The BIG Lie

By Len Clements © 1993

I hate selling. Loath it. Like most people, I can’t stand the rejection. I’ve been told I’m good at it, and it appears I am, but I would never want to make a career out of it. Knowing this of myself, it begs the question, “why did you get involved with network marketing?!”. Yes, twelve years ago, something got me over this hurdle. For some reason, I got the entrepreneurial spirit and decided to get involved with a business opportunity that involved heavy retailing of products.

It would appear I’m not the only one. In a study we did last year atMarketWave, we asked 136 current and ex-distributors what they disliked the most about MLM. The most common answer? Nope, not meetings. Not ethics or company failures. It wasn’t stock-piling or front-end loading. It was selling! People didn’t want to have to go out and sell anything. Actually, 83% of those surveyed included this among their top three answers. Amazing.

So what would posses, what must be millions of people who hate selling, or think they can’t sell, to go out and jump into a business that demands constant, effective selling skills?

The money? Sure, to some extent. But I think we should give a little credit to the American public. Most folks realize that, sure, there is the potential to make obscene wealth in MLM, but what they really expect is to earn a nice comfortable living, or just some extra spending money. And the wealth could be months or years away. Years of selling.

Actually, the answer is quite obvious. Most of these people have been convinced, at least in the beginning, that to be successful in MLM you don’t have to sell anything. You get other people to sell for you!

Thinking back to my early days in MLM (with a company calledNature Slim) that is exactly what I was told. If I build this giant organization of distributors, I’ll get bonuses off of all their sales. All I have to do is buy the product for myself. The problem is, all those people in your downline are being told the same thing!

Today, we see all kinds of opportunities claiming “no selling necessary”. They encourage distributors to just buy and consume the products themselves, or for their families. In some states, this is technically illegal (although seldom pursued, unless provoked). And what exactly do you call promoting your opportunity? That area of your business probably involves the most selling skill of all.

And how about selling someone on the idea that they can be successful in the “direct selling” industry, without having to sell anything?

I hear companies claim that their video or audio will “do the selling for you”. Okay. How does the video convince someone to watch the video?

Or how about this one. “It’s not selling — it’s sharing“. Right. “Here, I’d like to share some of this wonderful skin cream with you. That’ll be $19.95”.

My all time favorite is, “the products sell themselves”. To this day, I’ve never seen a bar of soap call up one of my neighbors and invite itself over for a swim. Not once.

Some programs claim no selling is required, and they’ll even do all the recruiting for you. The only downlines they really build, are theirs! There’s just no free lunch.

Now, I realize that there are extremely “retail” oriented companies out there. Yes, they encourage hard work, and the heavy retailing of their products or services. That’s how they make their money, and keep Attorney Generals off their back. The distributors, however, seem to have a different agenda. Many of them will go out of their way to make sure their prospect doesn’t hear the company message. That would turn off that 83% that just wants to sit back while their downline does the work for them. Those that don’t want do any selling.

Actually, I shouldn’t lump all those people who hate the task of selling the products into this group. There are many distributors who feel that retailing is a mundane chore that will result in little more than a car payment. Recruiting, however, builds fortunes. So they blast their opportunity pitch at everyone in sight. They have no problem selling the sizzle. The retailing, again, they leave to “other people”.

Many people ask me, why do a select few individuals seem to make MLM work for them, on a monster scale, almost like magic, while most of us just flounder away? Well, a select few individuals are super-salespeople, and most of us aren’t!

All of this may seem as if I’m suggesting that we should all still be heavily retailing, even if we could personally consume to meet our quotas. Not at all. Actually, I like the personal consumption angle. I’m simply suggesting that, regardless of how the opportunity is structured, something must get sold! If not a product, then an idea, a concept, or a dream. To lead anyone to believe otherwise is… a big lie!

Don’t be discouraged by all this if you feel you are one of those that can’t, or dislike selling. MLM can still work for you. I’m certainly one of you, and if any of the companies I was involved with during the eighties had stayed in business, I may very well be a rich man today (although it certainly has provided a wealth of knowledge). Take some time to build your confidence. Acquiring selling skills can come naturally, in time. Taking a comfortable, slower, more passive approach to your opportunity will delay your success, surely, but better to succeed slowly than fail fast.

How to Add 1,000 People to Your Downline

Each and Every Week – Seriously!

By Len Clements © 1996

I was exploring the internet jungle a few weeks ago when I stumbled upon what appeared to be an open MLM forum, however it had pretty much been taken over by distributors for one dominant opportunity. Dare any member from a subordinate MLM species wander into their domain and there would be a frenzy of activity to see who could convince the newcomer that their MLM program was superior — and from the looks of their on-line conversations, they were succeeding.

The lure wasn’t the promise of quick and easy wealth, for there was actually little mention of high incomes. Nor was it the miraculous benefits of their amazing product line. Instead, they were trading recruiting figures. Massive recruiting figures.

One had recruited eleven people his first day in the business. Another claimed she built a downline of over 3,500 by her second month. Yet another claimed the company as a whole had gained over 180,000 distributors since January. And yes, one even claimed he had “personally recruited 100 people in a single day!”

This would all be very impressive — if I could pay my rent with distributor applications.

It’s fascinating how the marketing trends in this industry evolve from year to year. In 1991 and ’92 everyone bragged about how much their top earners were making. In 1993 and ’94 everyone was hyping their company’s total monthly sales or sales growth. And around the middle of this time span I remember there was a short lived phase where the age of a company seemed most important. Today, everyone’s talking about how many distributors their company has. It seems we’ve now entered a phase in the cycle where what is actually the least important factor is now considered the most important!

To create a marketing advantage, the “in” thing now seems to be how to redefine “distributor” so as to claim the highest possible number of them. For example, the above MLM program, along with several others now entering make-believe momentum, all have a free sign up system via an 800-number (In fact, in some of these programs you can even sign up distributors without them knowing you did it.) So, retail customers now routinely sign up as “distributors” to get the product at wholesale.

Several companies now allow their distributors to sign up their spouse, or any family members, and some even allow you to sign yourself up as many times as you wish! While others, like the above mentioned company, technically forbid such practice, their distributors are doing it anyway and without consequence. So while they may only gain 200 actual distributors next month, they may be able to claim an increase of over 1,000 distributorships.

The technique used above is to simply give out sequential ID numbers to anyone who orders even a single product, one time, and to all the positions occupied by each distributor. Then, call each ID number a “distributor.”

Another way to make sure that this number always increases is to never purge your inactive distributors. Technically, a company can’t terminate a person for not ordering product (while MLM companies, like any direct sales company, can require a sales quota to earn commissions, they can’t require a product purchase just to maintain distributor status). Instead, most will place non-ordering distributors in an “inactive” file and simply remove them from the distributor hierarchy. Some, however, will continue to count these people in their total distributor figure since they are, technically, still distributors.

Most MLM companies have some sort of annual renewal process where a small administration fee is charged, or at the very least a reapplication process. This is to weed out the dead wood. Of course, if you omit this process, as some are, and inactive distributors are still technically considered in the program, then essentially they are “distributors” for life! No matter how many quit, the “total distributor” figure will always be climbing. What’s more, the company can now claim a “zero percent attrition rate!”

And it would be true — technically.

MLM programs that employ a binary compensation plan have a unique advantage in this area that’s exclusively their own. In a binary, one person can potentially occupy numerous “income centers.” I know of at least two such companies they are currently claiming a “total distributor” figure based on the total number of income centers. Fortunately, most of the binary plan contingent have not followed suit.

So here’s the formula to build a “one-million distributor company” within five years:

1. Allow anyone to sign up for free, over the phone.

2. Count product customers as distributors, even if they only order once and you never hear from them again.

3. Allow them to sign up as many times as they wish, or at least disallow it and look the other way.

4. Allow them to sign up any and all family members.

5. Never purge your company database of inactive distributors.

(Or, you can just not reveal your total distributor figure and just let your distributors “estimate.” That should at least double the actual amount.)

Just imagine if Amway would adopt the previous criteria when defining “distributor.” They could easily claim to have 100-million of them by now! In fact, I recently saw an ad for a popular MLM program with the headline “Over 250,000 people have joined (blank) International!” Of course, the ad doesn’t mention that well over half of them are no longer distributors.

Semantics plays a very important role in the MLM industry today. By changing the standard definition of various aspects, companies today can create the illusion that they are in what ever stage of growth they desire. Want to sound like a “ground floor opportunity?” Just say you’re in “pre-launch” — even if you’re in your second year of business. Want to sound like a mature, stable company? Count all the years you thought about starting an MLM operation and then claim “ten years in development” — even if you launched yesterday. Want to sound like you’re entering a massive momentum stage? Count every single person who contacts your company, for any reason, as a distributor — then heavily promote how many distributors are joining each month.

Several years ago, this same logic was used by the second baseman on my Little League team. After losing the final game of the season by a goodly margin, and all but three of the previous seventeen games, this curly-haired little seven year old attempted to comfort me by exclaiming, “Ya’ know, coach, not counting the games we lost, we were UNDEFEATED!”

This also reminds me of the debate regarding whether the legalization of drugs would effect the crime rate. Advocates of this idea claim it would drop it dramatically. Of course it would! If you make fewer things illegal, they’ll be fewer laws broken. Hey, why don’t we just declare everything legal? Then we would have virtuallyno crime!

So, let’s get to the big question: How can you, personally, recruit 1,000 distributors a week, every single week? Simple. Get your company to employ the following recruiting system: You walk up to someone on the street, tap them on the shoulder twice with the index finger of your right hand, and say “I dub thee a distributor.” That’s it!

Think about the possibilities. You could literally recruit a thousand new distributors each day if you found a busy intersection in a major city. And if you trained just a handful of people in your downline to do the same, you could build an organization over 100,000 within days! And, of course, your company could easily claim to have over one-million distributors within just a few short weeks.

There is one small catch however. No one will make even one dime in commissions.

Okay, so now your upset with me. You read this article expecting to actually discover how to recruit 1,000 people a week. Well, I delivered. I explained exactly how to do that. Hopefully, I also explained the difference between “people” and “serious, active distributor.”

MLM Start Ups: Are They Strangling The Industry

By Len Clements © 1995

In Economics 101, they teach you about one of the most basic principles of economics — supply and demand. Here’s a little economics lesson as it pertains to MLM. I promise I won’t bore you.

A little over four years ago I did a survey of MLM companies to try to determine the true number of MLM distributors in the U.S. I came up with 6.1-million, and I counted a lot of people twice, I’m sure. About six months ago I did another rough count and came up with 6.5-million. A 6.6% increase. However, the estimated number of MLM companies went from around 200 to 350. A 75% increase! The result? The average downline decreased in size by 39%.

For most of 1992 to early 1994 I offered my services as an MLM consultant, specializing in comp plan design. Most of my 13 clients have been start ups. I no longer offer that service, except for casual phone consultation. And even then, I play the role of Devil’s Advocate almost exclusively. You see, I can no longer in good conscience support or assist people who are about to add more to the supply of MLM opportunities in an industry where the supply is already far outstripping the demand.

MLM Veteran Art Meakin once suggested to me that the minimum number of distributors necessary to maintain an MLM operation on a base level (just keep them in business) was about 4,000. I concur with that number. So far, in the first 17 days of 1995, I have also been in contact, directly or indirectly, with about 12 MLM companies who plan to launch this year. And again, I’m not even close to being one of the major players in the MLM start up consulting business. I expect the Alf Whites, Debbie Ballards and Doris Woods of the industry are getting many times more business in this area than I am (especially Debbie, since that’s where I’m referring everybody). So it looks like if I were to estimate that 400 companies will try to launch this year, I might be a bit conservative (like, triple that maybe). So if those 400 companies need at least 4,000 distributors, they will need 1.6-million new distributors to join MLM this year just to barely survive. Let me put this in perspective.

There are 2,000 people laid off from their jobs each day in this country. Even if that number were to double, and every single oneof them were to join one of those 400 new MLM companies, every single day of the year, we would still need to find another 140,000 new distributors just to keep those companies in business — and that’s not even counting what we’ll need to replace all of those who leave the existing 350 companies, let alone allow them to grow.

It pains me to say this, but the estimated number of distributors in MLM was also 6.5-million last year. In fact, I suspect this industry may have suffered a slight net loss in 1994. Every year for the past several years there’s always been one or two major forces in MLM that successfully bring in tons of fresh blood in to the industry. Nu Skin in 1991. Melaleuca in 1992. Quorum in 1993. And there were others. But who in 1994? Kaire boasted big numbers, but that’s all they were — numbers. They did well in ’94, but not 120,000-plus as they claim. Alliance USA started off with an explosion — but blew up later in the year. USANA also did well in ’94, but considering the murderer’s row they’ve got for a line up (Allen, Tracy, Waitley, et. al.) they should be approaching 100,000 distributors by now.

Why didn’t it happen? Why was there no blockbuster company in 1994?

Instead, we saw past powerhouses like Matol and Quorum take major hits. Up-and-comers like Vaxa and Reliv have stumbled as well. Perhaps the hottest property of 1994 was a blatant money game called Marathon!

Nope, 1994 was not a great year for MLM.

So… Let’s throw in another 400 more companies and spread those 6.5-million distributors even thinner. That should help.

But seriously. What’s the answer?

If it’s done right, 1995 has the potential to be one of the greatest years in MLM history. This will be network marketing’s Golden Anniversary. When will we ever have a better chance to receive positive recognition from the media and expose the good side of this industry to the masses? Hopefully massive numbers of those masses will join us en masse. We’re going to need them.

When I broached the subject of more tangible solutions several issues ago, I suggested there should be some kind of regulation of the number of MLM companies. Imagine — if there were half as many companies the average downline would be twice as big. Or at least some strenuous screening process. Or how about requiring a $50,000 bond? That should take out the garbage.

When I first made these suggestions I caught some heat for being un-American. It was all a restriction of free trade. Fine. You can restrict it and thrive, or expand it and dive. We could constitutionally right ourselves right out of a business.

But it’ll never happen, of course. So it’s a mute point. We will continue to see ads telling us to stop wasting our time with “penny ante deal” and start our own MLM companies (because they “always make money”) for as long as there’s MLM publications that will take their money. And disgruntled, unsuccessful MLM distributors will continue to buy into the pitch and start MLM companies from their kitchen table. And large numbers of MLM companies will continue to launch with no clue as to what’s required to be legally set up in all 50 states — thus be operating illegally.

Why be an MLM company owner anyway? The whole beauty of network marketing was that you could start your own businesswithout all the headaches and challenges faced by most conventional company owners. No payroll taxes, no legal hassles, no office to staff, no product development, etc.. As an MLM company owner, you not only have to perform all the same chores as any other company owner, but you have twice as much to worry about!

The typical employee-company relationship is one where the employee relies on the company for their livelihood. They can’t just pick up and leave and go get another job anyplace they want. That’s not the case in MLM. The company relies on the distributor! And most distributors know it. If things aren’t perfect, your “employees” just might take one of those other ten job offers they’re getting every day. Imagine the pressure on the company.

I wouldn’t take the job of any MLM company president in this industry for any price. Well, hold on. Let’s not get carried away. Okay, it would have to be an awful lot.

And if I did ever start my own company, it would have a full-blown computer system with all the bells and whistles in place from day one, a full stock of inventory of at least 25 quality products — and a million bucks in the bank!

One company that tried to launch recently didn’t even have a computer. They were keeping track of their company genealogy with a big chart on the wall!

So what drives so many people, mainly ex-distributors, to want to start their own MLM companies? It can’t be the income. Many network marketers make far more than the owners of their company do. The income potential is at least equal. Perhaps it’s the idea that nobody is doing it right and they can do it better. Everybody believes they can create the “perfect” MLM company. Well, there are 275-million people in this country, so unless you want to start up 275-million MLM companies, it isn’t going to be “perfect” to everybody.

I think it’s the illusion that it’s so “easy” to start and run your own MLM company. Hey, just get some good software, whip up a few products, distributors run to you in droves and you’re rich!

Folks, do what I did. Before you ever decide to run your own MLM company, work out of the home office of one for just one month. The fantasy that this business is easy will be blasted from your mind with the force of a twenty-megaton thermonuclear explosion.

Unfortunately, very few distributors ever really get to see the inside of an MLM operation.

And apparently even fewer of them took Economics 101.

“How Much Money Are You Making?”

And Other Completely Useless Questions

By Len Clements © 1998

In doing one’s due diligence of an MLM opportunity, there are a variety of very good, significant, revealing, and extremely important questions you should ask. Many articles, books, and tapes have been produced describing what, how and to whom you should ask these questions. But, what about the flip-side? There are, I believe, about as many totally useless, meaningless questions that provide little or no benefit to the prospective distributor. In fact, some of these often asked questions can even leave you open to deceptions and hype that otherwise may not have entered into the presentation.
Here are a few of my biggest “peeve questions:”

“Is your company debt free?”

I usually respond by saying, “Yes, if you don’t count all the things they owe money for.” You see, no MLM operation is truly debt free. Think about this. From even the most basic accounting stand pointaccrued commissions owed is a debt, is it not? Personally, I want the company I represent to have a HUGE amount of this debt! There’s also the possibility that a company is “debt free” because they can’t qualify for credit! It’s easy to be debt free when no one will loan you money. Also, consider what is involved with keeping up with a company’s growth curve. The difference between “keeping up” and “catching up” in this industry is usually the difference between life and death from a corporate stand point. If an MLM company gets even one month behind the growth curve it can be like letting go of the reigns of a wild horse. Forget it — it’s gone. How many times have we heard (or experienced) an MLM program where they have 1,000 reps one month, 2,000 the next, 3,000 the next, them boom — 30,000 the next. Followed by, of course, the inevitable and now cliche’ “growing pains” excuse. One very good reason the company is having these growing pains might be because they refused (or were unable) to take on some debt! Again, think about it. How would a company stay ahead of a potential 1,000% growth increase like the one just described? By installingmore phone lines than they currently need. By paying for moresophisticated computer software, and buying more hardware than they currently need or use. By occupying more office and warehouse space than is currently required. By maintaining moreinventory of product than they are currently moving. And how does an MLM company do this? By having a huge financial reserve or really deep pockets (as some, but not most, do) or — by accumulating some amount of debt! So, a company that claims to be “debt free” might actually be admitting that they are not positioned for significant, fast growth. Besides, since when does “debt” mean a business is not solvent and profitable? I’ve owned two very profitable businesses in my life (non-MLM) and both carried debt. It’s the amount of debt that counts. The simple fact that you do or don’t have it (or at least claim to not have it) is meaningless.

“Does your company manufacture its own products?”

There is really only one major advantage to an MLM company manufacturing their own products — one less middle man, thus usually a lower cost of products. But, of course, when an MLM company that manufactures its own products marks them up 900% so they can afford to pay out “The most lucrative compensation plan in MLM history,” well, the advantage is made pretty moot. Not only that, but several non-product manufacturing companies have reasonably priced products that are competitive with product producing companies. Personally, I’ve noticed very little difference in pricing between producers and non-producers.

Recently, I even had a prospect suggest that a competitor had “higher quality” products because they manufactured their own. Actually, it’s quite rare that an MLM company is also the manufacturing company. Usually, there is a separate product manufacturer which also happens to own an MLM company (or visa versa). Well, if a company that does not manufacture their own products were to be purchased by (or purchase a part of) their product manufacturer, how does that cause the quality of the products to increase?

The far better question might be, “Who formulates your products?” In other words, was their some real science, some real thought, put into these products, or were they simply whipped up and ranked out, with only token formulations, just so the company had some products to sell. Which is, I believe, the case with the majority of MLM product companies today. (I know I’m starting to sound real cynical. But believe me, I’ve earned the attitude.)

“Who manufactures your products?”

The reason I hate this one is twofold. First, I don’t know the answer. The vast majority of MLM companies do not reveal this information. No, not because there’s anything to hide, but simply because the product manufacturer demanded it! They really don’t want to be deluged with visits and telephone inquiries from hundreds, perhaps thousands of MLMers. Also, some manufacturers private label for more than one MLM company. Although the formulations could be vastly different, the perception might be that all the products are basically the same. The second reason I hate this question is because even if I did provide an answer it would likely be meaningless to the prospect. Okay, so I tell them the company is called American Diversified Products, Inc. So what? Now what are they going to do with that information. Either nothing, or start bugging ADP, Inc.

“Do your products work? How effective are they?”

Can you imagine someone answering this question by saying, “No, they don’t really work. They don’t have any effect on anyone.” Come on. This is a time waster question. Of course the distributor is going to tell you their products work! Personally, my product pitch is very simple. I can spend hours talking about the famous doctors and nutritional experts that developed the products and list all their credentials, I can tell stories about the history of the products and all the exotic locations around the word where we get our ingredients, I can get technical and go into all the stuff that happens in your body, on a cellular level, when you take the products, I can recite glowing testimonials relating all the miraculous results other people are getting, and blah, blah, blah, blah, blah… and then you try the products and they don’t work — you ain’t gonna’ buy ’em! But, if I tell you I don’t know a darn thing about these products, and you try them and get these “life changing” results we keep hearing about — you are going to be a customer of that product for life! The bottom line is that no MLM product is going to work for every single person. What it does for other people is irrelevant. There’s only one way that you, and all your prospects and customers, can know for sure if a product is genuinely effective. You’ve got to get it, but it on or in your body, and it works or it doesn’t work. Period.

“Do you really think this company is going to last?”

This question I don’t mind so much. It’s kind of like the question, “Can I really make money in this business?” It’s very unlikely that anyone in the 50 year history of network marketing has ever answered these two questions with a “No.” And if they did, their honesty level is probably about as high as their MLM income is low.

What the above two questions are really asking is, “How do youknow this is true?” They’re saying to you, “Convince me I shouldn’t be concerned — because I am.” This is a meaningless question only on the surface. Don’t blow it off with a simple “Oh sure, absolutely!” Give it some meaning.

“Is your company publicly traded?”

For most MLM companies, going public can be a blessing or a curse. Sure, it’s great to have a massive influx of cash to fund product development and foreign expansion, which is the explanation alwaysgiven for taking this action. But, how do we really know for sure what the motive was? Most companies don’t openly admit, “We’re going public because we need the money to survive.” But this is certainly the motive in at least some cases.

Also, a public company reduces the control and influence previously held by the owners. If the shareholders decide they don’t want to have their funds invested in one of those “pyramid deals,” they might have the power to change the company’s direction. Now, understand, this hasn’t happened yet, as far as I’m aware. But it certainly could happen, especially when a non-MLM public company purchases a privately held MLM company.

Finally, and most importantly, you have to open your books to the world. Sure, that works in your favor when things are going great. But when you have a bad quarter and sales drop 10%, which isnever suppose to happen to a geometrically progressing, right-before-momentum network marketing company (which is, like, all of them, right?!), what happens? Well, being the somewhat paranoid, fickle, flighty bunch of people that we are (MLMers in general, that is), the distributors get very nervous and confidence drops. Thus creating another bad quarter, and even less confidence and more nervousness.

When you’re looking good, going public makes you look great. But when you start looking ugly, going public means you can’t were makeup.

“What kind of comp plan is it?”

In no way is this a bad question unless the answer immediately determines your final decision. In other words, if you want to know if the company uses a break-away plan because you are avoiding ALL break-away plans, you might be missing out on some excellent opportunities. Same thing goes for those who are only looking for a certain type of plan. Some people will only consider unilevels. Some absolutely have to join a binary, while others unilaterally avoid them. This is kind of like a guy who likes brunettes refusing to date blondes. When you’re looking for an MLM program to create a relationship with, there are a LOT of other things to consider besides this one aspect. For example, I personally don’t like binaries. I swore I’d never join one — yet today I’m in a binary program. It’s not the plan type that matters, it’s what the company does with it! There are good and bad plans in every category and no MLM program should be immediately dismissed based solely on the compensation plan category (well, except for Australian 2-ups, or any variation there of — which have had literally a 100% failure rate throughout the entire history of MLM).

“How many distributors does your company have?”

The main reason I hate this question is because I’m always afraid that my truths won’t compete with somebody else’s hype. This industry is so full of semantic game playing and data torturing that you really put yourself at a marketing disadvantage by being honest and factual. While you might claim your company has 20,000 distributors, based on the actual number of active, individual people who are currently ordering product, the next guy is likely to answer the same question by siting how many sequential ID numbers his company has given out in their ten year history (which might be 500,000, even though only 15,000 are currently still working the business). Or, they might site the number of “Income Centers” assigned in their binary plan, which is usually 3 to 5 times the number of actual people in the program (many prepaid calling card companies are practicing this like crazy right now). Besides, what does the answer to this question really mean? Isn’t the number given more of an indication of how long the company has been in business? If you were to have asked that question to an Amway distributor back in 1959 they would have given you a really small number. And if you had joined back then you’d probably be reading this from the seat of your private Lear Jet right now.

“How much money are you making?”

I really, really hate this question! (And no, not because I don’t make a lot of money in this business. I’m doing just fine, thank you).

To begin with, I think that this should be just as rude a question as it is in any other form of occupation. Imagine that question being asked of a doctor, a lawyer, a grocery store clerk, or whom ever. Only in network marketing is this considered an acceptable question. It’s not, folks. It’s no less private an issue as it is in any other business.

Another reason you should not ask this question is because the answer may possibly be considered illegal. There is much precedent to show that siting specific incomes, whether in writing or verbally, or even making income projections, may be considered misleading or deceptive by various regulatory agencies unless you also state what percentage of all distributors are also earning that income, and what the “average” distributor is earning within your geographic area. This is, of course, information few distributors possess, nor would they want to divulge.

There are also so many ways for the answer to be technically true, but not totally. If you ask for the monthly income figure of a prospective sponsor and he says $25,000, how do you know what his “net” is? What if he had to spend $25,000 to earn it? Could you duplicate that? Or, how do you know if this income was created by him moving a large downline over from another company? Could you duplicate that? Or, how do you know how much of that income came from books, tapes, and other promotional material they sold to their downline? How do you know he didn’t earn $50,000 the month before, and $90,000 the month before that? On it’s own, 25k per month sounds pretty good, but placed in this perspective it now appears as if the organization is falling apart! How do you know how the income is being distributed? What if the company paid $25,000 to ten distributors, and thousands of others earned nothing? What if 90% of all the distributors were earning at least something, and this $25,000 earner was only “average” for the company? (Both scenarios are intentionally exaggerated to emphasize the point).

Finally, and most of all, the question has little or no barring what-so-ever as to how well the compensation plan pays or how good a network marketer you are. Much like the “how many distributors” question, your answer is more a gauge of how long you’ve been working that particular opportunity. The answer is also greatly effected by how much effort you are putting into the business and the caliber of talent in your downline. Had you asked the wealthiest, most successful network marketer in the country how much money he or she was earning the day after they had signed their distributor application they would have had to answered “nothing.” Does that mean he or she is not a good network marketer or their compensation plan doesn’t pay well? Obviously it doesn’t. On the other hand, some of the wealthiest people in this business are working with compensation plans that are not at all the highest paying — but they’ve been working them for ten or twenty years.

A better question might be, How much do you want to earn, and what are you going to do to earn it. How much your sponsor earns doesn’t count. You can’t buy groceries with your upline’s money.

Downline Pirates: The Scourge of the Industry

By Len Clements © 1999

Your friend is in a multi-level marketing program. They are dissatisfied. They jumped into the first program they ever saw, and had no idea what they were really getting into. They still believe in MLM, just maybe not in this particular product or program. They’re looking for something else. Knowing you are also involved in MLM, they may even ask you for a recommendation. Naturally, you tell them about your program. They like what they hear — and they join.

You are NOT a Downline Pirate!

The picture I am about to paint of these unscrupulous individuals is not going to be a pretty one. Before brush hits canvas, I wanted to make clear that everyone who has ever pitched their MLM program to an active distributor is not necessarily a Downline Pirate. Your prospect could be currently involved in a blatant money game or quasi-pyramid scheme and you only intended to show them the more honest side of the industry. Perhaps you were offering a complementary program to go along with their primary program. There are a few (only a few) valid excuses for enticing current MLMers into your program.

After the painting is done, scan it carefully. Only you can judge wether you are the viewer — or the subject.

My first experience with a Downline Pirate came in 1979. He was the worst kind. The kind that tries to rob you from your upline into theirs — in the same program! I experienced decent success in that program fairly quickly, and soon realized I was now choice meat. Not only did distributors from other companies covet my services (they were usually ex-distributors from my program, or strangers waiting outside our meetings [yes, even back then]), but this one guy even tried to get me to join his downline under a false name (my girlfriend’s), and discretely abandon my existing organization.

Despite the fact he had one of the largest organizations in the company (no doubt filled with shanghaied distributors from my organization), after the company folded he was never heard from again. Ever.

About three years ago, I came across a man in Southern California who responded to a classified ad my business partner had placed for his MLM opportunity. This prospect seemed genuinely eager to receive more information, and came across as very sincere. After sending him a package of information, he called my partner only to pitch him on his program. The brochures and video my partner send were waisted.

Already being in an investigative mode at the time, I sent this gentleman a box filled with literature, an assortment of company brochures, many product samples, and two videos. I included a cover letter specifically requesting the return of the videos, and even included return postage. Total cost: $18.00.

Sure enough, he calls me to tell me why his program is so much better, and tries to get me to switch. During a short “discussion” regarding his tactics, this jerk actually told me I was out of line for being so bent out of shape, and that I should consider my $18.00 loss as a “cost of doing business”. He went on to admit he receives “three or four” such packages a day, and that he has his office staff “trash” them.

Unfortunately, the conversation didn’t last long enough for me to find out if he had “trashed” the $2.90 for postage.

I recently came across a situation where a man described as a “real MLM pro” has been responding to generic ads placed by MLM lead generation services for the purpose of getting his name sent out to subscribers of the service. This “pro” doesn’t even have to go out and find his victims — now they call him! I though “pro” was short for professional?

Just today I talked to a woman who told me about her experience with sending out a postcard promoting her program to an “MLM enthusiast” mailing list. She sent 1,000. She claims she received two responses for more information — and 40 pitches on other programs!

Again and again I see information sheets that are designed specifically to recruit people from one program into another. There is always the side-by-side comparison of the comp plan, and occasionally even a comparison of products. Law suits have been filed recently alleging that mass corporate endorsed pirating is taking place as well.

So who is a Downline Pirate? Why do they do what they do? What are the repercussions?

First and foremost, a Downline Pirate is L-A-Z-E-Y!

Some of you may recall our F&M column of 6/91 titled The ABC Technique which describes the three parts of the recruiting process. First, you must open the prospects mind to getting involved in their own business. Second, once opened, you must first remove any preconceived ideas the prospect may have regarding MLM specifically. By step three, the prospect should be much more receptive to hearing about your actually opportunity. To some extent or another, you must always work through these three stages. And the first two may require the most work of all — unless of course, someone has already done the work for you!

A Downline Pirate is a COWARD!

One of the hardest parts about this business is either finding people who are interested in MLM, or interesting them in it. This process may involve a lot of rejection, and perhaps even ridicule. Let’s face it. It’s real easy to find people who are already interested in MLM — in someone else’s downline.

A Downline Pirate is NAIVE!

Anyone who thinks they can build a successful organization by loading it up with people who are willing to move over based on a better pitch is in for a first class education on attrition. Why do they think they are the only Downline Pirate out there? Don’t they realize their people are going to eventually get pitched by someone else? What do you think they’re going to do the first time another “better” opportunity comes along? That’s right. Poof!

Downline Pirates just can’t seem to understand that the only people they really want from that other program, are the ones that won’t switch! The serious, committed people are — committed.

A Downline Pirate is a HYPOCRITE!

The same clown who spent days hyping all the reasons why you should change programs will inevitably preach to you about loyalty, commitment and long term vision — the moment someone tries to pirate you away from them.

A Downline Pirate is a SUCCESS PIRATE!

Not only does stealing someone’s downline reduce their chances for success, but they may be setting back the pirated distributor as well. Every downline organization, if worked consistently, will eventually take on a momentum phase much like an MLM company. Remember, if you recruited just one person a month, and 40% a month did nothing and dropped out, and the other 60% did no better than you, you would have only about 40 people in your downline after one year — and over 10,000 half way through your fourth.

Every time you switch to another program, you start over on the time-line. As long as you keep switching, you’ll never get to the point where geometric progression kicks in, no matter how many you recruit personally. Downline Pirates are doing you no favors!

They aren’t doing the industry any favors either. MLM needs new blood. We must increase our numbers by attracting more professional people from outside our little world. The timing has never been better for America to discover, en masse, the value of what MLM has to offer this country. One of the reasons why it just hasn’t happened (yet) might be the way this industry feeds on itself. We, in general, seem content to just keep recycling the same people over and over and over, until they drop out. For the most part, those entering MLM for the first time just enter the same cycle along with everybody else. And the number of new people coming in isn’t exceeding those going out by much. Sure, we’ve seen the number of MLM participants increase by five times what it was ten years ago. But this isn’t really impressive at all considering the state of our economy and what MLM has to offer it, the immense size of the untapped market of prospects, and good ol’ geometric progression. Consider this: over the same ten year period, the number of people operating home-based business has increased by over twenty times!

From my own experience, I can tell you that the reason why all these tens-of-millions of new home-based entrepreneurs haven’t chosen MLM as their vehicle is not due to just skepticism — they don’t know about it!

In my daily life I come across many people who are not only not involved in MLM, they are completely oblivious to it. I don’t mean they don’t understand it, or know of only Amway and Mary Kay, I mean they literally never heard of it! How can this be? There are 6-million people out there promoting their opportunities with the most powerful form of advertising available. The spoken word! And they’ve been doing it for decades. Maybe it’s because so many of them are only speaking to each other!

A Downline Pirate is UNETHICAL!

Some may argue that MLM distributors are free agents. They are free to take, and be offered, a better deal. It could be said that corporate headhunters “pirate” employees from their companies all the time. Why should MLM be any different? Considering distributors are independent contractors, it should be even more acceptable, shouldn’t it? Let’s not forget the differences between MLM and the corporate structure. If you quit your job to take a position with another company, the company simply replaces you. Your departure would most likely have little or no effect on your boss’ income, or his boss above him, or her boss above her. In MLM, when you pirate a distributor away from another downline, you’re essentially stealing money from their upline. You may very well be directly impacting their sponsor’s ability to earn a livelihood, and their sponsor’s sponsor as well. Okay, sure. It may be legal. But having a right to do something doesn’t necessarily make it right.

A Downline Pirate is a LOUSY MENTOR!

This is a business of duplication. You do what successful distributors before you have done. A Downline Pirate who raids other people’s organizations my appear to be a successful recruiter to their downline. Their downline may even take on the role of Downline Pirate by example, even without the encouragement of their pirate sponsor. Pirating breeds more pirating.

A Downline Pirate is DOOMED TO FAIL!

I’ve never seen a single example of a downline build by picking the fruit of other people’s labor that has endured. Their “tree” may grow for a short time, but inevitably the harvester of this fallen or ripened fruit is provided sustenance for only a short time. After the fruit has gone sour or been devoured, there’s nothing left. And the pirate is off to harvest more.

Successful organizations have roots. They are primarily based on seeding, nurturing and growth. A picked long-stem rose will only last so long in water — a rose bush will create beauty forever if properly cared for.

Again, I must reiterate: Just because you’ve sent postcards to an “MLM enthusiasts” mailing list, or advertised in an MLM trade publication which is read primarily by people already in MLM, doesn’t necessarily mean you are a Downline Pirate. Many of these people are still in the searching stage, and there will always be a high percentage of those that are already in MLM whole are in transition — by there own accord. We’re talking about the careerpirate here. The jerks who feed exclusively, or at least primarily, on other people’s organizations. The guy who is always looking to go one-on-one with anybody he can, to try to talk them out of their program (any way he can) and into his (or hers).

So the picture has been painted. Look at it carefully. Do you see a depiction of what is wrong with this industry? Is it an illustration of what to avoid? An image of what to not be a victim of? For some of you, it may still appear to be nothing more than a white canvas, garnering no reaction at all. To still others — it’s a self portrait.

Pyramid, Ponzi, and Investment Schemes

Is One Hiding Behind Your MLM Program?

By Len Clements © 

Pyramid, Ponzi and investment schemes disguised as legitimate MLM programs continue to flood the U.S. market. But unlike their predecessors, they’re hiding their true nature better than ever. Many quasi-pyramids and money games today are taking great advantage of the ignorance of most people as to what constitutes an illegal pyramid. Please understand, I do not use the term “ignorance” derogatorily. The term comes from the word “ignore” and many of us are simply ignoring a few basic, simple facts that make up a composite of a typical pyramid or other such scheme. Also, understand that I am not an attorney, an attorney general, or a postal inspector. But I know what questions they ask – and so should you! Also, as I describe the legal definitions of these various kinds of schemes I’m going to use plain English. For example, where the proper legal language might refer to the payment of “consideration,” that being anything from gold dust to chickens, I’m going to assume that it’s safe to just say money. If you want all the verbose legalese, call a lawyer.

Let’s start with the ol’ classic – the Pyramid Scheme.

By definition, a Pyramid Scheme is one where there is some kind of direct financial reward for the act of recruiting another person into the scheme. A blatant pyramid scheme would involve no product at all. You simply pay a chunk of cash to play, and hope you recruit enough others to cash out, usually for several times what you originally invested.The roots of most pyramid/MLM law is founded on the Amway vs. FTC decision in 1979. Perhaps the single most defining characteristic of a legal network marketing company vs. an illegal pyramid scheme came from these hearings. Essentially, the question was asked… “Can the last person in still make money?”

Obviously, the last person in a pyramid scheme will never make a dime. But if you were the very last person to ever sign up as a distributor for Amway, or any number of other legal MLM operations, could you still make money? Of course. By buying the product at wholesale and selling it at retail. The last person in, with no recruiting, can still make money.

If you were the last person to sign up in your MLM program, could you reasonable expect to be able to mark up the product or service and resell it to an end user? That is, someone who only wants the product or service? Are you, and your downline distributors buying the products because you genuinely want them, or are most of the distributors making token purchases simply to satisfy a quota in the compensation plan? Having real products of value to an end user is a key element of a legal MLM enterprise.

Having said that, one of the most common, and least accurate questions you can ask in determining if something’s a pyramid scheme is simply asking, “Is there a product.” Almost every pyramid out there today has thrown in some kind of token product knowing you’ll ask that question. Some extremists will go so far as to tell us that the “service” they provide in exchange for your fee is their administration of the intake and outgo of cash. Some will claim you are paying to have your name added to a mailing list. Of course, the typical chain letter leads you to believe you are paying for a report of some kind. However, there are literally dozens of schemes out there that are not nearly as obvious. Some offer what appears to be an abundance of bona fide, tangible products. But again, the focus should be on value and motive.

One of the best examples I can recall was a program called The Ultimate Money Machine. For $350.00 you were to receive such items as luggage, a 35mm camera, and a seminar on cassette tape valued at, of course, hundreds of dollars. Well, the camera was a cheap, plastic job that probably had a value of less than $10.00, and the luggage you unrolled from a tube. Total cost to the company forall of these products was probably less than twenty bucks!

A program called Euro-Round required a $100.00 payment in exchange for nothing. Later, to “make the program legal,” they added a little book.

Schemes like Investor’s International, CommonWealth, Global Prosperity, Delphin, and it’s various other incarnations, would have you buy some literature and a few cassette tapes, with a material cost of around ten to twenty bucks, for usually about $1,250. There rationalization is that “Information is priceless!” Okay. Let’s (reluctantly) give them that. But such schemes usually withhold a larger and larger portion of your income to qualify you in subsequent stages, or cycles, and these funds are allegedly for the purchase of, usually, a live seminar on some Caribbean island. At the top stage you might end up paying as much as $100,000 for a seven day seminar in Belieze. It better be catered!

A few companies today still offer product vouchers or certificates that can be spent on items out of a catalog or from various local merchants. They are actually only offering the funds to purchase these products. There is usually a commission paid once the certificate is purchased, even if it is never redeemed. The result? Nothing but paper, most of it cash, being exchanged. There is a great deal of recent legal precedent in this area. The upline shouldnever be paid out of any kind of down payment, layaway, voucher purchase, or any other similar transaction that does not involve an immediate acquisition of a product or service of value. In other words, no one should get paid until an actual product gets shipped.

As to “motive,” again, are you and others buying the product because you want that product or can sell that product, or are you buying it because you have to to make money? For example, if a company pays commissions on sales aids or distributor training, which several are doing as of this writing, this creates a legal vulnerability. Obviously, you can’t mark up a product brochure, distributor manual, or distributor training course, and resell it to someone who’s not a distributor. Obviously, you would never have purchased any of these items if you weren’t a distributor yourself. These are sources of income that can only be derived from recruiting because recruits are the only ones that would ever purchase them.

So don’t just ask if there is a product involved. Question whether the product is even close to being worth the overall price paid. You don’t have to be an economics genius to know the answer. Just ask yourself this question: “Would anyone realistically ever purchase this product or service without participating in the income opportunity?” Thousands of people purchase products from such companies as Nu Skin, Watkins, Herbalife and Amway every day without becoming distributors. They just want the product. This is true for most of the MLM companies out there. But certainly not all.

So, now how exciting is that big ad you just saw that boasted “NO SELLING!” Consider it a big red flag.

Now let’s discuss Ponzi Schemes.

First of all, no, a Ponzi is not the same thing as a Pyramid, although Ponzis are often referred to as a pyramid. In a pyramid scheme, you pay in X, the pyramid promoters keep, let’s say, 20% of X and use the other 80% to pay all those who “cash out.” Not unlike legitimate MLM operations, a distributor can earn far in excess of what they personally paid in, but the MLM company itself never pays out much more than 40-50% of every wholesale dollar that comes in.

In a Ponzi scheme, you pay X to the promoter who promises that you will receive a certain specific return, say 2X (twice your investment) back in a few days. The promoter accomplishes this by finding another sucker who’ll buy into the same promise, and he then uses the second suckers investment to pay off the first’s.

As an example, let’s use Carlo Ponzi himself. Back in the early 1920’s, Ponzi offered a $1,500 return on a $1,000 investment. When sucker A paid him $1,000, he then got sucker B to believe the same pitch and invest another $1,000, then took $500 from B’s money to add to A’s original investment, and paid A back his $1,500! Of course, a modest “service charge” was retained by Ponzi. With only $500 of B’s investment still in hand, Ponzi now needed to find sucker C so he’d have another $1,000 to add to the $500 he already had, and then pay sucker B his promised $1,500. Now, he had to find yet two more suckers to have the funds to pay off sucker C. And so on, and so on.

Ponzi accumulated millions. He died a penniless ex-con.

Ask yourself this question about the program you are evaluating: “If all recruiting stopped today, would this company still be able to pay monthly commissions in the months ahead?” Although there may be no pyramidal hierarchy involved, a Ponzi Scheme does involve the need for a never ending flow of new participants making the initial investment. This also falls, once again, on the value of the products. If not one new person is ever again enrolled as a distributor, could sales volume realistically continue to move through the organization?

But there’s more to consider. Let’s say a company has great products that people love and would continue to purchase even if they didn’t make money. However, for every wholesale dollar they pay to the company, the company pays $1.05 back to the distributor force in commissions and bonuses. In other words, their compensation plan has a 105% pay out! Technically, if they really did pay out more than 100%, this would be a Ponzi Scheme. The company must sell one more product to be able to cover the compensation for the previous sale (otherwise, they’d be 5 cents short). And there are a number of MLM deals today that claim to have such exorbitant pay outs. In reality they most likely do not. Probably not even close. For example, one MLM program claims a 112% pay out, but the percentage is based on the point value of each product (called BV, or Bonus Value), not on the actually dollar amount – and the BVs average about 68% of wholesale dollars. Another company promotes a 109% pay out, but usually forgets to mention their 75% BV ratio, and the fact that the 60% they pay on the first two levels (15% and 45% respectively) is only on the first $300 purchased by each distributor during the month. The pay 5% on all the volume over that. Yet another company claims a pay out that actually exceeds 200%! The catch is, they pay a higher percentage on those you personally sponsor, and the pay out they display in their ads is based on the wholly absurd scenario that every single person in your downline is personally sponsored.

So, just because someone says they pay out more that they take in (over 100%), doesn’t necessarily mean they are running a Ponzi Scheme. There’s very likely a catch. Still, considering state and Federal regulator’s penchant for taking on a guilty ’till proven innocent attitude (they attack first and ask questions later), I’m curious as to why these companies would want to even create theillusion that they are paying out more than 100%. Why would they even want to pretend they are a Ponzi Scheme?

Lastly, let’s discuss “Investment” Schemes.

The three regulatory agencies we need to be concerned with the most, from an MLM opportunity stand point, are the Federal Trade Commission (FTC), Food & Drug Administration (FDA), and the often underconsidered Securities & Exchange Commission (SEC). From a personal, independent contractor stand point, you have the IRS to worry about as well. But that’s another article. You’ll likely never have to contend with either the FBI or FCC – unless, of course, that “sense of well being” you get from your herbal product is derived from a South American poppy, or you enroll Howard Stern as a distributor.

Getting back to the SEC…

“Securities” are basically things you invest money in, like stocks, bonds, mutual funds, commodities, and so on. You have to register the securities you sell with the SEC and you have to have a license to sell them. Skip either step and you might be going away for a little while.

In 1946 (as part of the SEC vs. W.J. Howey Co. decision) the Supreme Court defined an investment contract as one where “…the scheme involves an investment in a common enterprise with profits to come solely from the efforts of others.” (The word “scheme” is used here, and throughout this paragraph, in a basic, non-derogatory sense). So, there’s three things to consider: First, is there money being paid into the scheme (an investment)? Second, are there a lot of other people paying money into the same scheme (a common enterprise)? Note that, so far, every MLM operation appears to meet the first two criteria. But the third test is where we depart, or should depart, from a security – is the money you make from the scheme derived “solely from the efforts of others?” Well, I don’t know about you, but I work my tail off about 50 hours a week building and managing my downline! Sure, your time investment ideally forms a bell shaped curve (part time, then full time, then eventually back to part time), but there should always be a mandatory effort on your part to build, manage and support your organization.

This, of course, does not bode well for schemes (I’m using the negative connotation now) where you pay a “downline building service” to build your downline for you. It appears to be undebatable that all three aspects of the “Howey test” apply to such a deal. You pay money to the same promoter that many others are, and they openly promise to do all the work for you and you simply sit back and cash the checks. No, there has not been a lot of legal action against such schemes because, well, they have a 100% failure rate all on there own!

In closing, I want to make it clear that this article is not necessarily based on the author’s opinion of the way it should be. Much of this discussion is based on years of precedent, not just my laymen’s interpretation of the law. It’s simply the way it is. For the record, I am a Libertarian. Personally, I believe we, as adults, should be allowed to do what ever we want with our own money as long as there is full disclosure and we are made aware of all the risks involved. We’re spending the half our government lets us keep. It’sour money! In fact, I’ll go so far as to say I personally feel pyramid schemes should be legal. Not providing full disclosure about the risks and lying about the potential benefits should be against the law – and, in fact, already are! If all this information is provided, then we should have the right to be stupid with our own money.

Having said that, rules are rules. And until someone changes them, we’ve got to play by them.

My soap box is cracking. I’ll step down now.

MLM Products: Shouldn’t We Be Ashamed?

By Len Clements (c) 2001

Once upon a time, one of the greatest bragging rights of most all network marketers was the superiority of our products. The theory gos: MLM operations don’t have huge advertising and marketing budgets, so they can afford to pump a lot more dollars into developing their products. They also, again in theory, are afforded a greater margin thus lower priced products than comparable items sold through conventional means.

So much for that theory.

In reality, there is rampant inflation in this industry. Product pricing is spiraling out of control, and has for most of the decade. This is likely due to the massive influx of MLM opportunities into an already over saturated market. As the existing distributor pool continues to be spread thinner and thinner, most companies have chosen to compete for distributors by juicing up the numbers in their compensation plans. The bigger the pay out, the more distributors they will attract. One need only peruse any of the MLM trade publications and it will become glaringly obvious that the vast majority of MLM programs today compete by comparing the theoretic pay outs of their comp plans. And, sure enough, prospective distributors do migrate towards the program that promises the greatest income. After all, we aren’t doing this for our health. Are we?

So, as the percentage of each product sale that goes towards commissions increases, so must the margin between the company cost and wholesale. Thus, the wholesale and retail price of the product increases as well. And it’s been steadily increasing for fifty years, and skyrocketing the last five. Just take a look at the first MLM compensation plan back in 1945. It paid 3% down one generation! Most plans back in the 60’s paid overrides of around 15-20% down four or five generations. During the 80’s total pay outs of around 40% were common. I remember designing a unilevel plan back in 1991 that paid 7% down seven levels (49% maximum pay out) and being concerned that the 35-40% it would actually pay was too much. Today, that plan would be laughed at. Most compensation plans have theoretic maximum pay outs of 60-75% or more, and many actually pay somewhere in the neighborhood of 45-60%.

The result is an 8 ounce bottle of shampoo with a suggested retail price of $25.00! Nine to twelve dollars wholesale for shampoo is common place in this industry today. Of course, they all try to justify their pricing with the old “superior quality” routine. Hey, for $25.00 the stuff better not only clean my hair, it better soak into my brain and make me smarter. Or, how about a 1.5 ounce candy bar for $2.20 — wholesale! One Halloween and, boom, you’re wiped out. Or, how about a box of laundry detergent for $49.00? Oh, but it’s “concentrated” they’ll tell you. For that price, it better be so concentrated that not even light can escape from the box!

All of the above are real examples. To only a slightly lesser degree, the examples are endless. And we should be ashamed.

Not only are the prices of most MLM products getting ridiculous, so are the types of products. I mean, how many prepaid calling card companies do we need? Several companies now have gone so far as to not even offer a product. Instead they provide you with the fundsto purchase a wide array of products and services from third-party, non-related vendors (usually a catalog company of some kind). They then claim to be offering “thousands” of products and services. Uh uh. They are actually selling nothing but the opportunity to make money. The travel industry has been inundated with quasi-travel agents trying to get discounts by flashing laminated “independent outside travel agent” cards. The MLM industry was quick to jump into the foray in a big way. After all, imagine how much commission you could pay out (and profit you could make) by selling a $4.95 laminated card for $300-$500 per year! Yes, there are some legitimate travel deals out there that do offer a bona fide service, and a few are network marketed. A few. Most, however, are nothing more than “card mills.” Every month it seems we have some new gimmicky miracle product on the market. A few companies are, once again, offering a smoking cure (this is a fad that comes and goes every few years). Of course, if the product actually worked it would be front page news all over the world, the pharmaceutical industry would surely be trying to classify it as a drug, and the tobacco industry would be spending billions to debunk it.

Another company is selling a single product — an aphrodisiac based on green oats. This is the same ingredient that was the basis for a short lived fad back in the late 80’s, before the media began to report that it didn’t really work on men and gave many women headaches (which, of course, kind of defeats the whole purpose of the product).

Most recently there have been a wave of “fat sponge” products based on ground up crustacean shells. This ingredient was previously used to soak up oil spills and as an ingredient in hair conditioners. Very few formal studies have been done (that I know of, and I looked hard) on the long term results of ingesting this stuff in the body. In this case, only time will tell if we have another aminophyllin on our hands, which was an asthma medication found to reduce thigh circumference when applied regularly to the skin. Several MLM companies had heated battles over the rights to aminophyllin a couple year ago — which dissolved about the same time that many woman began reporting adverse reactions to the product.

One MLM company has devoted itself almost entirely to ridding us of parasites in our bodies. Their cassette tape which describes the benefits of their product is certainly compelling and moves a lot of product, I’m sure. Curiously, though, I’ve yet to speak to a single user of this product (and I’ve spoken with several) who didn’t have some variation of an “I passed an eight inch tape worm” story. I’ve even heard about one woman who claims she rubbed the product on her arm and eventually induced parasites to emerge from her skin! I mean, come on people.

Today, with the success of such tapes and the “parasite tape” and the “Dead Doctors tape” it was inevitable that more MLM companies would start to ask, “What kind of tape can we produce that will scare the hell out of people?” The result (and it’s only the beginning, folks) is a new product that will rid you of microscopic arachnids (spiders) in your bed. Something this companies tape claims we allhave! In fact, one part of the tape I listened to the doctor/speaker went so far as to claim that the feces from these little critters can account for “up to 10% of the total weight of your pillow!”

If the Cold War hadn’t ended, there would undoubtedly be some MLM company right now distributing tapes describing the great threat of Soviet nuclear weapons and the horrific effects of radiation poisoning — and the need to purchase their radiation testing product and/or bomb shelters. And I’m only exaggerating slightly.

Probably the most ridiculous MLM product I’ve seen yet was a set of shoe insoles that apply accupressure to key points on the bottom of your foot. This product was then suppose to make you healthier and even cure diseases.

It’s funny, in a strange sort of way, that for decades we have all been taught, over and over and over, to “duplicate what works… don’t reinvent the wheel… find out what your successful upline is doing and do the same thing.” Then, as soon as these same people go out and try to start their own MLM company, what’s the first thing they do? They try to come up with some gimmicky compensation plan no one has ever tried before and look for a product niche no one else is currently in! Folks, there is a fifty year history to network marketing. There is half a century of precedent to go by to help us determine what works in this business and what does not. And for fifty years, tangible, consumable products have worked and almost, but not quite, everything else has failed! Try to come up with a list of all the current MLM companies that do notoffer tangible, consumable products (i.e. skin & hair care, nutritional, home care, automotive, personal care, foods, etc.) that are at least three years old. I came up with fourteen (such as Primamerica, Discover Toys, Prepaid Legal, Jewelway, Excel, etc.). Just fourteen. Out of thousands and thousands of companies over the last fifty years. Fourteen! And don’t put NSA on your list. Over half their sales today is a nutritional drink. Quorum? No, they also added consumables to their line, as did Nikken and The People’s Network. Companies such as Personal Wealth Systems and American Benefits Plus tried to convert to a consumable product line just to survive (the former eventually merged with a product company, the latter became KaloVita, which also merged with a product company). Even Destiny Telecom won’t be eligible for the list in a couple years — they just added consumables to their line!

Personally, I believe that most MLM companies out there today were started by a group of people, usually ex-distributors, sitting around a table with the idea that they can make a lot of money by running their own MLM operation and asking the question, “Now, what can we sell?” The result is a hodgepodge of token products whipped up simply to support an MLM compensation plan. Think about it. Were there really hundreds of people out there who were into the pycnogenol/DHEA/Cats Claw/Colloidal Silver business who all decided to start an MLM company right about the same time? Come on. (To their credit, at least they were following the “duplicate what works” theory). Or, how about all these “lead generation” deals where you spend $100.00 per month for 500 names of “opportunity seekers” (which likely cost the company less than ten bucks). Oh, they claim they are generating their own leads with their own ads, but if they even get 1,000 people to join they are going to have to come up with half-a-million leads per month! Yes, some such services, such as Ad-Net and Pro-Step do offer a service of value, but most are simply using “leads” as an excuse to exchange cash.

These are all MLM programs for the sake of an MLM program. So many such companies today offer mundane, token products with basic formulations designed to keep production cost to a minimum and margins high — so they can pay out “the most lucrative compensation plan in the industry.” And their products are still twice the price of the stores!

What I wished more distributors understood was that the calculation to compute your commissions has a number on both sides of the multiplication sign. It’s V x P = C. Or, sales Volume times overridePercentage equals Commissions. In other words, PRODUCTS times COMP PLAN equals commissions. And it’s the product side of the equation that is as, if not more important in determining your income. I don’t care if a plan pays 10% down fifty levels — 500% of zero is zero! Any pay out multiplied by a small amount of volume is going to result in a small commission check. It’s the volume side of the equations that has an “unlimited” ceiling. It doesn’t matter what the percentages are, how many levels you’re paid, or even what type of plan you are working — you move enough volume through it and you are going to make money!

The point here is that when you price your products outrageously high to accommodate a higher pay out, guess what happens. Thepercent side goes up, that’s true. But the volume side goes down. You don’t have to be an economics professor to figure that out. It’s tough to move a lot of $25.00 bottles of shampoo. On the other hand, if more companies would keep there pricing in line, even if it meant reducing the percentages in the comp plan, income might actually increase! Why? Because 6% of $100.00 is more than 10% of $40.00. Not only that but we might actually reduce the number of MLM company failures at the same time. Let’s take another look at our equation: V x P = C. Now let’s add another variable called CP, or Company Profit. Now, raise P and V goes down, C stays the same (at best) — and CP goes down as well. Not good. Now, lower P, raise V, C stays the same (at least) — and CP goes UP! In fact, it’s even possible that the company could end up paying morecommissions to the field — and increase their profit at the same time. Imagine that. Increasing profit while increasing an expense! Increased sales volume is a wonderful thing, isn’t it?

And, by the way, if you can find a way to increase P and increase V, C and CP, then contact magician David Copperfield as soon as possible. He’s looking for new material.

How do you create a higher sales volume? Find a product line that accomplished the following:

1. It is highly consumable. Not just consumable. I have a 2 ounce bottle of skin cream I purchased from an MLM company that I’ve been using as an after shave balm for almost five years now — and it’s not gone yet. And I still haven’t used up the water purifier I bought back in ’87 or the gold ring I bought in ’89.

2. It lends itself well to transfer buying. In other words, there are a variety of products you would likely have purchased anyway. Most folks usually don’t add Ginkgo Biloba or colloidal minerals to their weekly shopping list.

3. Can actually be retailed. They are products that people would actually want to buy even if they weren’t part of the income opportunity.

4. Are of genuinely high quality. Genuinely being the key word here.

5. And most importantly of all, they must be priced reasonably!

All compensation plans have a certain personal volume that must be met each month to qualify for commissions. Most distributors tend to do what ever the minimum volume that is required of them. The whole idea behind numbers 1 through 4 above is to get the distributor to purchase more than they have to. And you just can’t do that if you fail at number 5. Paying $29.00 for a $12.00 bottle of vitamins in not transfer buying, even if you would have purchased vitamins anyway. And you certainly can’t mark up those vitamins even higher and retail them.

Please understand that this is not a condemnation of all network marketing companies. There are a few that have held there pricing to within reason, maintained their quality, and still have very competitive compensation plans, although they may not look as good on paper percentage wise.

But then, I pay my bills with dollars, not percentages.

MLM Advertising – Are We Shooting Ourselves in the Foot?

Compiled by Len Clements © 1996

Once again we take a pointed stab at those among us who take it upon themselves to write their own ad copy. Only this time it’s not for laughs. These are ad headlines from a variety of MLM trade publications, as well as several outer-circle business magazines — and they are not funny.

As you may have noticed, MLM doesn’t exactly have the greatest reputation in this country. Many of those we are trying to pursued to take a look at MLM seem to feel our industry is made up of get-rich-quick schemes that are really designed to make them go-broke-slowly. Their impression seems to be that MLM doesn’t really work, or if it does, those who participate in it are all con artists.

Well, here’s a sampling of how we, as an industry, are trying to convince them otherwise.


Have Them Gladly Refund Your Money

(Card Deck, 5/95)


Free Audio Tape Explains Why 99% Of All People

Fail In Network Marketing

(Postcard, 5/95)


(MLM Magazine, 7/95)


(MLM/MO Newspaper, 6/95)


(MLM Magazine, 7/95, different ad than above)

If You Have Lost Your Shirt In Other Programs, Here

Is Your Chance To Get It Back!!!

(MLM Magazine, 7/95)


(MLM Magazine, 7/95)

No More Unstable Companies, Disappearing Uplines.

(MLM Magazine, 7/95)


(MLM Magazine, 7/95)


(MLM/MO Newspaper, 7/95)


(Business Magazine, Spring ’95)


MARKETING. Free Report…

(Business Magazine, 11/94)



(MLM Magazine, 2/95)


(MLM Magazine, 1/95)


(MLM Magazine, 2/95)


(MLM Magazine, 2/95)



(MLM Magazine, Spring ’95)


(MLM Newspaper, 6/95)


Your (sic) Being Lied To And It’s Costing You A


(Business Magazine, 5/95)


Unless Your (sic) Willing To Work Hard And Pick A

Company That Lasts

(Business Magazine, 5/95)


(Business Magazine, 5/95)



(MLM Magazine, 4/95)

Although they are not specifically negative towards MLM, such ad headlines as these should really enhance our image as well:

CRIME PAYS (Numerous MLM publications)

FREE MONEY (MLM/MO Newspaper, 3/95)

I RAID DOWNLINES (MLM Magazine, 3/95)

BULLSHIT (MLM Newspaper, 7/94)

Now let’s all think real hard and see if we can come up with a theory as to why MLM has such a bad image.

Hey! I have one…

Courting MLM: Are We Ever Going to Get Married?

By Len Clements © 2001

In many unfortunate ways, the correlation between human courtship and the way in which many of us “play the field” within MLM is disturbingly similar. In other ways, it is not similar enough. An analysis of how our species seeks out its mates compared to how we decide on which MLM opportunity to “commit” to might reveal a lot about the MLM condition in this country.

Let’s take a look.

First, let’s break down the four basic components of what we look for in a potential mate. First, there’s physical appearance. Not just facial features and body characteristics, but style and dress as well. Second, there’s personality. How easy are they to get along with? How much do they have in common with your “world view.” Are they emotionally stable? How supportive and respectful are they? In general, how likable are they? The third consideration would be, at least in most cases, their degree of success. How much money do they make? How much security do they offer? And the fourth and final consideration would be that totally intangible, mysterious thing we call love. Which, by the way, most would agree has nothing what-so-ever to do with items one through three.

So what are the basic components of what we look for in a good MLM opportunity? Well, I could answer that question by essentially reiterate the entire previous paragraph, making only a few minor word changes.

Certainly the overall appearance, or perception we have of an MLM program is key. MLM is by far the most perception oriented business opportunity is this country. Especially when it comes to compensation plans. Who cares what it really pays — how good does it look on paper! Right?

Does a company’s “personality” make a difference? Ever been involved with or considered an MLM opportunity that didn’t appreciate or respect its distributors? Was unstable? Had little in common with your philosophy or product interest? Just wasn’t verylikable?

Some folks may claim that level of success or amount of wealth is not at all a consideration when it comes to a mate (and most of them would be fibbing, if not at least to themselves), but it would be foolish to claim this makes no difference in picking an MLM program to commit to. It is a major consideration.

Even “love” comes into play.

I’ve found there is so little difference between the symptoms of love and infatuation, at least in the beginning. I’ve had crushes that I would swear were cases of true love. Only after years of experience and growth do we finally gain the maturity to tell the two apart (remember our grade school days when we were “in love” with every good looking boy or girl in our class?).

Both infatuation (crush) and love may make us swoon, not eat or sleep for days, distract us, obsess us, make us act real goofy, temporarily enhance our efforts to look and act better than we normally do, and just get us all excited. The difference is that one stays and the other goes away! It’s like two mountains. Time may weather away one mountain and turn it into nothing. There’s nothing solid underneath to support it. Or, it could be like one of those volcanic mounds you see in Arizona landscapes where the loose, soft dirt washes away, but there’s a strong, rock solid core that will remain for centuries. In the beginning, from the outside, they both look pretty much the same.

Same with MLM opportunities.

Have you ever fallen in love with an MLM opportunity “at first sight?” Have you ever went to a meeting or heard a presentation for the first time and left it three feet in the air? Not been able to sleep that night? Got you all excited and distracted? Has an MLM opportunity ever made you act at least a little goofy? (Be honest, now).

Then, usually, it goes away, doesn’t it? The novelty, the infatuation, the “crush” dissolves into nothing. And sometimes, usually after months or even years of searching, you find one that, oh, perhaps you lose a little passion for after a while, but you get comfortable with it. It works (always a good trait in a mate), it’s supportive, it doesn’t cheat, so you get complacent. And then, on those oh so rare and glorious, perhaps once in a lifetime moments, you fall head-over-heels in love. And no power on earth will ever pry you away from that MLM program.

The comparisons are endless.

Ever fall in love with an MLM program and then get dumped? Ouch! I swear it’s the same kind of pain. It’s awful. It eats you up inside thinking about the “possibilities,” the lost promise, the fear of never finding another quite like that one.

Ever fall in love with an MLM program and then settle down and have a family? You bet we do. That’s exactly what MLM is all about, isn’t it? In fact, both families and MLM downlines have something directly in common — it’s called a genealogy!

Ever cheated on your MLM program by pursuing another one the side? Or looked over another company’s brochure and lusted in your heart?

Ever get overly protective of your MLM program. Trust me on this one — we do!

Ever created a lasting, fulfilling relationship with anyone while you were actively dating several others at the same time? Ever heard of anyone ever getting rich in MLM using the portfolio approach?

Think about the whole courtship ritual time line. Compare our agendas from the earliest moment of interest (in the opposite sex or an MLM opportunity) through to mature adulthood. The stereotypical, usually but not always male, junior-high-schooler was interested in “one thing.” The immature, novice MLMers also seems to view his or her first MLM opportunity based on not much more than how much it will “put out.”

As we grew older, suddenly things like “good looks” and status come into play. We became at least a little more selective. We dreamed about “going steady,” usually with the homecoming queen or the star of the football team (or both, if you lived in California). And as we gained more experience in MLM, we too found there was more to a good MLM relationship than simple lust (in this case for money). Suddenly, previously insignificant things like the product line began to take on more significance. The company’s reputation mattered (because it affected our reputation as well). We became more selective.

Then finally, we grew up. Stability and commitment became primary considerations. Oh, attractiveness still counted, but personality and compatibility became paramount. As many of you grizzled veterans of MLM would agree, there comes a time in your MLM career where the most important question about an MLM programs becomes “will it last?”

In both life and MLM, there are, of course, variations to all of this depending on whether you’re a man or a woman. But even those are comparable. For example, it’s said that girls mature faster than boys. How many woman do you know who are promoting or operating a money game or pyramid scheme? (In fact, the operators are almost exclusively men). It’s said that women are more attracted by personality and other more emotional issues. Men are more interested in physical appearance. Again, is it any wonder that men are primarily responsible for the creation and promotion of MLM programs that simply “look good” with little or no substance behind them?

In some ways, it’s too bad that we don’t treat our pursuit and commitment to MLM opportunities even more like we do our romantic relationship.

For example, how many people do you know who married, and never dated anyone other than, the first person they were ever attracted to? Probably zero. How many people do you know who became a distributor for, and never considered any MLM program other than, the first one they were ever introduced to? I know many (including myself) who joined the first MLM program they were ever pitched on, then discovered there was this wide wonderful world of MLM opportunities to choose from — only to realize there were others they liked a lot better.

The divorce rate in the U.S. is now over 50%. From the glass half full point of view, that means that 50% of all married couples stay married for the rest of their life. Can you even imagine a network marketing industry where 50% of its distributors join one company and stay committed to it for life!?

Of course, one reason why some couples stay together is for the sake of the children. Have you ever stayed in an MLM program you didn’t really care for anymore because you still had a downline?

Some couples with children do separate, usually followed by a bitter battle over custody of those children. Do I even have to explain the correlation to MLM here? “Custody” battles over downlines and individual recruits are commonplace today.

Another reason why some married couples stay together, or perhaps why those that do divorce at least attempt to work things out, is that the divorce process (at least in most states) is an expensive, painful, pain in the butt. Even amicable, uncontested ones not involving children (trust me on this one, too). Also, there is a guilt factor for some as well. Remember, in most marriage ceremonies, we swore to God that, for better or worse, in sickness and in health (etc., etc.) we’d stay together “…until death do us part.”

Here’s Crazy Idea #247:

How about having the recruiting process involve, no, not a ceremony (unduplicatable), but at least some kind of written or verbal swearing in. Perhaps a signed (totally non-binding, non-legal) document where the new recruit agrees to “marry” the opportunity, forsaking all others.

Also, make the divorce process tougher. If you had to go through some kind of elaborate, tedious, expensive process to leave your MLM opportunity to pursue another, perhaps we’d work a little harder on making our MLM marriages work.

Right now, the MLM industry seems to be mostly made up of adolescents who are being bombarded with “come ons” from all directions. Is it any wonder there is so much promiscuity in this industry? Even those mature adults among us who have committed to a stable, loving relationship with an MLM opportunity are constantly being tempted by alluring competitors, and the money game sirens have driven more than one good MLM marriage onto the rocks.

Not only that, but bigamy and adultery are not only not illegal or immoral sins in network marketing, many of us openly encourage it!

(By the way, for those of you who just aren’t getting it, I’m not saying MLM is full of bigamist and adulterers or it’s distributors practice promiscuity in the sexual sense. I’m making an analogy. MLM is full of people who fool around with more than one MLM program. Most of my readers are a pretty hip bunch and probably think I don’t really need to explain this. But, trust me once again, someone is going to write me a letter or leave a voice mail message telling me how offended they are for including them among adulterers and bigamist — even with the inclusion of this paragraph).

Yes, there are times in both marriage and MLM that it just doesn’t work. Even when you did all the right things for all the right reasons. Sure, MLM divorce is as inevitable and as justified as it sometimes is in married life. Occasionally, the MLM program we’re in just isn’t the one we fell in love with anymore. MLM programs change just like people do. Their values change. Their “appearance” changes. Their “personality” changes. And yes, sometimes they pass away.

But still, nobody today really gets married to their MLM opportunity. We’re all just sort of “living with” our MLM programs. If we get mad at it, or things get a little bumpy, we just pack our bags and walk out the door. No big deal.

Perhaps it should be.

Regulatory Red Flags

How Many Is Your Company Waving?

By Len Clements © 1997

This industry is over half a century old. There is nothing new. Pretty much everything has been tried and what you see today are just variations and enhancements of the same thing that’s already been done. So, if you want to know how well a certain type of product fairs in the MLM marketplace, or how a certain compensation plan gimmick will effect distributor earnings, or if a certain aspect of an MLM program will raise the ire of a state or federal regulator, all we have to do is look back at all the companies who have tried it in the past and see what happened to them.

Here are some examples of a few not so new ideas that are either hot, or making a comeback. By the way, not being an attorney, judge, or agent for any regulatory body, I must make clear that I am not declaring any of these acts to be illegal. What I am saying (suggested wording complements of my literary attorney) is that, in my laymen’s opinion, they may cause the company to be legally vulnerable.

Now that I have the C.Y.A. provision out of the way, let’s begin…


While some companies have masterfully depicted their “coding bonuses” as not coming from any distributor training fee, others are openly bragging about their “Huge up front training bonuses.”

Why is this a red flag? Let’s go back to the FTC v.s. Amway decision in 1979, when the FTC accused Amway of being an illegal pyramid. Amway won that case (fortunately for all of us) and the test which they past, which is right in the language of the decision, was simply, “Can the last person in make money?” In the case of Amway, the court said, Sure, the last person in, who has no downline, can still make money by buying the product at wholesale, marking it up, and reselling it to someone who is not an Amway distributor. This is, to this day, the defining criteria of a legal network marketing opportunity.

Okay. So, can you buy a $495.00 distributor training package, mark it up even more, and resell it to someone who is not a distributor? Obviously, this would be absurd. The only ones who buy the training packages are distributors, therefore the only way you can earn bonuses from this volume is by recruiting more distributors. As even the most novice MLMer surely knows, you can’t earn money from recruiting! No, not even indirectly.

Now, if you were to ask a distributor who represents an opportunity that does offer training bonuses how they can do that (and oh yes, I have, many times) they will usually quote the company’s rationalization of, “Well, we have all these other products too — and you certainly can retail those to non-distributors.” Which is kind of like saying, Hey, it’s okay that I rob banks because I give a lot of my loot to charity. Just because you have a lot of legal ways to earn commissions and bonuses doesn’t make the possibly illegal ways any more legal.

Or, they might respond by telling you about how they’ve already been investigated by the FTC or some AG. This response was given to me recently by a distributor for a company that is about four years old, which added training bonuses just three months ago. So it’s very likely the “code” didn’t even exist the last time any regulatory agency looked at them. Plus, investigations usually are very specific in their intent. If an investigator goes in looking for evidence of misleading income claims or front loading, then that’s what they look for — not indirect rewards for recruiting. What’s more, such a retort may even raise yet another red flag since it could easily be interpreted as an indirect claim to regulatory approval of their training bonuses (a BIG no no).

Recent cases that provide precedent would be, for example, the Final Judgment in the case of California v.s. Destiny Telecom. Here in (part 5, section g) the state demanded that there be no commissions paid on anything directly or indirectly related to sales aids or training (ironically, to my knowledge, Destiny never did either of these things). In the case of the FTC v.s. World Class Network, it was determined that a training package on how to be a travel agent, which was arguably a product that could have actually been retailed, was not a commissionable product via an MLM system of compensation (WCN can still direct market the product). The state of North Carolina has ruled in more than one case that only verified retail sales to non-distributors can produce commissionable volume. Yes, it’s true that this essentially makesevery MLM company illegal in that state, but none-the-less you certainly would have a hard time convincing the NC AG that you can retail even one of your distributor training packages to non-distributors, let alone all of them. Recently the Pennsylvania Attorney General’s office filed suit against Nu Skin due primarily to their Big Planet division selling and paying commissions on their $300.00 training packages (this issue has since been resolved). And if there were any doubt left, the Federal Trade Commission recently closed down FutureNet due mainly to their up front training packages. This action has since been resolved with the FTC and the “Final Judgment and Permanent Injunction” signed my FutureNet should eliminate any possible argument over this issue. In the “Definitions” section, part F, “Compensation related to recruitment” is defined as “…compensation paid to participants in a multi-level marketing program as a result of or relating to any type of training provided to either new or existing participants.”


When you pay money to your MLM company for a product or service, you must take possession of that product or service before any commissions or bonuses can be paid to your upline on that sale. For example, if you send $200 to the company as a down payment or layaway towards a product, let’s say a gold coin, and then the company pays your upline from that $200 payment, but you haven’t actually received the gold coin yet, what has happened? That’s right — nothing but an exchange of cash. You paid money in, the company sent part of your money to your upline, and you didn’t get anything in return for your money. Kind of like a pyramid scheme, isn’t it? Sure, you may pay off the product and eventually get it, but that’s not for certain. The only safe way to administer this would be to hold the commission until the product is paid off and actually shipped.

Along the same lines, a company should not be paying commissions on product vouchers or certificates until the vouchers are actually redeemed for real products. Otherwise, all you have is paper going back and forth — and most of that paper is money.

Examples of precedent in this case would be American Gold Eagle (vouchers), Club Atlanta Travel (travel certificates), Gold Unlimited (layaways), Passport to Adventure and International Metals & Trade (down payments towards product certificate), and many others. Each of the above was attacked by either a state or federal regulator specifically on this issue (and in some cases on other issues as well).

When I bring this issue up with MLMers who represent such systems, they usually site the few remaining companies that use a similar system without consequence (so far). Well, Jessie James robbed 36 banks. So, using the same logic, I could have pointed to Jessie right after bank number 35 and used him as an example of why I believed robbing banks was legal. “Hey, Jessie’s doing it, and no one is stopping him!”


Again, an MLM opportunity must have a product that people can resell to others who just want the product. If the distributors themselves are the only ones buying the product, then the only way you can make money in the program is to recruit distributors, right? Remember, can the last person in still make money? If no one ever recruits another person, and you don’t sell the product and make a profit, then you simply can’t make money.

Not only that, but any network marketing venture absolutely doesinvolve selling, in many other ways than just retailing the products (like, selling people on the idea that MLM is an honest, respectable way to earn a living, or that they should choose your MLM program over the 1,200 others out there, etc., etc.). So, to claim otherwise could be considered misleading or even fraudulent.


MLM companies have tried for years to play semantic games with their product pitches to make them safe from FDA, of FTC, attack. But, at every new turn of phrase there was Big Brother standing in the road waiving his index finger slowly back and forth and shaking his head (and with what appeared to be just a hint of a smile on his face and a thank you note from a doctor sticking out of his pocket).

Today, quite simply, nothing is safe to say anymore. Nothing.

Many companies and distributors are still trying the approach where they claim a certain substance has a certain benefit, and that their product has this substance in it, but they are not claiming that their actual product has this benefit. In other words, A=B and B=C, but they are not claiming A=C. To no one’s surprise, the FDA and FTCare doing the math!

Even the personal testimonial, once considered safe haven when relating the benefits of a product, is coming under attack.

You would think with the number of major, well publicized hits some MLM companies have taken over the last few years that we as an industry would be toning down our product pitches considerably. Yet in just the last few weeks I’ve seen ads that claim everything from “effortless” weight loss to “cures” for cancer, arthritis and AIDS! One tape I just listened to — a corporate produced tape — has a woman on it claiming one of their products “reverses the aging process.” No, she didn’t say the appearance of aging, but the actual aging process! Some companies now are claiming they have a product that will reverse the aging process by as much as 20 years! This an be especially dangerous when given to a 19 year old.

And, by the way, don’t think that federal regulators only go after companies that make fraudulent claims about their products. Rarely, in fact, do they claim the company’s product benefit claim is not true — they just claim that there is no, or not enough, substantiation. So, the product might actually do what they claim it does, but the MLM company just doesn’t have enough scientific proof.

In other words, even if your product works you can’t say it does.


Like product claims, there’s no really safe ground here as well. You might think that revealing your income would be okay as long as you could prove the income was factual. Not only is this not true, but the act of displaying a commission check as evidence of earnings is considered one of the most taboo acts in this industry (although its practice is making a comeback of late). What’s more, there is at least one case that I know of where someone was prosecuted on a federal level for revealing his actual income. And let’s be clear on this: he was not prosecuted for providing inaccurate or fraudulent information — he was prosecuted even though he was telling the truth!

Recently, some state and federal actions have resulted in MLM companies prohibiting their distributors from making “false or misleading” income claims and prohibited income “projections” all together. Okay, so what exactly is a “misleading” income claim? If I said I made $50,000 last month, and I was truthful, then is that misleading? Perhaps, if you’ve implied that income is easy to achieve or misrepresented the time and effort it took to achieve it. So, what exactly do I have to say to not do that? How many disclaimers do I have to include? At what income level is all this disclosure not necessary? If I only claimed to have made $50 last month, do I even have to say anything else? If not, then where between $50,000 and $50 is the line drawn?

Do you see the dilemma here?

What confuses the issue even more is that answers to these questions are being determined totally arbitrarily by regulators and usually on a state-by-state basis.

Since your prospects can’t pay their bills with theoretical dollars, nor from their upline’s income, the whole subject of current earnings and projections shouldn’t even be an issue. It’s best to just keep your discussion to the mechanics of the pay plan, the value of the products, and to what your prospect is going to do to achieve their own personal income goal.


These are deals where you make a one time out of pocket purchase and then, supposedly, you never have to order anything again to stay qualified for commissions from that point forward.

In reality, a portion of a future commission check is retained by the company and products are then sent to you. For example, you make a one time $100 purchase and begin building a downline. When you reach a certain point (usually it’s the completion of the first “cycle” in a binary plan), you earn, let’s say, a $1,000 check. But the company keeps $400 of that and applies it towards a product purchase, and they send you the products and a $600 check. The $400 qualifies you for the next pay cycle. At a certain point enough others beneath you follow you into the second cycle with a $400 share of their first check, and you earn perhaps $5,000. But, the company keeps $1,000 of that and sends you $4,000 plus $1,000 in product. The $1,000 then qualifies you for the third cycle, and so on.

So, what is really happening here? Well, remember that first $1,000 check? That was your money. All of it! What occurred is the same as if you received the whole $1,000 check, deposited it in the bank, then sent the company a $400 product order — with your money! So, yes, you do make more product purchases than just the first one.

What really raises the red flags, besides the fact the very claim of a “one time” purchase is fraudulent, is that, once again, the last person in can’t make money. Ask the question this way: If all recruiting were to stop today, could this company continue to pay overrides to all of their distributors? Well, if no more “one time” payments were received to keep new money flowing through the cycles of the plan, then overrides would dry up within one pay cycle and the whole scheme would come to a grinding halt.

Not only that, but the company may be hard pressed to convince state AG that the $1,000 product purchase to enter cycle three was for the purpose of obtaining product for personal consumption and retail to non-distributors. In reality, of course, the $1,000 purchase is almost transparent to the distributor. They accept it as an automatic part of the system because that’s what has to happen for them to get paid more money from the next cycle.


When you pay someone to build your downline for you, and they promise to place any number of distributors in your downline for that fee, there are two possible violations of law. One involves securities law, and the other involves basic laws of mathematics.

Isn’t it obvious that if a company were to promise even one person in every participant’s downline, they’d have to have an infinite number of enrollments? What do you think happens when the absolutely inevitable point is reached when the organization has fanned out so far that there are hundreds, perhaps even thousands, at the base all waiting for their big, free downline? It becomes mathematically impossible to provide it, so they quit. The organization begins to unravel upward as fast as it was formed (and the unfortunate MLM company the scheme was attached to get’s deluged with product returns – which is why most responsible companies forbid the promotion of such deals). This event is so predictable that there is a name for it. It’s called the “Window Shade Effect.” It describes what has occurred in literally every single downline building scheme that has ever existed. Which is why such schemes have a 100% failure rate throughout MLM history.

Yet, I see more such schemes popping up today than every before.

Where securities law comes into play can be explained by a review of the Howie vs. SEC decision (1948). From this decision came a clear definition of a security, which has three aspects: 1) an investment of “consideration” (in this case, plain ol’ money); 2) a “common enterprise” (a lot of people all paying money into the same scheme); and 3) there is income to be “derived solely from the efforts of others.” So, all MLM programs would seem to meet aspects one and two. However, most of us work our butts off building and managing or downlines, and moving product (right?!). So, we are not offering a security (like stocks, bonds, mutual funds, etc.). But, what if we all paid money into a deal that will build our downline for us, and all we had to do was sit back and wait for the check?

Several reps for such schemes recently defended this issue by claiming this downline building service was only an “option.” You didn’t have to have them build it. Okay. I see. So, only some of their distributors might be selling unregistered securities without a license. That’s not comforting.

It should be noted that, to my knowledge, no such scheme has ever been targeted for violating securities law, in spite of being so wide open to such attack. Very likely this is due to the simple fact that they go away so fast all on their own. Why bother?

Allow me to state for the record that some of what you’ve just read as it pertains to legal issues I personally do not agree with. I’m not implying any of this is right or the way it should be. So please, don’t yell at me if you disagree with the concepts. Hey, I’m a registered Libertarian. I believe we should do what ever we want with our own money. I think pyramid schemes should be legal as long as there is full disclosure and you know what the risks are. We have a right to be stupid with our own money. It’s our money! In fact, I find it so infuriatingly ironic that my state will declare a company an illegal pyramid, wipe out the incomes, and in some cases the livelihoods, of thousands of innocent distributors, simply because they purchased an overpriced prepaid calling card for $100 that they have no plans to resell. But, if I pay $100 for state lottery tickets, which I have a far, far greater chance of losing, they’ll take my money, smile, wink, slap me on the back and encourage me to come back next week and try again.

Opps, I hear my soapbox cracking. I better step down.

By looking at the past we can see the future. We can all learn from those before us what’s safe and what we should stay clear of. Yes, the legal climate is changing and the rules are getting a little blurry. All the more reason to leave yourself a good margin for error. Give any red flag a wide birth. Don’t, as some companies are doing today, drape yourself with it and dance in front of a snorting bull.

Sure, some companies have been waiving these red flags for years with no consequence. Some, when recognized, will simply be asked to please put away the red flag (eliminate the offending aspect of the plan). Others may be forced to make changes, get beat up a little, then get on with their business. I’m not at all suggesting that every MLM opportunity that employs any of the aspects discussed here is doomed.

Not all ticking bombs go off. But I still wouldn’t want to be sitting on one.