Everybody, Behold the MLM

After blogging my thoughts on “High Yield Investments, Anybody” a few of my friends asked about the dynamics behind Multi-Level Marketing or Pyramid Direct Selling. Many recounted horror stories while a handful swore of success. Let me muse objectively through my shrouded thoughts, damn the haze (API 249 today), on this much misunderstood MLM creature.

My better half did share about her experience counseling reconciliation to quite a number of couples at the verge of breakup from some MLM misadventures. In most, if not all, cases their misadventures quickly morphed into marital storms when their storerooms packed with useless MLM stock or overdrawn joint bank accounts were discovered.

MLM_pyramid

Usually, the gentler halves were the innocent victims. They were easily charmed into the MLM as easy business opportunity and probably just to oblige close family members or friends over innocuous coffee or at emotional conventions. Why the gentler halves? Well, it is universal almost biblical truth that ladies care more for their appearance and health, and are seldom afraid to spend to remove a line or two. Perhaps, that is the reason why merchandise peddled through MLM tends to appeal to them. Hence, it is not surprising that health and beauty related products form bulk of any MLM stock-in-trade. Truth be told, ladies are, how should I put it, impulsive may be not so apt, let me see, yes susceptible buyers, easily swayed by wonder cure and beauty sales pitch. I would avoid the more apt word, gullible, so as not to incur their wrath. I am so sorry, I take my word back.

Well, no one should blame them for trying to earn some extra pocket money. Those MLM health and beauty products are most appealing, most essential lady’s necessity anyway. Otherwise, their spouses may not bear kissing them goodbye or goodnight. Just sign the dotted line to immediately enjoy discounts or cash rebates, savings mind you. Sounds good don’t need to bargain anymore.

If and only when the products have proven efficacious as claimed only then share your satisfaction as Good News to close family members, relatives or friends. Then they would more than welcome you, to hear you sharing your experience. They may even be more than willing to sign-up, grateful that you thought of them first. Always remember, you will enjoy further cash rebates even on their purchases so long as you continue to spend your minimum sum. Sounds great don’t need to spend more to enjoy bonus incentive. Otherwise, just drop out anytime and treat the small sum spent as tuition fee, and hopefully you did not in the meantime suffer any allergic reactions, however mild. Guess no harm trying.

Well, if you are worried that you are not the most convincing of recruiters or a quiet introvert type, worry no more and rest assured for help is but a press of the handphone button away. Just invite your potentials for coffee to network with your successful uplines. They will take it from there. Or you may invite them to your upline’s home for dinner. Alternatively, you may wish to invite them to the lavish glitzy conventions where celebrity speakers grace the stage. Sounds grand don’t need to hard sell anymore. Fret not your dear ones will not avoid you like a plague and your phone calls will not automatically be routed into a voice mail anymore.

It is all about you, your personal journey to health and wealth. Most people today, in their youth, strive for wealth at the expense of their health to only spend their wealth to regain their health in their twilight years. You will be empowered not just as any consumers but also as wise consumer cum business owner. You will be enabled to grow your business and wealth exponentially while ensuring your health as well. Damn. Their sale pitch is most persuasive and promising. Sounds so easy and healthy don’t need to put in too much effort to grow customer base exponentially. Depart you from me, o white hair and crow’s feet.

Help is readily at hand, on hand, to recruit more to replace expected natural attrition and drop outs and/or strengthen your downline base. Further, upon achieving certain milestones, you will be going for an all expense paid holiday or given the keys to a luxury continental car. Next you may find yourself basking in the glamour and limelight at lavish glitzy conventions, waltzing down the red carpet like Bollywood movie stars and Hollywood celebrities and even crowned as Disney royalties.

how-mlm-pyramid-scheme-works

Let’s just begin your journey in baby steps, first sign the dotted line. Then try sharing your feel good experience on a personal one-to-one basis over coffee. Colorful flip charts will be availed to guide you. After that, try sharing your achievements in small group settings at home over dinner. White boards or OHP, no problem. Once you are ready, you may be invited to take the podium to share your accomplishments at lavish seminars, and may be, who knows, even grace the stage at national conventions. Spot lights, microphones and cinematic projectors, already done. The sky is the limit.

The experience sounds like, looks like and feels like the personal journey of those who profess to be the followers of the biblical Son of God nailed on the rugged cross 2 millennia ago. Navigator’s buddy evangelism, Home Cell Group dynamics, Church Worship services and National Evangelism Rallies. Perhaps in all likelihood that is where MLM got its idea or may be from more ancient Pharaoh’s pyramids.

Admittedly, the MLM strategy albeit even a carbon copy of the biblical evangelism strategy, is still rather ingenious and most importantly, it works perfectly. Simply replacing the Word with products and I dare say voila you have re-invented one of the most effective business models. Jesus started with 12, and today there are billions. There is nothing evil or wrong with it. It is just business. Empowering consumers as business owners makes common business sense. Earn while you spend with a chance to potentially reach for the sky. No one in the right frame of mind would want to miss out on such an opportunity. Under such a model, every owner automatically becomes not just a captive but also a repeat loyal customer, the very dream of any business.

You decide when you want to be millionaire or even multi-millionaire and set your recruitment pace accordingly. The more aggressive your recruitment efforts the faster you will build up your pyramid and the quicker you earn your big money.

From investment risk-reward perspective, MLM platform provides an almost ideal investment structure wherein investments (purchases) are relatively small in comparison to the potentially astronomical returns (cash rebates). Multitudes had heard about MLM, many signed up and quite a number earned their bragging rights of making tons of money. On the other side of the equation, equally as many had dropped out and expectedly screamed scams and cheats. Many too refused to sign-on for whatever reasons. I had the opportunity of being invited and did attend a few of such lavish road shows but I humbly remained on the outside, a gentile.

I must admit that the MLM model makes business sense. The strategy is sound and robust. The dynamics is simple and effective. Basically, MLM cuts out the traditional intermediary’s markup for overheads, advertisements and promotions, logistics and profit margin and simply shares it amongst its business owners. Ask any retailers, they will confirm that 200-300% markups (or profit margins of 50-60%) are a norm. Assuming 5% for each level, the MLM venture can support a pyramid community of up to 10-12 levels. Everyone on whichever level has vested and carried interest buy and recruit new members to ensure that the pyramid does not collapse under its own weight.

So you may ask why am I still a gentile. Well, my hang-up is with the products peddled. Most are OTC healthcare products and cosmetics. Benefits are at best sound-bite testimonies and unverified clinical findings. Placebos sold as wonder-cure based on hearsays. Regular household utensils and water filters are another common MLM products; simply re-package convection ovens as air fryers or water filters as oxygenated, ionized or RO water and support them with some beneficial claims supposedly written by some professionals for hire, and push through the pyramid. Buying over-priced utensils for the sake of buying is plainly silly, somehow getting the queasy feeling of being cheated.

Now back to MLM pyramid. Like all pyramidal models, the key business drivers are the recruitment ratio (multiplier factor), number of levels (profit margin/cash rebate) and amount spent. Unlike the illegal High Yield scams where there is no underlying assets or products or business and the only activity is the collection of new money to pay old money with the scammer inevitably running off with the windfall. Here we have a legitimate business based on MLM strategy. In between, you would find the quasi or wayward, the likes of Genneva Gold, Ponzi and Madoff.

Let’s take an example from the market. No names, sorry. To remain in the pyramid, you will need let’s say to spend just $200 per month to buy some healthcare products, recruit 10 downlines and enjoy 5% cash rebates (income) per level up to 12th level. The MLM Company just simply needs to ensure that the profit margins for its products are not less than 60% or COGS not more than 40%. The cashflow for this MLM pyramid is easily calculated using simple Excel spreadsheet. The self explanatory table is shown for easy referencing, actually more for reality check.

Spread 6

You would probably be shown column 7 (Level 1) to grab your attention on the potential phenomenal income you could reap over coffee or during recruitment road shows. Column 2 (Investors) would unlikely be shown for the obvious reasons. Even if the whole population of our known world is involved level 11 cannot be empirically achieved. At level 10, you are talking of every citizen of China. It is for reality check. What is the number of customers that a business could realistically reach and hold? Facebook claimed to have over 300 million out of a global population of 7 billion, between level 9 and 10. Marketing 101, work backward from your target markets and make your estimate, a realistic one please.

Recruitment up to the 3rd Manager level should be a breeze, 4th Director level may be tough but achievable, 5th President level looks insurmountable but no pain no gain, 6th Diamond level quite insurmountable but no choice must try, 7th level and thereafter a distant dream, no harm hoping. Well, they did promise the sky is the limit. The recruitment effort needs to be continually maintained without any let ups just to stem drop outs, and aggressively intensified to achieve exponential growth for the promised big money.

O yes, before I pen off. If you are wondering about column 9 (Net Cashflow), well someone has to foot the bills for all the holidays, glitzy conventions and of course Lamborghini cars. So to my friends who are MLM converts and evangelists, good luck and God speed. Don’t despise the gentiles if they do not wish to follow you into your land of milk and honey. To those backsliders, forgive and forget, be happy for those who believe, bless them and move on with your life. To those who are still gentile like me, fret not, enjoy life and be happy. No, you did not miss the boat. To those on the verge of epiphany, parse through my humble thoughts again before you take that leap of faith.

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