Personal Consumption and the 70% Rule

Recent Regulatory Misinterpretations Can Be Harmful to Distributors

By Len Clements © 1999

Back in 1975, the Federal Trade Commission sued Amway on the grounds that it was an illegal pyramid. In 1979 the court ruled in favor of Amway. Stemming from this decision a body of law and interpretive precedent was set that to this day define the criteria of a “legal” network marketing opportunity. The three main aspects of this criteria are: A generous buy back policy (usually 90% of the wholesale price paid for all resalable products returned); The Ten Customer Rule (distributors retail products to at least ten non-distributors per month), and; The 70% Rule (verifying that at least 70% of all previous wholesale orders have been sold or consumed before any subsequent orders be placed with the company).

The serious challenge that has arisen in recent years involves the interpretation of the 70% Rule. Previously, the “or consumed” provision in the above definition has received little or no resistance. In fact, this has been generally accepted without incident or harm for the entire 20 year period since the Amway decision. However, for some unknown reason (although many theories abound) several actions have been taken recently in which the “or consumed” aspect has been thrown out. The judge or regulatory body has demanded that 70% of all previous wholesale purchases be retailed to non-distributors only. Furthermore, they have ruled that no commission, bonuses or overrides be paid on product personally consumed by the distributor!

Perhaps the most publicized case involves the Ninth Circuit Court of Appeals decision against Omnitrition. A class action suit was filed (by two disgruntled ex-distributors) and the suit was originally dismissed in Omnitrition’s favor by summery judgment (it didn’t even go to trial). When the class appealed this decision, the Ninth Circuit Court not only ruled in favor of the class action (demanding only that the lower court must hear the case), the court uncharacteristically offered a detailed opinion as to why. The court proclaimed that personal purchases were not applicable in satisfying the 70% Rule and therefore there was a legitimate case to be made that, in fact, Omnitrition was operating an illegal pyramid (again, this decision only required the lower court to go forward with the case and did not actually declare Omnitrition a pyramid scheme). The outcome of the lower court trial is still pending.

Having spoken with numerous individuals within the offices of Attorney’s General (yes, that is the proper pronunciation) throughout the country over the years, I had ample opportunity to quiz them as to their position on this “or consumed” issue. Only onestate, Michigan, offered the clear and specific opinion that “personal consumption does not satisfy the 70% rule in this state.” Ironically, this is the home state of Amway itself which has evolved into the epitome of transfer buying and personal consumption within this industry. (And, again, without incident or harm to anyone). In fact, Amway recently went counter to the regulatory trend and reducedtheir ten customer requirement to five customers! And, in spite of this verbal declaration given to me over the phone, I can find no specific action taken by the Michigan AG’s office in which they’ve challenged the personal consumption aspect.

Most recently, California and North Carolina have boldly and clearly declared that personal consumption does not (no longer?) satisfy the 70% Rule and that no commissions or bonuses can be paid to distributors on personally consumed product. One recent case involves Destiny Telecom and the state of North Carolina. This case is especially disturbing in that the state not only demanded that Destiny verify to the state, on a monthly basis, that 70% of all wholesale orders by distributors are being retailed to non-distributors, but further demanded the following: “Should a North Carolina retail customer subsequently establish such a connection by becoming an ‘Independent Representative’… any prior salesmade to that customer shall be considered an internal sale from the time of sale and shall not be considered a retail sale for any purpose at any time” (underline emphasis mine). Understand, this startling and bizarre provision is declaring that, for example, if you are strictly a retail customer for an entire year, then you decide to simply sign a distributor application, even if it’s just so you can get the products at wholesale and you have no intentions of working the business, Destiny will not be able to count, nor will North Carolina accept, the entire previous year’s worth of sales as retail sales!There is no legal, ethical, or logical explanation for such a demand to be made on a network marketing company.

But there’s more.

Immediately following the above statement (found on pages two and three of the Consent Agreement between Destiny and NC), the agreement goes on to demand that “Destiny shall immediately revise its records to ensure that the benefits provided to all relevant participants are adjusted accordingly.” In other words, all the commissions and bonuses that were previously paid on this year’s worth of retail volume (based on the above example) must be deducted from those distributors next check! Amazing.

California’s AG’s office, within their Final Judgment against Destiny, has ruled that any type of sales aid or live training is not commissionable. Curiously, Destiny never paid commissions on either of these items — but several major competing companies do! While the judgment was somewhat ambiguous as to the personal consumption issue, nothing was left to the imagination in the consent decree issued by California against AuQuest. Herein they ruled that commissions may only be paid on sales to the “ultimate consumer.” However, they went on to define “ultimate consumer” as “Persons who are not a part of the AuQuest Marketing Plan.”

At first glance the state of Arizona, in their consent decree with TeleSales, Inc. (another prepaid phone card deal) seems to have used a little common sense in the matter. They ordered that commissions must be based on “retail sales,” but defined this as being sales to persons who “are not part of (the) marketing program” but also sales to “persons who, although desirous of becoming or who are part of (the) marketing plan or distribution system, are buying for their own personal or family use.” There is a subtle nuance in this definition that may have been missed. Arizonadid not say that a distributor’s own personal consumption is commissionable to his or her upline, but rather a “sale to” anotherdistributor for their personal consumption! This, of course, begs the question, Why would a distributor buy at retail from another distributor when they can buy at wholesale direct from the company via their own distributorship? (Arizona also fined several of what TSI reported to them to be “major” distributors $25,000 each, which begs the question, What is a “major” distributor? Exactly how big does someone’s downline have to be before they stop becoming the victim and become the perpetrator? Five hundred? Five thousand? What!?).

What these rulings requiring commissions be paid only on retail sales to non-distributors does, in effect, is place the selling distributor in a very precarious position from an ethical standpoint. They would now be motivated to hide the fact from their customer that they can simply sign up as a distributor, likely at no charge, and get the product significantly cheaper. When the retail customer inevitably discovers this option, they surely will question the selling distributor as to why this option was never presented to them. They’ll probably be at least a little POed — and rightfully so. To place a distributor in this position is the real crime here!

These regulatory people’s job is to prevent us all from getting hurt. Isn’t creating a strong motivation to keep retail customers out of the distributor scrolls, thus causing them to pay 30-40% more than they need to be paying for their products, harming that customer?

What’s more, it can cause harm to the distributor as well. Think about it. Who, in the 53 year history of network marketing, has ever been harmed by purchasing only the amount of product that they can comfortably consume themselves? No one! Who has been harmed by buying more than they can consume, or even sell? Thousands! What the 70% rule effectively does, when personal consumption is not factored in, is require by law that the distributor purchase over three times as much product as they can personally consume! If Mary only wants to purchase $100 worth of products for herself and her family, the 70% rule (sans personal consumption) requires that she purchase $333 worth of product — then be forced to sell the extra $230 worth within 30 days, or be forced to lie about it just so she can get the products she wants the next month (typically, companies are not suppose to let you order more products unless you’ve met the 70% rule).

Not only that, but if Mary does only order $100 worth, this screwy interpretation of the 70% rule would require that she sell $70 of it, leaving her with only $30 for herself. So, she must then order another $70 in product to get the $100 worth that she truly desires. But wait! Now Mary has purchased $170 in product total. She needs to retail $119 of it to satisfy the personal consumption-less 70% rule. So she retails another $49 to satisfy the rule — leaving her $21 short of the $100 worth that she really wants for herself. So, she orders another $21 from the company. But, alas, she’s now ordered a total of $191, and $14.70 more product must be retailed.

Isn’t this just a little ridiculous?

In an effort to make our industry less financially risky, thus lessvulnerable to media and regulatory attack, most MLM companies have enacted a free sign up system where even the “at cost” distributor kit is an optional purchase. But, by doing so we’ve now totally blurred the lines between “customer” and “distributor.” It makes no sense for someone to be paying retail prices for something they can get at wholesale by simply calling an 800-number and “signing up.” So, now retail customers all appear to be “distributors” in the company’s database. Our efforts to make ourselves less vulnerable has made us more vulnerable! What’s more, the absurd way in which some regulators have defined the law in this situation actually puts us and our customers back into a situation of spending significantly more money than we were originally requiring. All in an effort to protect us!

The true spirit of the 70% rule was to simply eliminate front loading and stock piling. In years past it was routine to find many people “buying into” a certain position in the compensation plan with an up front several thousand dollar purchase. This is where the term “garage qualified” came from. And to keep qualified for that position, they’d order hundreds or thousands more each month. These purchases were not because they wanted the product or had the retail client base to sell it to, but rather it was simply a token act to keep qualified in the plan. The 70% rule was designed to eliminate this practice. Well, by counting personal consumption towards the 70% rule it still effectively accomplishes this! And, once again, by not counting personal consumption the distributor/consumer is force by law to actually purchase more products than they wish to!

Arguably, companies like Destiny, AuQuest and TSI were worthy targets due to the lack of any significant amount of retailing and the great emphasis placed by their distributors on recruiting and “buying into” a higher pay level in the plan. Other recent targets, such as Fortuna Alliance, Gold Unlimited, and Boston Finney, also demonstrate that regulators are picking their spots. Very likely noMLM company is truly retailing 70% of their sales volume to non-distributors. Yet the Amways, Shaklees, and Herbalifes continue to do business, unchallenged, in even the most MLM-unfriendly states. As it should be.

On an even more positive note, three states, Texas, Oklahoma, and Louisiana, have recently passed model legislation that specifically declares personal consumption as a valid sale and applicable to the 70% rule. Several other states will be considering similar legislation in 1999 as well.

The greatest fear we should have is that, someday, there is federal regulation of the network marketing industry — and theydemonstrate the same utter lack of understanding of how this business works and what’s best for it’s participants. On a case-by-case, state-by-state basis, we can survive and even thrive. But if Big Brother ever decides to cop the same attitude as a few state AG’s, well, better thank you lucky stars for the Amways, Shaklees and Herbalifes.

Personally, I’m hoping for federal regulation. And I hope that it will be based on the precedent set in the FTC case against Amway back in 1979 and require all companies provide full disclosure and allow for personal consumption to apply towards the 70% rule.

Let us hope.

Does MLM Make Us GOOFY?

By Len Clements (c) 1995

My nine-plus years as one of the MLM industry “watchdogs” has involved several hundred hours of reading various MLM related books, newsletters, and magazines and conversations with literally thousands of MLM participants, vendors, trainers and owners. Over this period of time, I have come to the conclusion that something about the MLM (Multilevel Marketing) industry is making quite a few of us really goofy. Perhaps our “herbal formulas” contain more herbs than we know about. Or, maybe it’s the radiation we’ve absorbed from watching all those videos. It could be that pressing a phone against your head six to eight hours a day is cutting off blood vessels to our brains. All I know is, something is going on here.A classic example would be a conversation I had about two years ago with a local print shop owner. A print shop, by the way, that claimed to have several MLM clients.

I called this printer to get a quote on what it would cost to reprint a limited number of back issues. She said they had a special deal where all double sided 11×17 pages would be 15¢ per sheet. I then asked (remember this is the owner I’m talking to) what would be the fewest number they could print. She replied that they could print whatever amount I needed. Okay, what about ten? Well, she said, they really couldn’t print that few. She then explained to me about set up costs, labor and various other fixed costs. Fair enough. So exactly what is the least number you could print, I asked. She again replied, “As I said sir, we can print any amount you wish.”

Uh oh.

“How about twenty?,” I ventured. Nope. Couldn’t print that few either. It just wouldn’t be cost effective, you see, because of those fixed costs, which she began to list again.

Now, I had already tried “fewest” and “least.” I wouldn’t dare try “minimum.” That’s another whole syllable. Ah, what the heck, I thought, let’s give it a try.

“All right. So exactly what is the minimum number of sheets that you can print?”

“Sir,” she responded, obviously getting annoyed, “like I said, we can print whatever number you like, we just can’t print that few.”

Believe it or not, we went through this loop about three more times, each time with me raising the requested number by ten, followed by her desperately trying to get though my thick skull that they could print whatever amount I needed — except for every amount I requested.

The call ended with me (who my little league team used to call “Spock” due to my inability to get riled) yelling into the phone “51, 52, 53, 54… STOP ME WHEN I HIT A NUMBER YOU CAN PRINT!”

She hung up on me.

To this day, I still don’t know what the least, fewest, minimum number of pages is she could print for me. And I never will. She went out of business — just like the MLM company she was a distributor for (Consumer’s Buyline).

The logic portion of the brain seems to be most affected by MLM exposure. More evidence of this can be found in the ads we place. Just recently I saw one with the headline “Little Known Secrets…” What other kind of secrets are there? Well known secrets?

Or how about this one: “Brand New MLM Now Launching!” Have you ever seen an old company launch?

Or how about this logic buster: “Earn income through the retail sale of our FREE reports!”

In the August, 1993 issue of my MarketWave newsletter I listed some of the best (worst) ad headlines I’ve seen. Here are some of my favorites.

How To Get 1,000,000 People To Mail You $3.00. For Info, Please Send $3.00 To…

Earn Big Money Working At Home, In Your Mailbox.

You Can Make A Fortune — By Passing Out, Or Mailing Tapes I Will Give You.

Don’t Think Your Thoughts. New Thoughts!!!

Join Bodywide Today!

History Making MLM Just Lunched!

I’m not making these up, folks. In fact, here’s another headline I just saw you can add to your list: “The MLM Learing Group.”

I mean, how does this happen? I liken these types of mega-typos to a pedestrian being accidently hit by a train in broad daylight. I occasionally hear about this happening, and as morbid as it is, I almost want to be there to see exactly how such an event could occur. When a typesetter keys in a headline of “Credit Problems, Money Troubles, Down On Your Lick?” (actual copy), does he not look up and read what he just typed at least once?

Here are a few more true stories from the annals of my MLM career.

I got a call about two months ago from a distraught gentleman who was incensed that I did not have a system in place to provide him with a sample copy of my MarketWave Newsletter. He and his wife were roaming the country in his motor home. And yes, he was quite serious.

Another gentleman called recently to order a subscription and a back issue. When I explained that there was a $1.00 shipping and handling charge on the back issue, he protested that since I had to send the first issue of his subscription anyway, why was he being charged for the shipping on the back issue? (An argument that has come up more than once, by the way). I explained that there was additional postage, and back issues were all hand folded and collated, and were more expensive to produce since they are reprinted in limited quantity. He wasn’t buying it. Literally. He bluntly stated that he would cancel his order if I charged him the extra buck.

I later discovered that this guy earns in excess of $13,000 per month in a well known MLM program. That’s thirteen thousanddollars — one of which he got to keep that day.

Just recently a new MLMer, who sounded way too young to have already been so affected, called our voice mail and requested a sample copy of MarketWave. His message was as follows: “Yes, this is John Smith from Tampa, Florida and I just read your book. I would like to get a sample copy of your newsletter as soon as possible and I will send you the dollar you requested. Thank you.” Click.

The real frustrating part is that Mr. Smith (not his real name) is thethird person to leave such a message so far this year! And that’s not counting the two by Mr. Smith himself, who’s still wondering where his sample is and whose address we still don’t know.

I can’t count the number of times, especially in the early years of MarketWave, that I would fax information requests or a series of questions regarding the company I was reviewing in the newsletter, only to be completely ignored. Or, made numerous calls to the corporate office to talk to the President of VP regarding questions or concerns that I didn’t feel comfortable asking distributors, and never have a single call returned. And then, after the review is published, I get a call or letter from the President chastising me for not getting my facts straight.

Actually, that’s not a good example of being goofy, that’s just me venting. Thanks for indulging me.

Goofy? How about the infamous MetChem scandal? This is the bogus review I did in April of 1993 for a scheme where you could get paid $6.00 for every tin can you sent in (because MetChem found a way to convert tin into platinum, you see). Honestly, it’s not the fact that sixteen of my subscribers called in to get the address for MetChem (after all, the information was supposed to be coming from a reputable source — me!). It’s the fact that the instructions to order the information clearly stated “Go sit in the corner. Haven’t we taught you anything?,” then asked that you spell out the first letters of each sentence of the first paragraph — which spelled APRIL FOOLS. Fortunately, twelve subscribers called back to sheepishly ask that I ignore your previous request. Good for them. The other four claimed they followed the instructions perfectly — and still wanted the address!

So far, I’ve received four death threats. One was just a prank (I’m pretty sure), but the other seemed quite serious. This angry, anonymous caller was upset that I had “trashed” her opportunity in my newsletter and that my review was “sinful.” That review resulted in the third highest rated opportunity ever featured in MarketWave, and the highest of all for the year in which the call was made.

Last month I had a discussion with a man who was dissatisfied with the performance of his current company’s compensation plan (we’ll call his company Generic International). He called to ask me about the plan I was working. I told him the type, and he replied, “Eh, I was hoping to stay with a plan like Generic’s.” I then explained the pay out. “Hmmm. Actually, I kind of like a compressed pay out — like Generic’s.” I forged on. After explaining the qualifications, he responded by explaining to me why he liked the way “Generic was doing it.” The conversation eventually went beyond comp plans to products. After telling him about mine, sure enough, he was hoping to stay with products “like Generic has.”

I then explained to him that the clinical definition of insanity (which means you’re really goofy) is the process of doing the same thing over and over and expecting different results.

He stayed with Generic International.

I recently came across a distributor produced full page ad for an MLM opportunity within which the distributor described his company’s great new support tool — an automated downline and sales volume tracking system. Nothing wrong with that, except that when describing how simple the steps were to use the system he used his actual ID number and password! Yes, of course I called and accessed the system (I’m not nosey, I’m inquisitive). This guy, who was claiming to have achieved great success with this opportunity, had 115 people on his first level alone, but his total commissions earned for the past month was $26.00! The headline of his ad read: “My 10 years of MLM frustration.” I have a theory about that.

Another MLM company I was preparing to review sent out an open letter to all of its distributors chastising them for accepting returns of their weight loss product. It seems many of them were returning the 30 day supply of product with only a few of the capsules consumed. The author of this letter, their National Marketing Director, claimed that customers must use all 30 days worth of product to get any results. Therefor, in spite of their “100% money back guarantee” on retail customer returns, the company would no longer provide refunds on unfinished product returned by its distributors — unless the bottle was returned empty! Hmmm. There’s got to be a way around this policy. Let’s think hard.

A discussion of goofiness in network marketing cannot end without at least a mention of those folks who claimed to have depleted their life savings to purchase huge inventory loads upon joining an MLM opportunity (the highest I’ve heard of is $120,000). Or those who leave high paying, secure jobs to work an MLM opportunity full time after only a few weeks or months of success. I just read about a Long Island man who left a $192,000 a year job to work FundAmerica back in early 1990. Bad timing. Bad.

NGS (Networking Goofiness Syndrome) seems to be spreading in epidemic proportions. This dreaded malady must be stopped before the end of the 90’s when 65% of all goods and services will be moved by way of network marketing.* Unknowing college and university professors all over the country are now teaching people how to inflict themselves with NGS.* Even Donald Trump claimed he would risk exposure to NGS by pursuing network marketing should he ever loose his fortune again.*

(*All of the above statements are common MLM myths. They are completely untrue. Don’t repeat them, please.)

Fortunately, despite all of the massive exposure I’ve had to network marketing over a prolonged period of time, I personally seem to have been completely unaffected. I have experienced no symptoms of Networking Goofiness Syndrome of any kind.

By the way, not to change the subject, but I want all of my readers to be aware that I no longer wish to be referred to by my given name, but rather by this unpronounceable symbol:


Thank you for your cooperation.

MLM Gimmicks

The Truth Behind All Those Screwy Deals

By Len Clements (c) 2000

Network marketing is a very perception oriented business. To compete for distributors you must somehow create the perception, or in most cases the illusion, that your opportunity will make your prospect richer, faster, easier. Instead of emphasizing a strong work ethic, loyalty and commitment to one MLM program, and an honest, moral approach to recruiting, it seems many, way toomany, MLM programs today are offering the proverbial “magic bullet.” They claim to have discovered some “revolutionary” new product, concept, or system that no one (out of tens of millions of people over half-a-century) have ever thought of before. Have they? Let’s take a closer look…

Let’s start with “infinity” bonuses. This is a form of commission that pays on a certain percentage of volume per level down to the next distributor in the leg who also qualifies for this bonus. At that point the bonus can be all or partially blocked. In other words, it pays down to a certain point and then stops. Mr. Webster and I have a very different definition of “infinity.” I find it rather amusing to listen to the various pitches some distributors offer when presenting their “infinity” bonus. They emphasize how easy it is to qualify for the bonus (usually there is only a small recruiting quota). But, of course, this advantage is solely based on the illusion that you are the only one that has this advantage! If it’s so easy for you to qualify for this bonus, then it’s just as easy for all those in your downline to block your infinity bonus. In a worst case, if everyonequalified for it, no one would earn anything from it!

I’ve heard many people claim that it is possible to earn an “infinity” bonus on people over 100 levels deep in their organization. Think about what that implies. This would mean that you would have to have someone on your second level with a downline over 99 levels deep who has not qualified for the maximum infinity bonus! I suppose it is possible — theoretically.

Recently there has been a flurry of two and three level pay plans (usually employing an “infinity” bonus on the third level). While they may have noble intentions (more up front money for the “little guy”), they are entirely deceptive in their claim that better-than-average earnings per distributor ratio will last more than a few short months. These deals love to compare the earnings potential compared to a list of their competitors based on a two or three level downline. That’s because this would likely be the only scenario in which their plans would pay more!

There are only two possible paths a 2-3 level program can take. They get really big, or they don’t. If they don’t, that’s not good. If they do, then it is inevitable that their leading distributors will develop large downlines. And what do you think happens when the top distributors look at their genealogy of 10,000 people and realize that 9,500 of them are completely out of their pay range. What happens when their $30 per distributor earnings ratio drops to under a buck, and they figure out that if they had the same group in a six or seven level plan they’d be making three or four times the income? What happens is exactly what has happened to literally every 2-3 level plan in MLM history over one year old — their leaders leave and the program crumbles, or they add more depth to their pay out! (Voyager, Changes, Outback Secrets, and Personal Wealth Systems are just a few recent examples of one outcome or the other).

What about programs that claim to have little, or even no personal volume requirement? Isn’t that great? You don’t have to buy anything as long as your downline does! But again, this is based on the illusion that you are the only one with this advantage. Isn’t your downline being told they don’t have to order anything too! So now everyone sits around waiting for everyone else to order something.

Another great example of this same kind of illusion are programs that allow you to enroll yourself or a spouse on your own first level. They tell you all about how you can now build under the second level position and earn from both positions on the same downline. What they don’t tell you is that everyone in your downline gets to do the same thing! Now your six level plan just became a three level plan! As everyone else double-dips, just like you, they are forcing potentially huge amounts of sales volume out of your pay range. Sure, you get paid on two positions — but on about half the volume!

(Note: due to the irrelevance of levels in determining commissions, the binary plan is exempt from this discussion — although most binary plans have a myriad other illusionary advantages, but that’s another article).

Speaking of binaries, there is one recently popular gimmick that’s worthy of discussion and that’s this “daily pay out” nonsense. My main peeve is that many such deals are actually claiming that getting paid three or four times a week means you are going to get paid three or four times more than a weekly paying plan. A few years ago, this same baloney used to be said about weekly paying binaries compared to monthly paying traditional plans. Once it became obvious to so many that you were really getting paid the same amount monthly, only divided up into smaller, weekly chunks, this absurdity ended. Now were being told daily pay outs result in more income than weekly due to the same ridiculous logic. In fact, the more likely effect if a significant increase in administrative expense on the part of the company — thus the very real possibility of lower actual pay outs!

And speaking of pay outs, I’ve noticed the Australian 2-up compensation plan is back for another round of resounding failures. This plan, which seems to make a resurgence about every three or four years, is the epitome of the word “gimmick.” It’s a classic example of a plan that looks great on paper, but actually pays very little to very few. Yes, the percentages are bigger, but what they don’t tell you is that you are actually getting paid those whopping pay outs on a small fraction of your total downline. The rest you earn nothing on, making it, over all, the worst paying plan in history. Which explains its literally 100% failure rate. But, alas, yet another group of “visionaries” have recently come along claiming they’ve discovered the secret to making the 2-up work (or, in one case, they just gave it a big fancy name and then flat out lied about the plan’s true identity).

There are gimmicks within the product category as well. How many times does the “smoking cure” fad have to make it’s loop though this industry before people realize it’s a gimmick! Think, people! If there really was an herbal substance that permanently cured people of their smoking habit, it would be front page news all over the world, the FDA surely would be trying to classify it as a drug (so the drug manufacturers could make a killing off of it), the tobacco industry would be spending billions to destroy its credibility, andevery MLM company in existence would be knocking it off! Not to mention all the brand name versions of it that would be flooding the store shelves.

Same goes for baldness cures, anti-aging creams, libido increasing oat pills, IQ enhancers, and other such bunk. I’m still waiting for some MLM company to offer X-ray glasses!

Another marketing gimmick that is at least original (I never saw this one much before last winter) is the “guaranteed income” or the “reward” for finding a better MLM program. These offers have more catches than Willie Mays. For example, one scheme currently operating claims they will guarantee you an income of $5,000 within 120 days or they will “continue to execute our program on your behalf, at our expense, until you do earn $5,000.” What does that mean? It means that if they fail miserably and don’t earn you a dime, they’ll just keep on trying. Think about it, folks. For a company to guarantee an income to every distributor that ever joins, they are in essence guaranteeing a downline to every distributor. This is, obviously, a mathematical impossibility.

One company is now offering a “$10,000 Reward” to the first person who can show them a pay plan that pays better than theirs. What is so ironic is that there plan is a classic Australian 2-up, which means that almost every plan pays better than theirs!

Portfolio programs are one of the most amazing phenomenons to ever cycle through this industry. This is where someone tries to get everyone into a group of MLM programs, either all at once or in a series. No matter how many of these schemes fail, over and over and over, all for the exact same set of reasons, people will still go out and try it again. And again, and again. Do you want to know how I know that no portfolio scheme has ever worked. Well, for the same reason I’m pretty sure dinosaurs are actually extinct — because there aren’t any! Other than the most resent batch of start ups, show me one that is working. There have been dozens, perhaps hundreds, that have come and gone.

The primary reason portfolio deals don’t work is that each program they place you into either requires a product purchase to qualify for a check in that program — or they don’t. It’s got to be one of the other, right? So, if each program requires, let’s say, $100 per month, and they place you into ten programs, you have to spend $1,000 per month to earn a check from each one! Now, if they don’t require a monthly purchase, then every sits around waiting for everyone else to order something — and no one orders anything. No sales volume, no income. One hot portfolio scheme is distributing a cassette tape where one of the founders admits to all the reasons why these deals have never worked before, then rather than explaining how they corrected those challenges he describes the exact same system as all those who have failed!

Show me a list of professional network marketers who have focused on one MLM opportunity for more than ten years and I’ll show you a list of millionaires. Show me a list of MLM portfolio participants who’ve earned even a modest full time income for more than even one year and I’ll show you a blank sheet of paper.

In next months issue… The biggest, nastiest, MLM gimmick of all time — the downline building scheme! (This one deserves a whole article to itself!)

Folks, there have been professional gamblers who have spent their entire lifetime trying to perfect the perfect “system” — and failing at it — for as long as there has been gambling. There have been those who market get-rich-quick schemes through the mail claiming to have discovered an easy, sure-fire way to wealth for as long as there has been mail. And, there has been MLMers claiming to have found the perfect income building system, concept, or product for as long as there have been MLMers. If there was such a thing, we’d all be obscenely rich and the entire Earth would be saturated with 6.5 billion MLMers.

It’s not because there isn’t!

What there is is an industry with many, albeit a minority, of hard working, devoted, loyal, professional network marketers who haveearned their incomes with sweat, honesty, and a lot of patience.

We need more of them, not more games and gimmicks.

The Art of the MLM Deal

By Len Clements © 1996

Have you ever wondered how so many “heavy hitters” in this industry make such obscene incomes in such a short period of time, while you work your butt off for months only to produce a $250 check? After all, you are duplicating their methods and systems, right? You’re mailing out the cassette tapes, you’re on the training calls, you’re paying for the ad co-ops, you’re doing the three-way calls, you’re attending the meetings, you’re handing out the product samples like candy on Halloween night — so if that’s how they did it, why isn’t it working for you? 

Maybe it’s because — that’s not how they did it. 

Please understand right now that there are “Leaders” in this business (a term I prefer over “heavy hitter”) that do achieve substantial success, starting from scratch, in a relatively short period of time using all the basic techniques described above — because they are exceptionally good at it. Let’s be honest, some folks are just better at network marketing than others. However, one of the greatest aspects of this industry is its way of leveling the playing field. Even those that are not very good at it can still succeed, over a longer period of time, by slowly acquiring the skills necessary with the help of those who preceded them on the road to success ­ or by enrolling someone else who already possesses these skills. I in no way want to diminish the achievement of those who genuinely earned their income with effort and commitment to what they truly feel in their heart is the best MLM opportunity. If they honestly build their downline in a manner that is duplicatable by those in their downline, they are not the subject of this article. If you object to, or are personally offended by, anything that is written here, well, if the shoe fits wear it! Otherwise, throw it away. It’s not yours. 

Except for the rare phenom who, like sports stars Tiger Woods or Wayne Gretsky, achieve monumental success quickly due to sheer, natural talent, the vast majority of those who achieve five- or six-digit incomes in MLM in fewer than six months accomplished this in one of three ways: 

1. They moved a large number of an already existing downline over from another, usually failing, MLM program. Certainly not an immoral or unethical practice, as long as there is full disclosure on the part of the high earner. In other words, as long as he or she informs those they bring in that their high degree of initial success is totally unduplicatable. Of course, this disclosure is rarely provided. 

2. They are in a money game or front load program where thousands of dollars are paid up front. A $1,250 payment for a $5.00 package of material can generate a lot of up front commissions — and a lot of Cease and Desist orders from Attorney Generals. 

3. They made a deal with the company. Either they were offered some extra bonus or overrides, were provided with a large number of already existing distributors, or they are receiving a “base” payment from the company (a set dollar amount over and above the standard commission system). Or, perhaps all three. 

Now, in the case of number 3 above, one might ask, “So what?” Shouldn’t an MLM distributor have the right to market themselves to the highest bidder just like professional athletes or corporate executives? Sure. As long as there is, once again, full disclosure. 

If you make a deal with an MLM company and you subsequently tell prospects that you joined it because you determined it to be “the best” network marketing opportunity — you are lying! 

If you make a deal with an MLM company and you subsequently declare that those you bring into your downline can “duplicate” your success — you are lying! 

If you make a deal with an MLM company and you deny that you did, obviously, you are lying! 

Not only that, but what does this say about the company itself? If they are going to do this for you, how do you know that they are someday not going to do this to you? Think about it. Doesn’t this practice of corporate dealing mean that the company itself is also recruiting? It is very unusual for a wheeler an’ dealer company to place their “bought” leadership more than two or three levels deep beneath the company. Usually these “leaders” go front line. There’s a good reason for that. All the sales volume moved by those first level to a company are totally non-commissionable. There is no upline to the sale to pay commissions to. If a plan pays, let’s say, 10% down six levels (60% total), then even the volume that moves on the company’s second level would only require that they pay 10% of it in commission, thus saving them from paying the other 50%. Companies could easily afford to pay a “leader” two or three times the normal pay out and still end up saving money by placing them directly below the company. So, essentially, you are in competition with your own company for the best talent! How can you ever expect to recruit a heavy hitter if you can’t compete with your company’s deal? 

Also, it would seem to imply that the opportunity is not great enough to attract talent and leadership based on it’s own merits. If it’s a genuinely great opportunity, why would they have to bribe people to join it? 

If you were looking for a good MLM program to join, and a good upline sponsor to join under, wouldn’t you want to get involved with one that honestly felt they were in the best MLM opportunity? Or, would you want to be sponsored by someone who was just looking for the best deal? Sure, I suppose it’s possible that both could be true. But what are the odds that, out of over 1,500 MLM programs in the U.S., the one that they truly felt in their heart was the very best MLM opportunity for themselves and those they enroll just also happened to be the one that offered them a great deal? Petty slim. In fact, of all those out there who are known for deal making, most are pretty weak programs. 

Do only rinky-dink, desperate companies offer deals? No way. There are at least three good MLM companies that I know of personally that really don’t need to make these screwy deals to attract leaders, yet they do anyway. While others make a point, rather proudly, that they don’t do deals. Interestingly, what appears to be three of the hottest, fastest growing companies right now are among those that refuse to make deals! Perhaps it’s because true professional networkers, those who deserve the title of “leaders,” don’t join the company that offers them the best deal, they look for the best MLM company. And the best companies are the ones who get only the best. 

Have I ever proposed a deal to an MLM company? Yes, I have. And they accepted it — and I did not go forward with it. The little angel on my right shoulder wouldn’t shut up, and the little devil on my left shoulder decided to give up. 

Have I ever been offered a deal? Several times. One company paid me a $2,000 monthly base income for what was supposedly my compensation for being their “National Training Director.” After several months of watching the president and VP wander around the country doing training while I sat at home, I finally got it through my thick skull that I was simply bought off. I resigned from that program. Within 30 days I had offers on the table from two well known MLM companies. One offered “double the compensation plan” and the other offered to move their largest distributor leg into my downline. Another declared to me, literally within minutes of arriving at their home office, that they don’t do deals. All they can offer is a great network marketing opportunity. That’s the company I joined. (And, again, there are other good companies that do business the same way). Now, I can claim, with a clear conscience, that what I built was built from scratch using the same techniques that my downline can use, and in an MLM program that I sincerely believe is a great opportunity (there’s no such thing as “the best” since “the best” would be different for each person depending on a myriad of personal factors). 

I’m often asked by prospects if I “made a deal” with the company. That’s a good question. You should also be asking that question to your prospective upline hitter. You should also be concerned if your company is making these deals. You shouldn’t have to compete with them for MLM leaders. 

Besides, if your MLM company is a truly great opportunity, it shouldn’t have to pay people to join it!

The Hype Cycle Revs Up

And Up … And Up … And Up

By Len Clements © 1999

In late 1996 I wrote an article simply titled “The Hype Cycle.” I suggested then that if we could measure “hype” and then construct a graph of its occurrence, intensity, and duration, it would likely appear much like a sine wave – a wavy horizontal line intermittently dipping above and then below a certain median point. Each rise in the level of hype was followed by a sharp drop, usually due to some industry shaking regulatory strike on a major MLM company. All the rats in the industry would then go away for a little while, leaving the rest of us to compete on a more level playing field. For a while. Slowly, eventually, once the heat was off and the smoke had cleared, they would creep their way back in. Until the next big hit, then the cycle would repeat.

So, what is “hype?” Messieurs Funk and Wagnalls define it accordingly: “To increase artificially; to deceive; to publicize extravagantly.” Do many network marketers practice such activity? A loaded question, obviously. But still an interesting one in that the current rage of hype being heaped upon our industry has maintained a definite pattern to it, only now the regulatory hits are not knocking it back down. And this most recent, ever rising wave is dredging up a mountain of sludge and debris onto our happy little beach that we all have to play in.

In fact, if we were to take a look at the hype cycle today, it might look something like this:

Note, as I mentioned earlier, that each peak is immediately followed by a sharp dip. This is usually due to one or two prominent MLM companies being made examples of by various regulatory agencies, followed by the aforementioned lull (rarely are the attacked companies the most guilty, they’re just the most visible). After the big guy gets punished for being too rowdy, everyone calms down and plays nice for a little while. Most take on a very conservative, low hype approach. No one else wants to get caught in the web, plus the actions taken against the target companies usually result in a clear definition of what not to do or say and most try to follow the model.

Unfortunately, like a punished child who promises never to misbehave again, the tendencies gradually return. Everybody’s cool, most are playing by the rules, no one is getting in trouble, and the hypsters get lulled into a sense of security. They start taking a few liberties. They start pushing the envelope. They begin to be a little more aggressive in how they present their compensation plan, what people are earning (or how much they could earn), and what the benefits of their products are.

For those of you who were around during the mid-70’s, you may recall prominent MLM programs such as Holiday Magic, Culture Farms, Koscot Interplanetary, and Unimax. All were eventually deemed to be illegal pyramids and closed down. But one company back then fought the “pyramid” label. In fact, they spent millions of dollars and four hard years to defend themselves against an attack by, not just a state attorney general, but the Federal Trade Commission. Fortunately, Amway won that battle and to this day they offer a model of what both state and federal authorities look for in a “legal” MLM program — and what you can say about them. What’s curious, though, is how well most companies abided by that criteria around 1980 and ’81. I know that 1982 saw a resurgence of at least some amount of hype because I remember being taught how to practice it. Then, in 1983, Herbalife was blasted on both a state and federal level, primarily due to product and income claims, and 1984 through early 1986 was real quiet again. Hardly any hype. Then came United Sciences of America (USA), perhaps the most hyped MLM opportunity in history (and arguably the record holder for first year growth). While USA was not actually “shut down,” it was gone by the end of 1987. This was due in part to a barrage of negative press concerning their over zealous promotional campaign. National Safety Associates (NSA) also began to share the burden of anti-hype scrutiny about that time as well — and 1988 and 1989 were real quite years (relatively speaking, of course — network marketing has never been completely void of hype). Then in 1990 things started to heat up. In 1991 practically every windshield in America has a little card on it exclaiming they could earn “$10,000 within 6 to 18 months from today” if they joined Nu Skin. Photocopied checks, grossly exaggerated income projections, and curative or anti-again product claims were pouring through the U.S. Postal Service (again, Nu Skin was not nearly the most guilty, just the most visible). Most of us surely recall what the result was — Nu Skin was slaughtered in the press and sustained hits from both federal and state regulatory agencies. The next few years the newly reformed Nu Skin was the industry model that most companies followed (although, even they are back to pushing the proverbial envelope with their Big Planet division). Photocopied checks, exaggerated income promises, medical claims, and the like were as close to nonexistent during 1992 and 1993 as I’ve ever remembered it. And sure enough, 1994 it returned. It reached what I thought was surely it’s peak in 1995. Yet, in 1996 it may have reached record levels not seen since the pre-Amway v.s. FTC era. I predicted then that if history repeats itself yet again, somebody was about to get killed.

Well, somebody did get killed. A lot of somebodies! Boston Finney, Destiny Telecom, Jewelway and International Heritage were the most prominent of the group (the latter three each claimed well over 100,000 distributors). As of this writing, some operational, but wounded survivors include TravelMax and FutureNet. Although none could claim the prominence of an Amway, Herbalife, or Nu Skin, surely the combined impact of all of these regulatory attacks, along with many other attacks at the state level on several minor players, would create the same motivation among MLM companies to clean up their act and not follow the tactics of these target companies. Yet, I see one example after another of companies not only implementing the very same hype tactics and questionable compensation methods, they’re far worse that those who were attacked!

The hype cycle likely has reached such monumental proportions due to the massive proliferation of MLM opportunities entering the market and the resulting increase in competition. To compete in the MLM marketplace in 1999 you almost have to practice some amount of hype. You place yourself at a marketing disadvantage by telling the truth (a sad, and perhaps cynical comment, but one that is unfortunately quite true). I’ve had discussions with various MLM leaders and corporate-folk who are, to varying degrees, guilty of hype and I keep hearing the same explanation/excuse: “Our truths are not as good as their lies!” Frankly, although I certainly don’t condone the practice of excessive hype, from a strictly business standpoint I can almost see their point. How can a good, honest distributor compete with those who claim their company is signing up “4,000 distributors per day,” or their comp plan pays “$1,000 with just 25 distributors,” or their product “reverses the aging process 20 years.” All of these statements are right out of material I’ve received in just the last few weeks. Offer after offer claims I’ll make tens-of-thousands of dollars within “a few short weeks.” I’ve got a pile of material here with not only exaggerated income promises and projections (both illegal), but direct claims of income by the distributors themselves — including the resurgence of what was just a few short years ago considered one of the most taboo items one could possibly offer: photocopied checks!

In the past the hype was primarily directed towards compensation plans and income, where as the trend today is now heavily weighted towards outrageous product claims. Isn’t it fascinating how decades old pharmaceutical companies with access to some of the greatest scientific minds on Earth and billion dollar research and development budgets can’t find effective treatments for arthritis, cancer, diabetes, or baldness, but little start up MLM companies can? Isn’t it amazing that someone who discovered a microscopic crystal that makes water freeze at room temperature, improves your car’s gas mileage, increases the effectiveness of skin care products by 85%, and cleans your clothes without laundry detergentisn’t making front page news all over the world and isn’t accepting his Nobel Prize, and is marketing this miraculous technology through two start up MLM companies (the first of which was shut down by their state AG)? Isn’t it just a little curious that there are people being injected with Human Growth Hormone (HGH) and paying $300 per dose, several times a month for it, and several MLM companies, all about the same time, discovered a way to increase HGH levels in the body and “reverse the aging process 20 years” for $90 per month by simply swallowing a tablet?

Does anyone else see anything wrong with this picture!?

There also seems to be a glut right now of “downline building” schemes and fluff programs with grossly overpriced token products. “Gimmick Marketing” is all the rage. Today, everyone has some “revolutionary” new comp plan, product or service, or marketing system. They don’t! This is a 53 year old business, folks. Everything has been tried. Everything you see out there is a variation of stuff that’s already been done. Over and over. We have half a century of precedent to look back on to know what works and what doesn’t work. It’s not a secret. We don’t have to guess or experiment anymore. And history is telling us – in a loud, booming voice – that traditional, merit-based companies offering legitimate products of value work, and almost, but not quite, everything else has or will fail.

Unfortunately, those traditional, merit-based, network marketing companies offering legitimate products of value either have to try to compete with this bunk, or tell people the truth — that success in their program will take time, commitment, patience, hard work, and a financial expense that might even cause them to operate at a loss in the beginning. Of course, if you do you stand a good chance of being out-hyped by your competition. Hype is designed to recruit you, not inform or educate you. Hype is used to destroy realistic expectations, not create them.

But, there is hope!

I recently ran a series of “anti-hype” display ads in several prominent MLM trade publications. The ads were practically a negative pitch – but they were honest and realistic. I expected the number of responses to drop, but the quality of the lead to increase. Amazingly, the total response rate has increased by over 50%! I’m becoming more and more convinced that the hypesters are the over-zealous, over-aggressive minority in this industry. There are still a LOT of good, professional network marketers out there who still understand that, sure, you can keep to the high road and get out-hyped. But, those prospects you lose will inevitably discover the truth sooner or later. And when they do, they are going to remember those that were honest and realistic with them in the past. And, the next time around, those people will have all the credibility.

Help us end the hype cycle.

Be the one that they remember.

MLM Defense (aka MLM Judo)

By Len Clements © 1999

In practically every competitive endeavor, whether it be sports, business, law, politics, or even, one could argue, life, there are two forces that we summon to defeat our opponent. We offer up an offense – and a defense. In most types of sports the delineation between, and the need for each, is obvious. Take away the defensive players from any football team and you will lose every contest, no matter how many touchdowns you score. Baseball, hockey, basketball, and many other sports all involve points for and against. In some sports defense is the key element. Eliminate defense from professional boxing and you’d have, well, very short boxing matches and very few professional boxers. At least, ones that can still feed themselves. In business, advertisers don’t always tell us just why we should buy their brand, they often include reasons we should not buy a competitors brand. In law, defense is paramount since the burden of proof is on the prosecution (the offense) and all the defense has to do is create a slight doubt in the minds of the jury. In politics I consider offense to be the presentation of all the reasons why a candidate should be elected. Political defense would be, as it is in sports, the attempt to impede the progress of an opponent. Not only is this a key element of any election process, some candidates seem to base their entire campaign on why you shouldn’t vote for the other candidate, rather than why you should vote for themselves.

And, yes, one could make a case that there is an offensive and defensive aspect to practically every decision we make in our daily lives. Every decision, no matter how small, is designed to either avoid pain and/or gain pleasure. We naturally tend to move towards what we desire and away from what we detest. The proverbial “Carrot and the stick.” In this case both the offense and the defense is within us. You offer them both (a la the devil and angel sitting on each shoulder) and base your decision on who wins the debate.

Let’s try an experiment, right now. I’m going to describe the occupation of an individual and I want you to visualize that person in an action pose. Don’t think about it, just take note of the first image that pops in your mind. Ready?

Football player. Basketball player. Boxer. Soldier in combat. You, looking at a big slice of your favorite flavor of cake.

Now, think back. Were the images offensive or defensive? Did you picture a quarterback ready to throw a pass, or a fullback running with the ball? The vast majority do (I’ve performed this test many times before). Was the basketball player taking a shot (almost always), or blocking the shot (almost never)? Was the boxer throwing a punch? I’ve never, ever, had someone tell me they visualized a guy cowering in the corner with his gloves covering his face. Was the soldier in attack mode, or was he crouched in a fox hole? Did you see yourself looking at the cake wide eyed and drooling, or head turned away with arms outstretched, shunning the temptation? Come on, be honest.

In spite of the fact that defense is such a vital part of practically every aspect of our lives, we are certainly an offensive focused society. We want to score points, not prevent them. And we want to score a lot of them.

So, what is MLM defense? Unfortunately, it is, at least currently, a lot like it is in politics. As more and more candidates devote more and more time to mud slinging and self-serving hype, so are network marketers. And, as more and more disillusioned Americans vote “none of the above” at the polls, our MLM prospects are reacting in much the same way.

What MLM defense should be, and what it hardly ever is, or is ever taught to be, is a dignified, professional, factual presentation of the benefits that your MLM program has over a specific competitor, and the debunking of alleged benefits posed by your competition when those benefits are, in fact, exaggerated or illusionary.

Hype is a primary tool in the recruiting process of many, and arguably most, network marketers today. Almost every prospect you contact will be evaluating other opportunities as well as yours. Therefore, you have an opponent in this process – and they may not play fair. They may relate bogus, or even slanderous information to your prospect about your opportunity (more on that later), or positive information about their own program that may involve some degree of hype. If you can defend against this, and at the same time offer a powerful offense (what’s good about your opportunity), then you have twice as powerful a presentation. While you’re scoring points, you’re preventing your opponent from scoring. It’s like a scale. Doesn’t it make sense that you’d have a far better chance of tipping the scale in your favor if you not only added weight to your side, but legitimately removed weight from the other?

When an opponent is hyping your prospect, you have three options. One; ignore them and continue to present a hype-free, realistic depiction of the benefits of your MLM program – and take the risk of losing the prospect to the hype, or two; have a hype contest to see who can out-hype who – and even if you win your prospect will discover the truth eventually and end up just as much not in your downline as if they hadn’t enrolled in the first place (only now they walk away feeling scammed), or three; stick to your honest, realistic presentation about your company and defend yourself against the hype.

I realize there’s sometimes a fine line between what’s honorable MLM defense and what’s gratuitous competition bashing. The best way to audit yourself is to ask yourself this simple question: Can I prove my statement? In other words, are you saying something you can be accountable for? Can you back it up? For example, if a competitor claims their plan “pays infinitely deep,” you should be able to prove both mathematically and logically that this claim is completely false. Don’t go so far as to suggest infinity bonuses are wrong or bad, because they are not. Just explain why they aren’t as good as your competition is claiming. Or, what if your prospect is impressed by huge income claims made by a competing distributor? (There’ll be a whole section in my book on the specifics of how to defend against this, but for now just know that you can and must defend against it). Don’t allow your prospect to be swayed by meaningless information. Force your competition to stick to the genuine merits of their opportunity.

You can also use this same “proof” question as a defensive weapon. For example, if someone tells your prospect that they shouldn’t join your company because “they’re going down,” or “nobody’s making any money,” or “they’re being investigated,” ask your prospect to ask your competitor this question: “Would you please put that in writing and sign your name to it?” Then watch them back peddle! When they refuse (which they always will), ask your prospect why they wouldn’t do this if they were certain of their claim? Demand that they be accountable for their derogatory remarks. Demand that they reveal how they know what they are saying it true. Of course, they rarely can, which greatly diminishes not only the impact of their mud slinging, but can dramatically reduce the credibility of everything else they say.

I could try to give you more examples of statements you could defend against, but I won’t for no other reason than lack of space. Besides, my book is chocked full of them (as is my newsletter). Secondly, I can pretty much summarized practically every MLM pitch ever given: “We have the best products… the best support system… the most lucrative compensation plan… and the company is debt free and about to go into momentum” That’s it. Now, when your competitor says this to your prospect, ask your prospect to ask your competitor, “How do you know all these things are true?” That’s MLM defense.

If you’re going to back up your claims about your company, then you have every right to demand the same from your competition.

Romantic Semantics

Deciphering MLM’s Secret Language

By Len Clements © 1999

Romantic: Imaginative, but impractical; not based on fact, imaginary.

Semantics: The study of meaning in language form with regard to its historical change.

These definitions courtesy of the American Heritage Dictionary. So, how does this apply to network marketing? Let us count the ways.

Network marketers have, over the last half century, evolved into some of the greatest spin doctors and word-smiths that our society has ever created. We’ve become masters at romancing our semantics. That is, we as an industry have created this wonderful, al beit misleading and illusionary, way of stating facts. As paradoxical as that may sound (illusionary facts?), practically every line of every ad, and every sentence spoken at a typical opportunity meeting now contains some degree of evidence of this. To wit…

“No, we don’t accept credit cards… we’re in the business of getting people out of debt, not further in debt!”

I didn’t make that one up. A prominent MLM company made this exclamation several years ago – after burning through 22 Merchant Service providers that refused to accept their account. The proverbial lemonade out of lemons.

How about this classic: “We are absolutely debt free!” Translation: “No one will lend us money!” Now, understand. I’m sure there are many MLM companies who are debt free because they pay for everything with cash, and they can comfortably afford to do so. Good for them. But, how do you know? Simply proclaiming yourself debt free certainly implies your cash rich and financially prudent, or it could mean you can’t initiate credit terms, or you’ve screwed so many of your vendors in the past they’re only agree to do business with you on a cash basis. The latter scenario would likely signal the death knell of the company. Yet, they could still claim “We are absolutely debt free!” and they would be absolutely telling the truth. Another paradox. Dishonest honesty.

I’ve always loved this one: “We’re approaching momentum!” Now, if we were to make the logical assumption that all MLM companies will eventually achieve some degree of fast growth if they stay in business long enough, practically any company could make this claim. But, what exactly is “momentum?” Is it 50% growth in one month? Is it 100% monthly growth over three months? One thousand percent in a week? Well, let’s take a look at one recent situation. A 10-plus year old MLM company had never received more than 350 applications in a single day. That was their record. Then, one recent Thursday, out of no where, 800 apps swamped the home office. The next day, 1,300 more! Some of their distributors road through MLMville yelling “Momentum is coming! Momentum is coming!” Was it? Mmm, well, sounds like it, doesn’t it? But, let’s take a peak behind the scenes. This company had a $295 enrollment package (I’ve changes the details here just slightly to protect the innocent). They had also just absorbed the distributor base of another MLM company. This new influx of distributors were given a grace period to re-enroll and have the $295 fee waved. Guess when the deadline was? That’s right. Five o’clock that Friday.

Pay no attention to that man behind the curtain.

Let’s stay with this issue of “momentum” a bit longer. This is surely one of the most romanticized words in the MLMer vocabulary. What exactly is “approaching?” A common MLM myth that continues to go in and out of remission is that MLM companies hit momentum when they reach $50 million in annual sales. The truth is, one company out of thousands, over the last 53 years, went into momentum at that point (Nu Skin around 1990). Not one before, not one since. But, for some reason, that’s now the accepted benchmark by many MLM romantics. So, when they boldly claim that their company is going into momentum soon because they are “approaching $50 million in annual sales,” are they being truthful? It’s hard not to be. If that company had sales last month of $10, and sales this month were $20, they are, in fact, “approaching” $50 million in annual sales.

Rationalizing: Lying with a clear conscience.

That’s the Clements Dictionary definition.

The word games some companies play to avoid the Multilevel Marketing stigma are almost funny. Almost. The original title is a definition unto itself. Multilevel Marketing: Multiple levels of people marketing. Pretty simple, isn’t it? Yet there are companies out there that will deny ad nausea, even to the point of taking legal action, if you refer to them as a Multilevel Marketing operation – even though there are obviously multiple levels of people marketing there in. What’s so absurd about this is that their entire case is based on nothing more than title changes. Their delineation from MLM is based solely on their making up a different group of words for things. For example, Melaluaca is NOT multilevel marketing, they are Consumer Direct Marketing. Market America is NOT multilevel marketing, they are the UnFranchise. Mary Kay Cosmetics is NOT multilevel marketing, they are Dual Marketing. And, they don’t have “break away” groups, they have “offspring” groups. They don’t have levels, they have “tiers.”

I think I’ll call the tires of my Mitsubishi “landing gear” and the body a “fuselage” and the cab a “cockpit” and the horizontal fin on my trunk a “wing” and then I can rightfully claim to be an airline pilot. Can’t I?

Sarcasm: A mocking or contemptuously ironic remark.

Here’s a few other recent examples. I’ll just run through them quickly.

“We’re listed with the Better Business Bureau!” One of the most common ways a company get’s “listed” with the BBB is by having complaints registered against it. A company chooses to be amember.

“(fill in the blank) has been nominated for a Nobel Prize!” I can nominate by cat for a Nobel Prize.

“(fill in the blank) has previously owned/operated two multi-million dollar network marketing companies!” Mohammed Ali wanted to be “four time Heavy Weight Champion.” To achieve this feat required that he lose at least three times. So, if so-and-so used to own and operate other MLM companies – what happened to them? They went out of business? They were shut down? The shareholders booted him out? He sold his interest and is now starting another MLM company in competition with his old company? The possibilities are myriad. None of them are good.

“Our products are listed in the Physician’s Desk Reference.” The PDR lists what you pay them to. The publisher “does not warrant or guarantee,” nor have they performed “any independent analysis,” nor are they “advocating the use of” any product found therein. That’s straight from the forward of the 47th edition.

“Our product is a $60 billion industry!” In other words, you’re trying to sell something everyone already possesses?

“We don’t sell lotions and potions!” So, you’re saying you’ve intentionally avoided the one product niche that the largest, most successful MLM companies and richest distributors are all involved in? That’s a selling point?

“No meetings!” So, you’re saying you don’t offer what has been proven to be the single most effective enrollment and training method throughout MLM history? This is a benefit?

“No selling!” So, you’re… lying?

“Our infinity bonus pays 10% down to the first Platinum-With-Diamonds-In-It Director in the leg.” Translation: “Our infinity bonus pays down a few more levels and then stops.”

Mr. Webster and I have a very different definition of “infinity” than many MLM companies. I’m pretty sure infinity means doesn’t stop.

Here’s more illusionary benefits…

“We allow you to enroll your spouse (or yourself) on your own first level!” An illusionary benefit based on the illusion you’re the only one that benefits. If everyone else has the same benefit, and they’re all double-dipping too, then sure, you’re get paid double – on half the volume!

“No (or little tiny) monthly personal volume requirement!” So, you create this big downline full of people all sitting around waiting for someone to order something. If you don’t have to order very much, then they don’t have to order very much.

“You can earn overrides on your own personal volume!” This essentially amounts to a rebate. Problem is, it’s really just a tax free loan to the company that you will pay income tax on twice!Think about it. You pay $10.00 of already taxed income for a bottle of vitamins. The company keeps it for a month, then pays you back $2.00 of your own money. They got free use of your money for a month, and Uncle Sam says that $2.00 is new income. And you get double taxed – instead of just charging you $8.00 for the vitamins. The company benefits in two ways: Financially, and the creation of good will. The distributors actually think they’re doing them a favor!

Here’s my all time favorite: “We sell our service at slightly below cost, but we make it up in volume.” I think we should pause for a moment on that one.

Okay, let’s continue.

“(fill in the company) was ten years in development!” So, the founder thought about it for nine years, and spent the last year putting everything together?

“We’re in prelaunch!” The birth of an MLM company is no different than the birth of a baby. You’re never in “prebirth.” Either you’re born, or your not. Either your processing applications, shipping product, and cutting checks, or you’re not. “Prelaunch” is nothing more than a marketing gimmick to entice the naivé newcomer to MLM who still believes there is an inherent advantage to “getting in at the top.” Some companies have romanced this illusion for literally years! I know one company that claimed they were in prelaunch in their third year of business!

“Ground floor” is abused in much the same maneer. Some companies are now defining ground floor by the relatively small number of distributors they have, not their age. One such company recently claimed to be a “ground floor opportunity” even though they were over ten years old!

Statistics can be romanced as well. And when you couch them in well played semantics, the results can go from ridiculous to dangerous.

“You can earn up to $90,000 per month, or more!” Read this very real ad headline carefully. It essentially covers every number from zero to infinity. The ultimate Truth in Advertising.

“Over 300,000 people have joined our company!” This was also a true statement at the time. Of course, the ad forgot to mention that 230,000 had since quit. Note, it doesn’t say they have 300,000, it says that’s how many “have joined.”

Along those same lines, several less-than-five-year-old MLM companies today are bragging about their distributor base of 500,000-plus. The catch is, they are counting how many sequential ID numbers they have given out throughout their history. Each could lose 50,000 reps next month, and gain 1,000 new ones, and that number will go up to 501,000.

Hype: To increase artificially.

And speaking of less-than-five-year-old companies, have you heard this one? “Only 26 (29?, 32?, 36?) MLM companies have made it to their fifth anniversary.” The most ironic thing about this wholly incorrect claim (I have 79 such companies in my database) is that it was popularized by a leading distributor for a company that had not yet celebrated it’s fifth anniversary. The intent here, obviously, was to scare prospects away from less-than-five-year-old companies. The reality is that the vast majority of MLM failures occur within the first two years. So, to then suggest that the vast majority fail within the first five years would be an accurate statement, would it not? But then, so would “The vast majority of MLM companies fail within the first 20 years.” Of course, you’d only say that if you were involved in a 21 year old company.

But the illogic of this scare-tactic propaganda goes even deeper. Even if the 26 company figure above were accurate, it still wouldn’t really mean what it’s intended to mean. Of all the MLM companies that have ever existed in the last 53 years, the vast majority launched this decade! Of course there are very few old MLM companies. Using the same illogic I can prove that the Model T Ford is better built and last longer than a Lexus. After all, of all the cars still on the road after 75 years of use, almost all are Model T’s and not one is a Lexus.

This one drives me nuts: “If you get four people who each get four, you can make $800 with just 20 people!” These types of pitches will even be referred to as “conservative.” They are also assuming that every single distributor that you enroll will enroll four others, and that the bottom 16 will never quit even though they have no downline themselves, in fact no one ever quits, and every single distributor in your downline always orders each month.

Conservative: Moderate; cautious; restrained; erring towards the negative.

And what about those really low attrition rates we keep hearing about? Is a 6% attrition rate good? Sounds pretty good – if they’re talking about last year, or over the life of the company. Or, are they referring to yesterday? Or last week? We don’t know. They never say. Wonder why.

Reorder rates can be manipulated in much the same way. More than one popular program has recently claimed a “75% monthly reorder rate.” Okay, so 100 people order in January. Seventy five reorder in February. Then, 75% of them, or 56 people will reorder in March… and 42 in April… 32 in May… 24 in June… I think you see where this is going… and 12 months later you’ll have no customers left – and still be able to make an honest claim to a 75% monthly reorder rate. Technically.

There was a company a few years ago that claimed 93% of all those surveyed had lost weight on their diet products. What wasn’t revealed was that only those who had been on the product for at least six months were part of the survey. What I can’t figure out is why the other 7% kept ordering!

“There are liars, damn liars, and statisticians.” – Mark Twain

The Aloe wars of the early 90’s saw it’s share of data romancing. One company said right on their 16 oz. bottle, “This bottle contains 100% pure Aloe Vera.” A competitor had the product assayed. It contained one ounce of pure Aloe Vera, and 15 oz. of water and flavoring. They sued claiming false advertising. They lost. The bottle did indeed “contain 100% pure Aloe Vera.” As well as water and flavoring.

Sales figures have seen more romance that a Harlequin Novel. One popular company claimed sales in the hundreds of millions. Upon closer review, I found that almost half of their “sales” were the training packages they were charging their distributors, not the product they were in the business of selling. In fact, “sales” included administrative fees, shipping charges, marketing tools, and other such items. I guess a sale is a sale. Another company recently claimed a monthly sales figure of $8.5 million. Of course, they were quoting “retail” sales… and they have a 100% suggested markup… and an 8 oz. bottle of shampoo wholesaled for $12.50 ($25.00 suggested retail)… they have free distributor enrollment… so their products are probably never retailed, ever… so… their actual sales were exactly half the number they were promoting.

There’s an old saying, “If you torture the data long enough you can make it say anything.” It seems it’s also true that you can romance it into doing your bidding as well.

Do we, as an industry, tend to romance our incomes, just a little? Like, when someone says to you “My income has reached $50,000 per month!” Only, they forget to mention that a third came from a downline that was given to them as part of a sweetheart deal with the company, another third came from a past downline that they moved over, and the other third came from the books and tapes they marketed to this prefab downline. Oh, and notice they didn’t actually tell you they were making fifty grand right now, they clearly said their income “has reached” that level. That was in 1993. They’re only making $5,000 now, and have $6,000 in monthly expenses. Unfortunately, I’m only exaggerating just a little.

I actually find it quite amusing when I hear these hucksters claim they were making some huge income in another MLM program, and they just “walked away” from it to join this hot, Earth shaking, revolutionary new start up deal. Obviously, there’s always more to the story. Like, they sold their old downline, or their distributorship was terminated, or the company just filed Chapter 13. It’s easy to walk away from a $50,000 check – when it bounces. One “heavy hitter” called me recently to proclaim he’d just walked away from aone… hundred… thousand… dollar monthly income. True story. Even if his story were all true, you know why I’d never want to be enrolled by this guy? Because I wouldn’t want an IDIOT for a sponsor! Or, someone who thought I was.

Folks, when my income gets to $100,000 per month, I’m going to brand my company’s logo onto my forehead!

Please understand, I’m not suggesting every positive claim or impressive statistic about network marketing is bogus. In fact, as cynical as I’ve become about this business, I still believe the “pros” (professionals) outnumber the “cons” (convicts). The desperate, aggressive, over-zealous minority of MLMers out there just seem to be the one’s that are always in our face. They stand out.

Network marketing is good. Very good. There’s no shortage of positive information out there. I’m just balancing the scale. This is the secret behind the trick. Take away the smoke and mirrors and the illusion loses it’s ability to persuade.

Romance the truth. It’s okay. Hype is powerless against it.

The MLM Name Game

Have We Reached Saturation?

By Len Clements © 1999

At one time in the long history of multi-level marketing – decades ago, in fact – there was a great concern by both MLM participants as well as state and federal regulators that there would be an inevitable point of market saturation that would cause the entire industry to come to a painful, grinding halt. Well, in over half a century we’ve managed to tap less than 10% of the US population (even counting all those who tried it, quit, and will never try it again). Guess that saturation thing isn’t going to happen anytime soon.

Well, at least not distributor saturation.

Unfortunately, we have another concern. It’s opportunity saturation.

I read a somewhat amusing article the other day by a well respected MLM guru who was claiming that the network marketing industry is “booming!” His rationale for making this tired, almost cliché exclamation was the massive number of MLM company start ups that have occurred in recent years, and are still occurring today. Now, I don’t have a PhD in economics, but I’m pretty sure an industry “booms” when the number of customers for a particular product increases on a mass scale, not when the number of peopleselling the product increases. This is basic supply and demand. An industry booms when the demand booms, not the number of suppliers. In fact, when supply far outstrips demand is one primary cause for a major industry slump.

Call me a cynic, call me a pessimist (ah, if I only had a dollar for every time someone did…), but from my view, I’d say we’ve been in an industry wide slump for about four or five years. Sure, the number of MLM companies is increasing at a phenomenal rate, but many times greater than the demand!

One (of many) indicators of this “opportunity saturation” is the way companies today are stepping all over each other with their corporate names. I mean, there’s only so many ways to combine “Life,” “New,” “Health,” and all or part of “American,” before we flat out run out of company names!

I recently did a search of my MLM company database which, keep in mind, contains less than half of the approximately 1,200 companies out there, and found no less than 35 companies with the word “Life” in their name. Thirtyfive! There was Vision For Life, and Nutrition For Life, and Renaissance For Life, and there was just 4Life. There was LifeSciences Technologies and LifeScience, Inc., both of which smushed the first two words together.

There were a mere dozen with the word “Health” in the name and seven used the word “Body” including Royal Body Care, Total Body care, and Nature’s Body Care (who used to call themselvesAustralian Body Care).

There’s Excel, the telecommunications company. But, don’t stutter when you say their name. People will think your talking about E-Excel.

The two I get confused by the most are Nato and Natus. And now we also have N.A.T.A.L to go along with Matol.

There’s FutureNet, Furturewave, and Future World. And speaking of the future, here’s some for you Star Trek fans: Voyager, Trek Alliance, and New Generations. As of this writing, there is no MLM company called Deep Space Nine, Incorporated. Give it time.

I had a contest in my newsletter to see how many MLM companies, living or dead, had the word “way” somewhere in their name. Amazingly, only ten could be found. They were: Kingsway, Richway, Jewelway, Neways, Greenway, Jetway, Easy Way, MultiWay, American Freeway 100, and of course, Amway. Any others?

The last thing we need is for existing companies to renamethemselves. Images International claimed, several years ago, that they had to change their name due to a trademark conflict. They became Neways. Recently, Image International launched (now companies are retreading old, abandoned names!). Maybe, to avoid confusion, we could call one company “Old Image International” and the other one “New Image Inter-” nope, can’t do that. There’salready a New Image International!

Speaking of “New,” apparently there are so few words left that can be attached to the end of this word (Nu Skin, New Image, Neways, Nu Directions, Nu Care, Nu Botanical, New Resolution, New Vision…) that a recent start up decided to just call themselves “New.” That’s it, just New. Okay, technically it’s New, Inc.

“Image” isn’t the only example of resurrecting dead company names either. A few years ago some ex-FundAmerica guys tried to restart that program and called it FundAmerica 2000. Great idea. Let’s take a company that was just shut down for being an illegal pyramid scheme, which made the news on every major network in the land, and who’s founder was brought up on criminal charges and sent to prison – and call our new company by the same name!

For some reason, no one wanted to join FundAmerica 2000. Strange.

Less than three years ago a company ironically titled Momentum went out of business. Personally, and this is just me talking, that’s way too soon to be calling a new start up “Momentum.” Even if you put “Health & Nutrition” after it, as one just did.

Why?, you might ask.

Because us distributors have a penchant for referring to our companies by the fewest possible words, omitting them from right to left. For example, do you really think distributors in “Health Dynamics, a Division of Terra Forma Incorporated” really call themselves that? (Actually, some do – and it’s kind of painful to hear them do it). Let’s reduce the words, from right to left, until we get to the minimum that makes sense. Does “Health Dynamics a” make any sense? Mmmm, I think we can go a word or two more. How about just “Health?” Nope, one word too many. And yes, in fact, most reps do call this company “Health Dynamics.”

Imagine the confusion between companies like 21st Century Global Network, and 21st Century Nutriceuticals. I recently made a negative remark about the former on my radio show, and got calls and letters from the latter who were not at all happy. Why? Because I did the same thing! I lopped off “Global Network,” as most others do, and just called them “21st Century.” You’d think this problem was solved when 21st Century Global Network was absorbed by Legacy USA. But, alas, we still have 21st Century Collectables and 21st Century Network! What’s more, Legacy Health Solutions will likely use the same minimalist method that Legacy USA reps will use – and they’re both call themselves “Legacy.”

Fortunately, Legacy Lifeline is no longer with us. Well, at least until some new start up thinks it’s a cool name.

Heritage Health Products, which is commonly referred to by their own reps as just “Heritage,” probably won’t suffer as much confusion with the now defunct International Heritage Inc.. You can drop the “Inc.” but that’s about it. IHI was rarely referred to as just “Heritage” because that would require dropping a word from the front end. Never happens.

Another example would be Longevity Network (drop the Network, call it Longevity), and American Longevity (can’t drop a word from the front, so it’s always the whole “American Longevity”). There’s also weird hybrid names like Youngevity (yes, there really is one).

Okay, so what about Mannatech? (which, by the way, used to be called Emprise – when there’s a shortage, corporate names should be rationed one to a company!). You’d sure think this company name would remain unique, wouldn’t you? Well, ask a MannaValley distributor. Of course, when the words are conjoined you don’t drop one. I don’t think anyone’s going to claim to be a distributor for “Manna.”

Rumor has it that the management of Renaissance For Life was fit to be tied when some folks who spun off of Destiny (Telecom) started another calling card deal and called it Renaissance USA. And, you betcha’, everybody was calling them both just “Renaissance.”

Since there is at least a (verifiable) 92% failure rate among start up MLMs, most of these name overlaps take care of themselves, as was the case with the extra Renaissance. But, here’s the ironic twist to this story. The owner of Renaissance For Life launched yet another MLM company (they’re calling it a sub-division) and called it Advantage International Marketing. There’s no other company with a first name of “Advantage” (is there?), so, what’s the problem?

Well, there’s one more thing we all love to do with our company names. Make acronyms out of them! Right? Nutrition For Life is “NFL.” American Communications Network is “ACN.” National Safety Associates is “NSA.” Staff Of Life was “SOL” (which probably explains why they changed their name to R-Garden). So, guess what Advantage International Marketing is called? That’s right. AIM. Guess what the much older American Image Marketing is called? That’s right. AIM!

Some companies have really cool names. I like Usana (anything with the word “Sauna” in the title works for me). Longevity, of course. Integris works. I’ve always liked the name Vaxä, even though I have no idea what it means. Equinox is a beautiful name (too bad it’s such an ugly opportunity). And I’ve always liked the old, homey sound of Watkins. Thank God the founder wasn’t named Manson, huh?

In their apparent desperation to come up with a neat company name, with so few still remaining, some companies, it seems, had to take from the bottom of the barrel.

I’ve never liked the name “Changes.” I know how much we distributors hate changes – that is, perpetual changes to the comp plan, changes to the products, changes to the marketing system,changes to the company name… I don’t want “changes.” I want consistency. I want solidity. I want to be a distributor for Stability International!

Or, how about Jackpot International? Or, Millionaire Maker’s Inc.? Why not just get a megahorn and stand outside your state’s Attorney General’s office and yell, “We’ll a pyramid scheme, we’re a money game, investigate us PLEASE!!!”

And who came up with the idea to launch a company called “Y2K International?” Why not call it “Paranoia International.” Or, “Hysteria International.” Or, I got one – how about “Armageddon International!?”

I wonder… What is Y2K International going to call themselves next year? Y2K1?

No discussion of the MLM Name Game would be complete unless we gave a little attention to the screwy games we play with what we call this entire industry.

Back in the 1950’s, when Shaklee and Amway first began, this form of business was called only one thing – multi-level marketing. Today, you may here it referred to as; Personal Marketing, Consumer Direct Marketing, Direct to Market Selling, Direct Marketing, Home Marketing, Dual Marketing, and unfortunately, even Pyramid Sales (with no negative connotation intended). I’ve even heard it referred to as “Multiple Layer Retailing,” and “The UnFranchise.” Give me a break!

The most common alternative title is, of course, Networkmarketing.

Why so many aliases? I theorize that it has a lot to do with the negative image that the term “multi-level marketing” still brings with it. There are so many people that still associate this term to pyramids schemes, fly-by-night rip-offs, home party demonstrations, door-to-door sales (ding-dong), and really boring products like soap and scrub brushes. One way to avoid this stigma is to create a whole new identity. I think companies just wanted to present a new, fresh image of the business.

I once called a Mary Kay representative, many years ago before I knew better, and told her I was interested in getting information on “multi-level marketing” businesses. She curtly told me that Mary Kay is not a multi-level marketing company. They use a form of business called “Dual” marketing. When I questioned further as to the nature of this seemingly new way of doing business, she explained that in dual marketing you make money two ways. You can buy the products wholesale from the company and resell it at a profit, or you can sponsor others to sell them and you make a commission. Duel. Two ways. I was still confused.

When I asked her if these people you sponsor can also sponsor others into the business and do you receive a commission off their sales as well, she said definitely yes. Okay. So all these people are “marketing” the products? Yes, she replied. And they are marketing the products on different “levels” below you? Yes. On “multiple” levels? Yes. They’re marketing the products on multiple levels? Yes. So it’s multi-level marketing? NO! It’s dual marketing.

I really question whether or not all these pseudonyms really have much effect on uninformed prospects, anyway. Many times I’ve used the term “Network” marketing, only to have my prospect respond with, “Oh, that’s like multi-level marketing, isn’t it?” When I agree, they sometimes come back with, “Is this like one of those pyramid schemes?” Very rarely do they not do the math.

Call it what you will, it’s all multi-level marketing in the literal sense. They’re all marketing products on multiple levels.

If anything, I think we should just all just stick with MLM or Network marketing. Anything else might seem as if we’ll trying to hide something — as if we’re not too proud of what we’re really offering.

If that’s how you really feel, best you call it “quits.”

The Extinction of Excellence?

By Len Clements © 1997

Want to know how to make your business grow? Then let me tell you a story – three stories.

A man sees an ad offering a wealth building business opportunity. It instructs him to call an 800 number to hear a “powerful, life changing message,” He listens. He is then instructed to pull down some basic information from a fax-on-demand. He does. Within the documents he receives is a distributor application. He signs up. He places the same ad. Others calls. Others access the fax-on-demand. Others join.

A woman receives a cassette tape in the mail titled “Wealth Secrets.” She listens. The secret? Just mail out tapes like this one. There’s a phone number to call on the tape case and a distributor pin number. She calls the number. She orders some cassette tapes and mails them. Others call in to enroll, providing her pin number. Others order cassette tapes.

You hand a friend an “opportunity video.” He watches it. It closes by offering him an opportunity to purchase a $20.00 “Money Making Info Pak.” He does (eliminating the need for you to inventory or mail promotional material). He joins – and buys 100 videos to hand to his friends.

Simple. Duplicatable. Turn key. Phenomenal systems, aren’t they?

Yes – In theory.

No – in reality!

For most folks, network marketing is a career choice. It’s a way out of the rat race. It’s an endeavor that will, hopefully, earn them a comfortable living. One that will pay the mortgage, feed their family, and provide a secure retirement. Most people take choosing how to create a livelihood pretty seriously. They really put some thought (if not four or more years of study) into what they are going to do for a living for the rest of their lives. And, apparently, many people are willing to base this decision on a two page faxed document or a 20 minute cassette tape message.

As upline sponsors, do we really want them to? Really?

I mean, how serious can a person be taking this business who spent 20 minutes to evaluate it and 20 bucks to join it? Think about it. What is the greatest allure to “systems” like these? Isn’t it the simplicity? The alleged effortlessness? The ease? Don’t systems like these basically say “If you think this business might be too hard, here’s a system for you.” It suggests that the “Wave 3 Technologies” will do the work for you. The “system” will build your downline, rather than you. So, who would systems like these attract? Well, most likely those who feel they can’t do it on their own, or don’t want to work very hard!

It’s kind of like improving the GPA on report cards by separating out all the C and D students onto one class, then grading everyone on a curve — as opposed to improving their study skills and helping them learn more.

Or, a better analogy might be that it’s like moving the pitchers mound further away from the batter to make the ball easier to hit, rather than teaching the batter how to be a “heavy hitter.”

Yes, these systems might help the distributor put up some impressive numbers, recruitment wise, but not the numbers that really count — like, amount of dollars on the check! Hey, I have a system that will allow everyone to recruit 100 distributors an hour!I’m serious. All you have to do it walk up to every person you see, gently tap them on the right shoulder and say “I declare you a distributor!” That’s it. Totally duplicatable, requires no expensive sales aids, easy to teach, and will create a genealogy that will stretch from Fresno to Miami – but, of course, no income what-so-ever.

And many of these “systems” we have today are not that far away from this!

Oh sure, most of these systems do provide at least some sales volume and income. But how much and for how long? Are these participants in your opportunity really getting involved to pursue a long term, career changing business opportunity? Do you really think they are joining because they have a great loyalty towards the product? Or, are they buying into the system? Is the method of building the “product” they are really buying? So what do you think these people do if, or when, that product stops performing, or never performs for them? They throw it away! They have no real vested interest, at least emotionally if not financially, in the business. They likely have little or no affinity towards the real products — it was just stuff they had to buy to make the system work, right?

Sometime a few years ago, it’s arguable exactly when, this product focused, merit based industry metamorphosized into a big, giant recruiting contest. Today, almost every “system” is designed to simply slam people into the business. The introduction of all this “Wave-3 Technology” back in the 80’s was suppose to help uscommunicate with people — not communicate for us. We’ve abused this technology. We’ve let it spoil us. We’ve gotten soft and lazy (as a group – there are exceptions, of course).

So, rather than lowering the bar, how about if we all get back to training people to jump higher? Rather than bringing the business down to meet the mediocre, why don’t we bring the mediocre up to the level of excellence that is required to succeed in this business?

One way we might accomplish this is to stop creating systems that are based on what we wish people would do, or what we think theyshould do, and start developing more systems based on what theywill do. This age old concept of “Find a need and fill it and the world will beat a path to your door” is, at least semantically, quite flawed. We, as a society, don’t buy “needs,” we buy wants. We “need” to eat low fat foods — we want bacon double cheeseburgers. We “need” to exercise more – we want to just take a pill that will create the same results. How many of us “need” to see moving pictures projected on a screen, or ingest carbonated sugar water? No one. Yet, the motion picture and soft drink industries are two of the largest on Earth. Why? Because it fulfills a major want, not a need.

Sure, it would be wonderful if all your new recruits could afford to distribute $20 “prequalifying” or “prospecting” packages. It would be great if all those prospects would actually read the book you send them or thoroughly study the product and comp plan material, watch the video, and listen to all the audio cassettes. Life would be grand if, by the time you followed up with them on the phone they were fully informed, objectionless, and ready to dive right in. Or, better yet, if all this could be accomplish without even making the follow up call! It would be MLM Utopia! A land where the whole world wants to hear about your opportunity, is excited about attending your next opportunity meeting, and fully cooperated with the entire recruiting process. Am I exaggerating? Have you listen to any presentation on any “system” that does not describe a perfect world scenario where you ask your friend if they have time to listen to an “exciting, life changing message” and your friend says “Sure, Bob, sounds great. What’s the number?” Or, have you ever heard anyone describe the “referral” prospecting technique where you ask a friend if they “know anyone who would be interested in making an extra 5 to 10 thousand dollars a month” and the friend actually believes you’re not really asking them? All the time, right? – and it’s pure fantasy!

So, you’ve got this great, automatic, turn-key, duplicatable system. Great. Now, where do you get the leads to run through it? Who sells the prospect on why they should listen to the 800-number or cassette tape? Who answers their detailed questions about the compensation plan or products? Who addresses their concerns or objections? Who motivates them once they’re in? Who teaches them, if they do join, how to do all of these things and how to teach it to others?

This is direct sales, which does not lend itself to the cookie cutter approach of franchising (although many “system” proponents will rationalize their approach by siting the success of the franchising industry). Two of the most fundamental, basic aspects of sales, at least in every other direct sales related business, is describingbenefits as opposed to features, and discovering what your prospectwants, and tailoring the “pitch” to match. In other words, don’t tell them what your product does, tell them what they are going to get out of it. How is it going to improve their life? How can you do that without first discovering what aspect of their life needs improving? Very few people teach this benefits focused approach in network marketing, yet it’s an extremely acquirable skill that you wouldn’t last even one day without in any other sales profession!

These “systems” take a blind, shotgun approach. There is absolutely no customization of the “pitch” to match the wants of the prospect. They all just assume it’s money. It’s not. Ever. If all we wanted was money, then why do we quickly exchange it for something else the moment we get it? What they want is the something else! And the “system” has not the slightest clue what that is! Furthermore, the system is one of dozens, selling an MLM program that’s one of hundreds. So your fax-on-demand spits out a page that exclaims, in big bold print, that your comp plan has a “Matching Bonus!” Or, your product contains “HGH precursors!” So what? What does that mean to me, the prospect? How do these things benefit me, and how will they provide me with a marketing advantage if I choose to be a distributor?

These automatic, turnkey systems are like shooting at a target with your eyes closed. Sure, take enough shots and your bound to hit the bullseye a few times, by accident. Yes, opening your eyes and actually aiming at the target will take a little more work. You’ll also hit the bullseye, oh, about ten times more often!

What’s more, federal and state regulatory agencies have us all on a short leash when it comes to describing the benefits of our products, especially those in the nutritional arena. Does the “system” teach you what you can and can’t say? Does it protect you and your company from regulatory action? How could it? There’s only so much you can cover in a five minute recording or a five page fax.

This is a 53 year old business. There’s really nothing new or “revolutionary” about it. Everything’s been tried, and what you see today are just variations of what’s already been done in the past. If we want to discover what works, all we have to do is look back over the last half century and see what has worked, then do that! The stuff that doesn’t work, well, don’t do that! Take a look at the most prolific, wealth generating era of network marketing, from about 1982 to 1992. Most of the obscenely richest distributors today (were talking six digits monthly) originally made their fortunes back then, and they simply maintained it through the rest of the 90’s. Many have lost most or all of it since then. Compare the number of mega-earners from back then to those that have appeared within the last six years. It’s a small fraction. There are a myriad theories to explain this phenomenon, but one certainly must be the advent of the “simple, turn-key, duplicatable system” and the turning away from tried and true methods of building. Things like, oh, talking to people!

Fortunately, there appears to be the very beginnings of a migration back to the, yes, more difficult, but more successful form of network marketing (yes, excellence in network marketing isn’t extinct, just endangered). Even a few of the most die-hard “system” guys are now converting over. Even perhaps the biggest advocate of machine made downlines (you know, the guy with the bag on his head?) I hear is now promoting a more personal, product focused approach (and good for him). And I didn’t just use the term “guys” generically. MLM’s women, in general, still seem to have no problem with making prolonged human contact. It seems to be only the guys who desire an alternate form of communication (as any John Gray book would attest).

Never, in the history of network marketing, has someone built a large, lasting, big income producing downline using any type of simple, automatic system (name one!). Now, make a list of all those who have achieved lasting success and you’re have a list of people who are professional, hard working, excellent network marketers! Or, a few who got lucky and enrolled one or twoprofessional, hard working, excellent network marketers! And, you’ll also have a list of people who, at one time, were NOT professional, excellent network marketers! Professionalism and excellence IS duplicatable! Although it might require some, God forbid, hard work.

But as the last 53 years of MLM, and the last six million years of human existence, has taught us…

Work works!

Why Internet Based MLM Opportunities Will Never Work

By Len Clements © 2003

There were times in our country’s history when both the automobile and television were considered by some to be nothing more than passing fads. In the 1960’s many folks, including those with the highest intellect and reason, laughingly scoffed at the idea that someday we’d all have computers in our homes. I suspect there were even some among the most astute of the cro-magnon who grunted with amusement over Og’s silly wheel idea.

And then there was that guy who, back in 2000, said internet based MLM would never work.

While some may suggest I have a severe lack of “vision,” I believe I’m one of the few who actually has their eyes open. In fact, from my objective, outsider’s point of view, I think I can see through the smoke and blinding glitter that seems to be surrounding this new, hot segment of network marketing. Let’s fan away the hype and see what’s underneath.

First, a caveat…

Yes, the internet is, and will continue to be, a phenomenal tool to help us present our opportunities. Soon, on line, live video opportunity meetings and training sessions will be commonplace. I see a day when brochures, applications and order forms will be all but obsolete. The U.S. mail will be virtually void of audio cassettes, which will then be downloaded off the net in a matter of seconds. And yes, people will be ordering cookies, shampoo and vitamins from their company’s web site, which is already a common practice. I’m not talking about this stuff. This is all fine and dandy (and will get far dandier in the near future). No, I’m talking about MLM programs that are based solely or primarily on either recruiting over the net, selling web sites, internet access, or other company’s products.

Once you crack through the brilliant chrome casing and really see what’s inside these “opportunities” you’ll discover the monumental challenge they will all face – there’s simply not going to be enough sales volume to generate any significant income. Think about it. Let’s say you sell web sites for $100 per year. Okay, all of you who are in one of those old “lotions and potions” companies (the derogatory term most service based MLMs use to define personal and health care products) imagine what would happen if every person in your downline were generating only $8.33 per month in commissionable sales volume. Well, that’s $100 divided by 12. I don’t care if the company pays out a whopping 70%, they’re paying out 70% of an average $8.33 per month, and then they have to divide that among several levels of distributors. When you look at MLM ISP’s (Internet Service Providers) the picture gets even uglier. The best monthly rates I’ve seen fall around the $7 level (although some MLM ISP’s are charging two to three times that much) and paying out little more than half in commissions (which, again, is then spread across several levels of distributors). Not unlike long distance service, as competition continues to drive the price down the consumer will benefit, but the networker trying to make a living selling to them will suffer.

E-Commerce based MLMs will be the most challenging of all. Remember, I’m talking about deals where you can buy name brand products from many vendors (think if they were MLM). Let’s follow the flow of sales volume (or, lack of such in this case). First, you must enroll someone in your downline. Second, they must actually buy something from your web site. Third, the company, which is typically a reseller (a middleman between the supplier and the buyer) only counts about half the volume as commissionable (as in 50% BV). Fourth, they pay out, let’s say 60% of that in total commissions. Fifth, that portion is then divided among, let’s say, seven distributors upline to the sale (assuming a common seven level pay plan). Therefore, you get 14% (one-seventh). So, of whatever sales volume is generated by that new recruit you just placed in your downline, you’ll be paid 14% of 60% of 50% of it. I’ll do the math. That’s 4.2%. And both the 60% and 50% assumptions are extremely optimistic.

Oh, but those people can buy cars, and expensive jewelry, and book thousand dollar travel packages – they can even buy houses off the net now! Yes, they can. But, they’re not.

The U.S. Department of Commerce does not yet provide definitive data regarding e-commerce (although they have announce their plans to do so by mid-2000), so for now I have compiled statistics based on a number of surveys conducted by web related business, university studies, and estimates by industry analysts. The general consensus is that about $9.5 billion was spent on-line in 1999. However, the percentage of those on-line who bought anything, even once, ranged from 20% to 38% (depending on the source of the data). What’s more, the average shopper purchased only nine items all year, and spent a total of $475. What would create an even greater challenge for an MLM distributor trying to earn a living is the fact that about one-third of the total annual purchases made on-line occurred between November 25th and December 25th. Thus, those in your downline who are ordering would purchase an average of $28.93 per month for 11 months, and $156.75 in December. Based on the very optimistic 4.2% we arrived at above, and that 38% of all those on line actually order anything (based on the most optimistic data I could find) you would earn about 46¢ per person in your downline in each of the first 11 months of the year. And this isn’t even factoring in the fact that only about 45% of all Americans are “wired” (currently have direct access to the internet).

To put this in perspective, a $3.00 per distributor earnings ratio is considered weak by today’s standards. Most tangible, consumable product companies are paying anywhere from $4.00 to as much as $9.00 on the sales volume of each active downline person. Not because the comp plans pay so much more, but because so much more sales volume is moving. For example, I have one, al beit exceptional, retailer in my downline who moves $2,000 to $4,500 in volume each month. That’s one distributor! It would take dozens, perhaps even hundreds of people to generate the same sales volume in an MLM opportunity selling web sites for $8.33 per month, internet access for $9.95, or on-line purchases of which $15 is commissionable. I agree a retailer moving $4,500 in a month is an aberration, but the point is, a spectacular event like this will never occur in an internet based MLM opportunity. The monthly cost of a web site or internet access is a fixed amount, and commissionable on-line purchases by any single downline member will likely never reach these levels in a single month, let alone every month. Even if we consider the more common monthly volume figure of $100 (the average monthly purchase in five product based MLM companies that I know of who disclose such numbers is $109) it would still take 7 to 12 times as many downline distributors in a net based program to achieve the same sales volume.

The internet revealed even more interesting data about itself. For example, 57% of those on-line use the web to research their purchases, then actually bought the item by conventional means (phone, or in person). Only about 12.5% went on-line specifically to purchase something (78% did so just to browse around, 64.5% were just looking for entertainment, and 51% used the web for research).

Several internet related MLM programs have recognized the severe volume shortage that exists and attempted to compensate for it by introducing $200-$495 training or start up packages. The bonuses that are paid on these packages can be substantial, but they create two new challenges. First, it’s a non-consumable, one time sale, thus a one time income. Second, it’s very likely illegal. Based on numerous legal precedence, an MLM company would be at great risk of regulatory attack by paying bonuses on a “product” that was not retailable to a non-distributor. Such bonuses would essentially be a reward for recruitment since, obviously, only new recruits would purchase the initial package For example, there are a growing number of schemes going today where you pay $200 to $900 for access to an internet mall (with links to, Barnes&, etc.). You earn a percentage of all the purchases made by those in your downline who visit the mall. Although the pay outs appear high, it’s on only a fraction of the sales volume (one popular deal shows a 100% pay out down 9 levels – but only seven percent of the volume is commissionable!). The challenge is that the $200 to $900 is also used to pay upline bonuses and this is clearly sales volume that is entirely based on recruitment. Obviously, these malls are not “products” you can mark up and resell to non-participants in the income opportunity. In fact, I just got a post card from Citibank offering me access to an almost identical conglomerate of online shopping sites (where I’ll receive discounts if I use by Citibank card) and access to the entire mall is completely free!

There are a growing number of downline building systems, and in a few cases even entire MLM programs, where the entire recruiting process is automated. People just go to a web site and sign up! First of all, signing up does not necessarily mean they’ll order anything. Many of these systems are based on just placing people in a matrix and hoping some will get inspired to try a few products. Essentially, they create a hierarchy of prospects, not distributors. Even those internet based recruitment systems that do generate product ordering distributors are building a house of cards on quicksand. Don’t we want astute, committed folks in our downline? Don’t we want people who are taking this potentially life changing decision seriously? I mean, we are talking about someone’s career, their livelihood, how they are hoping to feed their families someday. How seriously can a person be taking this decision when it’s based on their viewing a few colorful pages of a web site? The “network” in network marketing isn’t referring to computer networks, folks. It’s a network of people. People talking to each other. The internet is and will continue to be a phenomenal tool to help us communicate the benefits of our products and opportunity, but it will never be able to do it for us. Not completely. Nor should we ever want it to.

Many proponents of MLM e-commerce would surely counter my lack of sales volume argument by pointing out the massive growth of e-commerce (most estimates show internet sales increased 10-fold from ’98 to ’99). Granted the number of folks surfing the web will continue to increase dramatically over the next few years, but then, so will the number of sites they can order from. This massive proliferation of internet based vendors will be wonderful from a consumer standpoint, and a nightmare from an “income opportunity” standpoint. Although overall internet sales will increase, clearly the average purchase volume (per person) from any one particular site is going to go down as competition increases. Those purchases will be spread thinner and thinner over more online vendors. Sure, you’ll have access to more people who you can enroll into your downline, but the competition for them is obviously going to increase as well as more and more e-commerce based MLMs start up (the fact that a certain concept doesn’t work with MLM has never stopped anyone from trying it anyway – look at the number of downline building schemes, portfolio deals, Australian compensation plans, and discount buyer’s services that start up each year).

Another common counter-point to my position is Amway’s Quickstar. There’s some really big bucks being made there, so I’m wrong, right? Well, sure, when you have an already existing Amway downline of several hundred, or several thousand people, and when there’s a gold rush mentality that sweeps through the industry causing otherwise loyal, committed MLMers to jump over in droves in hopes of landing a prime spot to ride the wave, some money is going to be made by somebody. I’m talking about the average man or woman who’s starting from scratch. I’m talking about duplicatable success.

Remember, the gold rush didn’t last very long, and very few struck it rich.