Direct Selling Association (DSA), which lobbies to promote the interests of MLM. It is like a farmer marching his pigs into a horse corral so he can sell them as horses to get a better price. He then advertises them as horses because they are in the horse corral. We should not accept an MLM as a legitimate direct selling company when compensation plans reward recruiting a downline far more than selling to non-participants – even if the MLM is a member of the DSA. (See DSA page.)
 20. “It takes time to build any business.” “This is not a get-rich-quick scheme, but a ‘get-rich-slow’ program.” “While the potential rewards are great, don’t expect instant success,” etc.  20. MLM promoters sell recruits on their programs as a business opportunity that takes time to build, but to get around business opportunity regulations, they present it to authorities as a “direct selling” opportunity (see above). However, In legitimate direct sales programs, sales persons earn commissions right away and don’t have to wait months or years for commissions to exceed expenses.

NOTE: This is just a taste of the many misrepresentations used in MLM recruitment. For a list of over 100 misrepresentations, read Chapter 8 of the eBook The Case (for and) against Multi-level Marketing. The chapters can be downloaded in sections – or the whole book can be downloaded free of charge. 

CONCLUSIONS

After studying the compensation plans of over 400 MLMs, I can say with confidence that virtually all MLMs are dependent on deceptive recruitment of an endless chain of participants as primary (or only) customers. Incentivizing endless chain or infinite recruitment within a finite marketplace, MLM is not only inherently flawed, uneconomic, and fraudulent; but is also extremely viral and predatory – rapidly expanding and deluding the most vulnerable among us. While many or most participants are not deliberately deceiving recruits, they are unwittingly drawn into the complex web of deceptions listed above – since to tell the truth would lead to failure in their recruiting efforts.

The appeal in MLM promotions and the typical MLM reports of earnings of participants are dependent on a host of misrepresentations and deceptive sales practices. To be successful in MLM, one must not only work hard, but one must also –

1. Be deceived

2. Maintain a high level of self-deception

3. Go about deceiving others

4. Maintain denial of the harm done to those recruited into the chain or pyramid of participants.

The degree of deception (and even total amounts in aggregate damages by MLMs as a group) exceeds the deceptions reported in the Bernie Madoff scandal and in the Enron stock scandal (;plus WorldCom and Global Crossing). However, in the case of MLM, participants engage in self-deception as much as in any deliberate misrepresentations. In short, the typical MLM is a composite lie, dependent on an endless chain of recruitment into a pyramid of participants who unwittingly engage in massive theft by deception.

The typical MLM is a composite lie, dependent on unlimited recruitment of a network of endless chains of recruits into pyramids of participants who unwittingly engage in massive theft by deception.


SOURCE: Typical Misrepresentations Used in MLM Recruitment by By Jon M. Taylor, MBA, Ph.D., Consumer Awareness Institute.