Multi-level marketing promises freedom and wealth but often leads to disappointment.
We'll uncover how these schemes work, the dark reality behind the dream, and why so many people still fall for them.
[00:00:05] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:21] I'm Alastair Budge, and today we are going to be talking about multi-level Marketing.
[00:00:27] To its proponents, it is about freedom, personal liberty, and the opportunity to be your own boss.
[00:00:35] To others, it is the worst kind of pyramid scheme, a modern scam that tricks and traps people and serves to enrich only a tiny few.
[00:00:46] So, let’s get right into it and talk about the weird but massive world of multi-level marketing.
[00:00:56] What if I told you that I had an opportunity for you.
[00:01:00] You would never have to go to work in an office again. You could work from home, set your own hours, be your own boss, spend more quality time with friends and family, and control your destiny.
[00:01:13] And, even better, your salary would no longer be dictated by the whims of your boss, no longer would you have to be content with a small pay rise at the end of the year.
[00:01:26] Oh no.
[00:01:27] Not only would you be finally free from the shackles and monotony of office life, but you would enter a world of untapped earnings, practically limitless amounts of money.
[00:01:42] How would $10,000 a month sound to you? How about $50,000 a month?
[00:01:47] What about making a million dollars a year?
[00:01:50] What about a new car, a Mercedes even, five star all expenses paid holidays, perhaps even your own yacht.
[00:01:59] There is a small upfront investment, I’ll warn you, but you will recoup this in no time at all. After all, you gotta spend money to make money, that’s what they say isn’t it?
[00:02:12] I imagine this would sound pretty good.
[00:02:15] After all, who wouldn’t like to work less and earn more?
[00:02:21] Perhaps you are nodding your head, thinking “yes, please”, how can I get started?
[00:02:26] No problem, I’d say, and I’d pass you a form to sign.
[00:02:31] You’d add your personal details. Perhaps you’d see that the terms and conditions seemed quite long, but I’d probably tell you to not worry about that.
[00:02:41] Don’t worry, it’s all standard stuff, work hard and unleash your entrepreneurial spirit and you’ll be earning lots of money in no time, I’d tell you.
[00:02:52] If you spent the time to look through the terms and conditions, however, you might see some worrying numbers.
[00:03:00] If you are signing up for Herbalife, a large health supplements company that operates like this, you might look through and see that only 50% of people earned more than $240 a month.
[00:03:15] And that was before costs.
[00:03:18] That doesn’t sound particularly promising, that’s 4% of the median monthly salary in the USA.
[00:03:25] So you keep on reading. You read that there is no guarantee that you will make any money, and that only those in the top 1%, the most successful people, make more than $7,880 per month.
[00:03:40] And you keep on reading, “As with all business, success requires hard work, skill, and dedication.”
[00:03:47] Fair enough, you think, you know that all business requires hard work, skill and dedication. But you are going to work hard, are you not?
[00:03:57] Perhaps there are some doubts running through your mind, but I’ll put my hand on your shoulder and say “don’t worry, this is all standard stuff, their legal department makes them say it”.
[00:04:10] I’m not going to encourage you to do any more research into it, but if you do, you might see some even more worrying numbers.
[00:04:19] You might find out that, according to one US government report, approximately 0.4% of people who have ever joined a similar scheme have made any money at all.
[00:04:32] Everyone else has lost money, so statistically speaking you are 7 times more likely to make money gambling on roulette at Caesar’s Palace than joining one of these schemes. I’ve never been to Las Vegas, but if I had to choose a way to lose money, I think I’d choose doing it in Las Vegas rather than going door to door and selling health supplements.
[00:04:58] Perhaps after hearing all of this you’d think “well, thank you Alastair, I think I’ll stick with my day job after all, I’m going to pass on this opportunity”.
[00:05:08] But every year tens of millions of people enter into this world, the weird and mysterious world of multi-level marketing, so in this episode we are going to talk about how it works in theory and how it works in reality, and why it continues to hold such an allure to this very day.
[00:05:31] So, what is “multi-level marketing”?
[00:05:35] In short, it is a system in which individual people act as agents and sell products to other individuals.
[00:05:44] This might be nutrition shakes, it might be vitamins, it could be clothes, cosmetics, it could be anything.
[00:05:53] You join a multi-level company, like that wonderful offer I just made you a few minutes ago, and then you become a partner, an agent, an affiliate, they all have slightly different names for what really is the same thing.
[00:06:08] Just like a shop, you order products from the company at a wholesale, discounted price, and then you can sell them to other people for a higher price.
[00:06:20] Just like a shop, the more product you buy, the lower the price per unit you will get, and therefore the more profit you can make on each item, providing that you can sell it, that is.
[00:06:32] All good so far.
[00:06:34] But where it gets interesting, creepy even, is that you are incentivised not only to sell the end product to other people: friends, family, people in your neighbourhood.
[00:06:47] But you are also incentivised to recruit other people to become salespeople like you.
[00:06:55] You make money by selling the products, but you also make money by signing up other people and by making a commission not only on the products they buy, but on the products that the people they sign up buy.
[00:07:10] So, the more people you sign up, and the more people they sign up, the more money you make.
[00:07:18] Perhaps this all still sounds ok so far.
[00:07:23] After all, you can probably sign up five friends, as who wouldn’t like the idea of being their own boss and earning money at the same time?
[00:07:31] And they can probably each sign up five of their friends, because they all work in different companies and have different families. Easy. And you’ll be at the top, making money from everyone you have recruited and from their recruits.
[00:07:49] If you’re doing the numbers here, there is you at the top, that’s one person, then your five recruits, so five on the level below you, and they each have five below them, so that's twenty five on that level, a total of thirty one people.
[00:08:08] It all sounds very doable, but as you move down the levels, the numbers quickly start to add up. On the fourth level there are 125, the fifth level 625, all well and good.
[00:08:25] But by the time you’re at level 10 you have hit almost 2 million people.
[00:08:33] And if you are drawing this out, you might have seen that it looks like a big triangle, a pyramid even.
[00:08:41] And as you can see, the base of this pyramid gets very large very quickly.
[00:08:49] I’m recording this from Sweden, a country with just over 10 million people.
[00:08:55] If one person started this scheme and was required to sign up 5 people, and they needed to sign up 5 people, and so on, by the time it got to only 11 levels deep there literally wouldn’t be enough people in the country.
[00:09:13] What happens is that you have the suckers at the bottom, the last people to be signed up, who wouldn’t be able to sign up anyone else, so they have no way of making the money that they had been promised, because the country had run out of available people.
[00:09:30] This is one of the major criticisms of multi-level marketing schemes. Their pyramid-like nature, and the requirement for people to continue to recruit more sellers downstream from them, means that it is mathematically determined to collapse, because when you run the numbers, when you do the calculations, it doesn’t take very long at all for a town, a city, a country or even the entire world, to run out of available people.
[00:10:03] Now, you will perhaps have noted that I said pyramid-like nature, rather than simply called them a pyramid scheme.
[00:10:13] Multi-level marketing companies are insistent that they are not pyramid schemes, and they spend millions of dollars every year on lawyers and lobbyists to make sure that nobody is allowed to call them a pyramid scheme, and there is one major difference that they are quick to point out.
[00:10:33] A pyramid scheme relies purely on recruiting new people.
[00:10:39] I find five people and tell them to each give me €10, and then they need to find five people to give them €10, and people make money only by recruiting people below them.
[00:10:53] Multi-level marketing schemes are different in that you can make money by selling the product, be it vitamins, beauty products or clothes. It's technically possible to make money without recruiting anyone, but it is very hard, as all of the company marketing materials will tell you.
[00:11:12] And why is it so hard to make money purely by selling the product?
[00:11:17] Well, according to almost every critic of almost every multi-level marketing company, it’s because the products they are selling are expensive and poor quality.
[00:11:29] And you, as essentially a travelling door-to-door salesman, are competing with Walmart, Amazon, huge retail and online stores, which will always be able to provide a better selection and lower prices, so what chance do you stand?
[00:11:47] As a result your best chance of making money is by selling the dream, not the physical product.
[00:11:55] In other words, you make money by signing up other people and making a commission on the product that they buy, just as the people above you make money from commission on the product that you have bought.
[00:12:08] Or to put it another way, even more plainly, the real customers for these multi-level marketing companies are not random people on the street, but the people who have been duped into becoming sellers of the product, and been forced to buy large amounts of the product as an “investment”..
[00:12:28] Now, multi-level marketing companies tend to have all sorts of different ways to encourage their sellers to buy large quantities of stock.
[00:12:39] Firstly, sellers are encouraged to “invest” in their business, being told that they need to spend money to make money, and that buying stock isn’t a cost, it’s an investment in themselves and an investment in their future.
[00:12:56] What’s more, as you might expect, sellers get discounts for bulk buying, for buying large quantities. Fair enough, you probably think, this is how any business works.
[00:13:07] But there are many other convoluted, complicated, structures too. Sellers might need to buy a certain amount of stock every month to keep a particular “tier” level, they might need to hit a certain amount of purchases every month in order to qualify for another bonus, and one company even required its top sellers to keep $20,000 worth of stock at all times.
[00:13:35] Most multi-level marketing companies have a large range of different levels that their sellers can progress through, and the commission structures and details of how you go from one level to the next can be very difficult to follow.
[00:13:51] A cynic might even say that they are deliberately opaque and confusing so that sellers don’t fully understand how much money they might make, and hopefully, optimistically, overestimate their future earnings.
[00:14:06] Now, according to one recent report, 8% of all Americans have been part of an MLM, with 20 million Americans saying that they either are or have been actively involved in a multi-level marketing organisation.
[00:14:23] Statistically speaking, people involved in multi-level marketing tend to share certain characteristics. Women are more likely than men to participate in multi-level marketing, as are more recent immigrants to a country, and people from lower income communities.
[00:14:41] This is, on one level, unsurprising.
[00:14:44] The sales pitch of multi-level marketing is that it will allow you to achieve wealth and freedom that you would not be able to achieve through “traditional” means.
[00:14:55] A quarter of American mothers are stay at home moms, and therefore have limited opportunities to participate in the workforce.
[00:15:04] New immigrants are less likely to have gone to university and have been able to get a good high-paying “traditional” job, so it is perfectly understandable to be attracted by the promise of riches and freedom.
[00:15:19] And there is also the social element to it.
[00:15:23] Joining a multi-level marketing organisation, or MLM, allows you to feel like you are part of something, like you are part of a group of entrepreneurs all in it together, chasing your own dream.
[00:15:36] Unfortunately, the reality is that almost everyone who joins an MLM will not make more than a minimum wage job and probably end up working longer hours. And many will find that they actually lose money, that financially they would have been better off sitting on their sofa doing nothing rather than starting to “work” for an MLM.
[00:16:01] And this gets to the crux of the issue.
[00:16:05] According to their greatest critics, many MLMs have no real customers.
[00:16:11] The customer is the next sucker to be recruited, the next person who thinks that they will be selling the supplement or vitamin or whatever it is, but in fact ends up stockpiling product in their garage and spending their days attempting to recruit friends, long-lost highschool classmates, and distant relatives.
[00:16:33] There was even a famous case from 2012 when one large Wall Street investor called Bill Ackman put his money where his mouth was, declared that the MLM Herbalife was a pyramid scheme, and that he was “shorting” the company to the tune of $1 billion dollars.
[00:16:54] Essentially, he was betting that the stock price was too high, and that the company was a fraud.
[00:17:03] To outside observers however, Herbalife looked like a reputable company.
[00:17:09] It was worth billions of dollars, it sponsored football teams like LA Galaxy and had brand ambassadors like Cristiano Ronaldo. It looked and seemed like a real company, but there was a Wall Street investor saying that this huge company was essentially a fraud with no business model other than duping unwitting people into becoming unpaid salespeople for it.
[00:17:37] Now, this turned out to be an ugly battle between Ackman and another rival from the world of finance, and indeed he never managed to prove that Herbalife was a fraud, or at least, he never managed to push the share price down to the value he believed it deserved to be at.
[00:17:56] The share price has since crashed to a certain degree, but as of the time of recording this episode at least, Herbalife is still a billion dollar company, like several other multi-level marketing companies, and it shows no sign of going to zero any time soon.
[00:18:15] Now, clearly there are some people who get into multi-level marketing and manage to achieve great success, wealth, and freedom. Primarily these are the owners and shareholders of the multilevel marketing companies themselves, but there are some stories of some individuals who have done it.
[00:18:35] Unfortunately they are a tiny minority, who typically have got in incredibly early and have recruited masses of people below them, whose “investments” flow up the pyramid towards them.
[00:18:50] And it’s these people’s stories that you’ll see on the multilevel marketing websites and hear about at conferences, not of the recent immigrant who was told about this great opportunity and then spent $5,000 on stock, only to find that she wasn’t able to make a penny selling it, and she was now struggling to make the rent.
[00:19:11] According to one report, multi-level marketing is an almost $200 billion dollar industry, and is projected to grow to $330 billion by 2030, a growth of more than 65%.
[00:19:29] Globally, more than 100 million people are involved with multi-level marketing, with 8 million of those in the United States alone.
[00:19:39] To be fair, for many it is some harmless fun, a way to meet new people, work on a new project, and potentially make a little bit of money on the side.
[00:19:51] If you are going into it on this basis, sure, be my guest.
[00:19:56] However if you are going into it believing that it really is the money-making opportunity of a lifetime, all I’d suggest is thinking about why someone is pushing you so hard into becoming a salesperson for the supplement or vitamin or whatever it is.
[00:20:13] Perhaps, you’re not the entrepreneur or business owner or whatever they are telling you you’ll become; you are the customer.
[00:20:24] OK then, that is it for today's episode on multi-level marketing.
[00:20:29] I hope it's been an interesting one, and that you've learnt something new.
[00:20:32] As always, I would love to know what you thought of this episode.
[00:20:36] The obvious question is are you in multi-level marketing, have you ever been involved in it, or do you know someone who has?
[00:20:43] What has your experience been of it?
[00:20:46] I would love to know, so let’s get this discussion started.
[00:20:50] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:20:58] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:21:03] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[00:00:05] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:21] I'm Alastair Budge, and today we are going to be talking about multi-level Marketing.
[00:00:27] To its proponents, it is about freedom, personal liberty, and the opportunity to be your own boss.
[00:00:35] To others, it is the worst kind of pyramid scheme, a modern scam that tricks and traps people and serves to enrich only a tiny few.
[00:00:46] So, let’s get right into it and talk about the weird but massive world of multi-level marketing.
[00:00:56] What if I told you that I had an opportunity for you.
[00:01:00] You would never have to go to work in an office again. You could work from home, set your own hours, be your own boss, spend more quality time with friends and family, and control your destiny.
[00:01:13] And, even better, your salary would no longer be dictated by the whims of your boss, no longer would you have to be content with a small pay rise at the end of the year.
[00:01:26] Oh no.
[00:01:27] Not only would you be finally free from the shackles and monotony of office life, but you would enter a world of untapped earnings, practically limitless amounts of money.
[00:01:42] How would $10,000 a month sound to you? How about $50,000 a month?
[00:01:47] What about making a million dollars a year?
[00:01:50] What about a new car, a Mercedes even, five star all expenses paid holidays, perhaps even your own yacht.
[00:01:59] There is a small upfront investment, I’ll warn you, but you will recoup this in no time at all. After all, you gotta spend money to make money, that’s what they say isn’t it?
[00:02:12] I imagine this would sound pretty good.
[00:02:15] After all, who wouldn’t like to work less and earn more?
[00:02:21] Perhaps you are nodding your head, thinking “yes, please”, how can I get started?
[00:02:26] No problem, I’d say, and I’d pass you a form to sign.
[00:02:31] You’d add your personal details. Perhaps you’d see that the terms and conditions seemed quite long, but I’d probably tell you to not worry about that.
[00:02:41] Don’t worry, it’s all standard stuff, work hard and unleash your entrepreneurial spirit and you’ll be earning lots of money in no time, I’d tell you.
[00:02:52] If you spent the time to look through the terms and conditions, however, you might see some worrying numbers.
[00:03:00] If you are signing up for Herbalife, a large health supplements company that operates like this, you might look through and see that only 50% of people earned more than $240 a month.
[00:03:15] And that was before costs.
[00:03:18] That doesn’t sound particularly promising, that’s 4% of the median monthly salary in the USA.
[00:03:25] So you keep on reading. You read that there is no guarantee that you will make any money, and that only those in the top 1%, the most successful people, make more than $7,880 per month.
[00:03:40] And you keep on reading, “As with all business, success requires hard work, skill, and dedication.”
[00:03:47] Fair enough, you think, you know that all business requires hard work, skill and dedication. But you are going to work hard, are you not?
[00:03:57] Perhaps there are some doubts running through your mind, but I’ll put my hand on your shoulder and say “don’t worry, this is all standard stuff, their legal department makes them say it”.
[00:04:10] I’m not going to encourage you to do any more research into it, but if you do, you might see some even more worrying numbers.
[00:04:19] You might find out that, according to one US government report, approximately 0.4% of people who have ever joined a similar scheme have made any money at all.
[00:04:32] Everyone else has lost money, so statistically speaking you are 7 times more likely to make money gambling on roulette at Caesar’s Palace than joining one of these schemes. I’ve never been to Las Vegas, but if I had to choose a way to lose money, I think I’d choose doing it in Las Vegas rather than going door to door and selling health supplements.
[00:04:58] Perhaps after hearing all of this you’d think “well, thank you Alastair, I think I’ll stick with my day job after all, I’m going to pass on this opportunity”.
[00:05:08] But every year tens of millions of people enter into this world, the weird and mysterious world of multi-level marketing, so in this episode we are going to talk about how it works in theory and how it works in reality, and why it continues to hold such an allure to this very day.
[00:05:31] So, what is “multi-level marketing”?
[00:05:35] In short, it is a system in which individual people act as agents and sell products to other individuals.
[00:05:44] This might be nutrition shakes, it might be vitamins, it could be clothes, cosmetics, it could be anything.
[00:05:53] You join a multi-level company, like that wonderful offer I just made you a few minutes ago, and then you become a partner, an agent, an affiliate, they all have slightly different names for what really is the same thing.
[00:06:08] Just like a shop, you order products from the company at a wholesale, discounted price, and then you can sell them to other people for a higher price.
[00:06:20] Just like a shop, the more product you buy, the lower the price per unit you will get, and therefore the more profit you can make on each item, providing that you can sell it, that is.
[00:06:32] All good so far.
[00:06:34] But where it gets interesting, creepy even, is that you are incentivised not only to sell the end product to other people: friends, family, people in your neighbourhood.
[00:06:47] But you are also incentivised to recruit other people to become salespeople like you.
[00:06:55] You make money by selling the products, but you also make money by signing up other people and by making a commission not only on the products they buy, but on the products that the people they sign up buy.
[00:07:10] So, the more people you sign up, and the more people they sign up, the more money you make.
[00:07:18] Perhaps this all still sounds ok so far.
[00:07:23] After all, you can probably sign up five friends, as who wouldn’t like the idea of being their own boss and earning money at the same time?
[00:07:31] And they can probably each sign up five of their friends, because they all work in different companies and have different families. Easy. And you’ll be at the top, making money from everyone you have recruited and from their recruits.
[00:07:49] If you’re doing the numbers here, there is you at the top, that’s one person, then your five recruits, so five on the level below you, and they each have five below them, so that's twenty five on that level, a total of thirty one people.
[00:08:08] It all sounds very doable, but as you move down the levels, the numbers quickly start to add up. On the fourth level there are 125, the fifth level 625, all well and good.
[00:08:25] But by the time you’re at level 10 you have hit almost 2 million people.
[00:08:33] And if you are drawing this out, you might have seen that it looks like a big triangle, a pyramid even.
[00:08:41] And as you can see, the base of this pyramid gets very large very quickly.
[00:08:49] I’m recording this from Sweden, a country with just over 10 million people.
[00:08:55] If one person started this scheme and was required to sign up 5 people, and they needed to sign up 5 people, and so on, by the time it got to only 11 levels deep there literally wouldn’t be enough people in the country.
[00:09:13] What happens is that you have the suckers at the bottom, the last people to be signed up, who wouldn’t be able to sign up anyone else, so they have no way of making the money that they had been promised, because the country had run out of available people.
[00:09:30] This is one of the major criticisms of multi-level marketing schemes. Their pyramid-like nature, and the requirement for people to continue to recruit more sellers downstream from them, means that it is mathematically determined to collapse, because when you run the numbers, when you do the calculations, it doesn’t take very long at all for a town, a city, a country or even the entire world, to run out of available people.
[00:10:03] Now, you will perhaps have noted that I said pyramid-like nature, rather than simply called them a pyramid scheme.
[00:10:13] Multi-level marketing companies are insistent that they are not pyramid schemes, and they spend millions of dollars every year on lawyers and lobbyists to make sure that nobody is allowed to call them a pyramid scheme, and there is one major difference that they are quick to point out.
[00:10:33] A pyramid scheme relies purely on recruiting new people.
[00:10:39] I find five people and tell them to each give me €10, and then they need to find five people to give them €10, and people make money only by recruiting people below them.
[00:10:53] Multi-level marketing schemes are different in that you can make money by selling the product, be it vitamins, beauty products or clothes. It's technically possible to make money without recruiting anyone, but it is very hard, as all of the company marketing materials will tell you.
[00:11:12] And why is it so hard to make money purely by selling the product?
[00:11:17] Well, according to almost every critic of almost every multi-level marketing company, it’s because the products they are selling are expensive and poor quality.
[00:11:29] And you, as essentially a travelling door-to-door salesman, are competing with Walmart, Amazon, huge retail and online stores, which will always be able to provide a better selection and lower prices, so what chance do you stand?
[00:11:47] As a result your best chance of making money is by selling the dream, not the physical product.
[00:11:55] In other words, you make money by signing up other people and making a commission on the product that they buy, just as the people above you make money from commission on the product that you have bought.
[00:12:08] Or to put it another way, even more plainly, the real customers for these multi-level marketing companies are not random people on the street, but the people who have been duped into becoming sellers of the product, and been forced to buy large amounts of the product as an “investment”..
[00:12:28] Now, multi-level marketing companies tend to have all sorts of different ways to encourage their sellers to buy large quantities of stock.
[00:12:39] Firstly, sellers are encouraged to “invest” in their business, being told that they need to spend money to make money, and that buying stock isn’t a cost, it’s an investment in themselves and an investment in their future.
[00:12:56] What’s more, as you might expect, sellers get discounts for bulk buying, for buying large quantities. Fair enough, you probably think, this is how any business works.
[00:13:07] But there are many other convoluted, complicated, structures too. Sellers might need to buy a certain amount of stock every month to keep a particular “tier” level, they might need to hit a certain amount of purchases every month in order to qualify for another bonus, and one company even required its top sellers to keep $20,000 worth of stock at all times.
[00:13:35] Most multi-level marketing companies have a large range of different levels that their sellers can progress through, and the commission structures and details of how you go from one level to the next can be very difficult to follow.
[00:13:51] A cynic might even say that they are deliberately opaque and confusing so that sellers don’t fully understand how much money they might make, and hopefully, optimistically, overestimate their future earnings.
[00:14:06] Now, according to one recent report, 8% of all Americans have been part of an MLM, with 20 million Americans saying that they either are or have been actively involved in a multi-level marketing organisation.
[00:14:23] Statistically speaking, people involved in multi-level marketing tend to share certain characteristics. Women are more likely than men to participate in multi-level marketing, as are more recent immigrants to a country, and people from lower income communities.
[00:14:41] This is, on one level, unsurprising.
[00:14:44] The sales pitch of multi-level marketing is that it will allow you to achieve wealth and freedom that you would not be able to achieve through “traditional” means.
[00:14:55] A quarter of American mothers are stay at home moms, and therefore have limited opportunities to participate in the workforce.
[00:15:04] New immigrants are less likely to have gone to university and have been able to get a good high-paying “traditional” job, so it is perfectly understandable to be attracted by the promise of riches and freedom.
[00:15:19] And there is also the social element to it.
[00:15:23] Joining a multi-level marketing organisation, or MLM, allows you to feel like you are part of something, like you are part of a group of entrepreneurs all in it together, chasing your own dream.
[00:15:36] Unfortunately, the reality is that almost everyone who joins an MLM will not make more than a minimum wage job and probably end up working longer hours. And many will find that they actually lose money, that financially they would have been better off sitting on their sofa doing nothing rather than starting to “work” for an MLM.
[00:16:01] And this gets to the crux of the issue.
[00:16:05] According to their greatest critics, many MLMs have no real customers.
[00:16:11] The customer is the next sucker to be recruited, the next person who thinks that they will be selling the supplement or vitamin or whatever it is, but in fact ends up stockpiling product in their garage and spending their days attempting to recruit friends, long-lost highschool classmates, and distant relatives.
[00:16:33] There was even a famous case from 2012 when one large Wall Street investor called Bill Ackman put his money where his mouth was, declared that the MLM Herbalife was a pyramid scheme, and that he was “shorting” the company to the tune of $1 billion dollars.
[00:16:54] Essentially, he was betting that the stock price was too high, and that the company was a fraud.
[00:17:03] To outside observers however, Herbalife looked like a reputable company.
[00:17:09] It was worth billions of dollars, it sponsored football teams like LA Galaxy and had brand ambassadors like Cristiano Ronaldo. It looked and seemed like a real company, but there was a Wall Street investor saying that this huge company was essentially a fraud with no business model other than duping unwitting people into becoming unpaid salespeople for it.
[00:17:37] Now, this turned out to be an ugly battle between Ackman and another rival from the world of finance, and indeed he never managed to prove that Herbalife was a fraud, or at least, he never managed to push the share price down to the value he believed it deserved to be at.
[00:17:56] The share price has since crashed to a certain degree, but as of the time of recording this episode at least, Herbalife is still a billion dollar company, like several other multi-level marketing companies, and it shows no sign of going to zero any time soon.
[00:18:15] Now, clearly there are some people who get into multi-level marketing and manage to achieve great success, wealth, and freedom. Primarily these are the owners and shareholders of the multilevel marketing companies themselves, but there are some stories of some individuals who have done it.
[00:18:35] Unfortunately they are a tiny minority, who typically have got in incredibly early and have recruited masses of people below them, whose “investments” flow up the pyramid towards them.
[00:18:50] And it’s these people’s stories that you’ll see on the multilevel marketing websites and hear about at conferences, not of the recent immigrant who was told about this great opportunity and then spent $5,000 on stock, only to find that she wasn’t able to make a penny selling it, and she was now struggling to make the rent.
[00:19:11] According to one report, multi-level marketing is an almost $200 billion dollar industry, and is projected to grow to $330 billion by 2030, a growth of more than 65%.
[00:19:29] Globally, more than 100 million people are involved with multi-level marketing, with 8 million of those in the United States alone.
[00:19:39] To be fair, for many it is some harmless fun, a way to meet new people, work on a new project, and potentially make a little bit of money on the side.
[00:19:51] If you are going into it on this basis, sure, be my guest.
[00:19:56] However if you are going into it believing that it really is the money-making opportunity of a lifetime, all I’d suggest is thinking about why someone is pushing you so hard into becoming a salesperson for the supplement or vitamin or whatever it is.
[00:20:13] Perhaps, you’re not the entrepreneur or business owner or whatever they are telling you you’ll become; you are the customer.
[00:20:24] OK then, that is it for today's episode on multi-level marketing.
[00:20:29] I hope it's been an interesting one, and that you've learnt something new.
[00:20:32] As always, I would love to know what you thought of this episode.
[00:20:36] The obvious question is are you in multi-level marketing, have you ever been involved in it, or do you know someone who has?
[00:20:43] What has your experience been of it?
[00:20:46] I would love to know, so let’s get this discussion started.
[00:20:50] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:20:58] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:21:03] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[00:00:05] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:21] I'm Alastair Budge, and today we are going to be talking about multi-level Marketing.
[00:00:27] To its proponents, it is about freedom, personal liberty, and the opportunity to be your own boss.
[00:00:35] To others, it is the worst kind of pyramid scheme, a modern scam that tricks and traps people and serves to enrich only a tiny few.
[00:00:46] So, let’s get right into it and talk about the weird but massive world of multi-level marketing.
[00:00:56] What if I told you that I had an opportunity for you.
[00:01:00] You would never have to go to work in an office again. You could work from home, set your own hours, be your own boss, spend more quality time with friends and family, and control your destiny.
[00:01:13] And, even better, your salary would no longer be dictated by the whims of your boss, no longer would you have to be content with a small pay rise at the end of the year.
[00:01:26] Oh no.
[00:01:27] Not only would you be finally free from the shackles and monotony of office life, but you would enter a world of untapped earnings, practically limitless amounts of money.
[00:01:42] How would $10,000 a month sound to you? How about $50,000 a month?
[00:01:47] What about making a million dollars a year?
[00:01:50] What about a new car, a Mercedes even, five star all expenses paid holidays, perhaps even your own yacht.
[00:01:59] There is a small upfront investment, I’ll warn you, but you will recoup this in no time at all. After all, you gotta spend money to make money, that’s what they say isn’t it?
[00:02:12] I imagine this would sound pretty good.
[00:02:15] After all, who wouldn’t like to work less and earn more?
[00:02:21] Perhaps you are nodding your head, thinking “yes, please”, how can I get started?
[00:02:26] No problem, I’d say, and I’d pass you a form to sign.
[00:02:31] You’d add your personal details. Perhaps you’d see that the terms and conditions seemed quite long, but I’d probably tell you to not worry about that.
[00:02:41] Don’t worry, it’s all standard stuff, work hard and unleash your entrepreneurial spirit and you’ll be earning lots of money in no time, I’d tell you.
[00:02:52] If you spent the time to look through the terms and conditions, however, you might see some worrying numbers.
[00:03:00] If you are signing up for Herbalife, a large health supplements company that operates like this, you might look through and see that only 50% of people earned more than $240 a month.
[00:03:15] And that was before costs.
[00:03:18] That doesn’t sound particularly promising, that’s 4% of the median monthly salary in the USA.
[00:03:25] So you keep on reading. You read that there is no guarantee that you will make any money, and that only those in the top 1%, the most successful people, make more than $7,880 per month.
[00:03:40] And you keep on reading, “As with all business, success requires hard work, skill, and dedication.”
[00:03:47] Fair enough, you think, you know that all business requires hard work, skill and dedication. But you are going to work hard, are you not?
[00:03:57] Perhaps there are some doubts running through your mind, but I’ll put my hand on your shoulder and say “don’t worry, this is all standard stuff, their legal department makes them say it”.
[00:04:10] I’m not going to encourage you to do any more research into it, but if you do, you might see some even more worrying numbers.
[00:04:19] You might find out that, according to one US government report, approximately 0.4% of people who have ever joined a similar scheme have made any money at all.
[00:04:32] Everyone else has lost money, so statistically speaking you are 7 times more likely to make money gambling on roulette at Caesar’s Palace than joining one of these schemes. I’ve never been to Las Vegas, but if I had to choose a way to lose money, I think I’d choose doing it in Las Vegas rather than going door to door and selling health supplements.
[00:04:58] Perhaps after hearing all of this you’d think “well, thank you Alastair, I think I’ll stick with my day job after all, I’m going to pass on this opportunity”.
[00:05:08] But every year tens of millions of people enter into this world, the weird and mysterious world of multi-level marketing, so in this episode we are going to talk about how it works in theory and how it works in reality, and why it continues to hold such an allure to this very day.
[00:05:31] So, what is “multi-level marketing”?
[00:05:35] In short, it is a system in which individual people act as agents and sell products to other individuals.
[00:05:44] This might be nutrition shakes, it might be vitamins, it could be clothes, cosmetics, it could be anything.
[00:05:53] You join a multi-level company, like that wonderful offer I just made you a few minutes ago, and then you become a partner, an agent, an affiliate, they all have slightly different names for what really is the same thing.
[00:06:08] Just like a shop, you order products from the company at a wholesale, discounted price, and then you can sell them to other people for a higher price.
[00:06:20] Just like a shop, the more product you buy, the lower the price per unit you will get, and therefore the more profit you can make on each item, providing that you can sell it, that is.
[00:06:32] All good so far.
[00:06:34] But where it gets interesting, creepy even, is that you are incentivised not only to sell the end product to other people: friends, family, people in your neighbourhood.
[00:06:47] But you are also incentivised to recruit other people to become salespeople like you.
[00:06:55] You make money by selling the products, but you also make money by signing up other people and by making a commission not only on the products they buy, but on the products that the people they sign up buy.
[00:07:10] So, the more people you sign up, and the more people they sign up, the more money you make.
[00:07:18] Perhaps this all still sounds ok so far.
[00:07:23] After all, you can probably sign up five friends, as who wouldn’t like the idea of being their own boss and earning money at the same time?
[00:07:31] And they can probably each sign up five of their friends, because they all work in different companies and have different families. Easy. And you’ll be at the top, making money from everyone you have recruited and from their recruits.
[00:07:49] If you’re doing the numbers here, there is you at the top, that’s one person, then your five recruits, so five on the level below you, and they each have five below them, so that's twenty five on that level, a total of thirty one people.
[00:08:08] It all sounds very doable, but as you move down the levels, the numbers quickly start to add up. On the fourth level there are 125, the fifth level 625, all well and good.
[00:08:25] But by the time you’re at level 10 you have hit almost 2 million people.
[00:08:33] And if you are drawing this out, you might have seen that it looks like a big triangle, a pyramid even.
[00:08:41] And as you can see, the base of this pyramid gets very large very quickly.
[00:08:49] I’m recording this from Sweden, a country with just over 10 million people.
[00:08:55] If one person started this scheme and was required to sign up 5 people, and they needed to sign up 5 people, and so on, by the time it got to only 11 levels deep there literally wouldn’t be enough people in the country.
[00:09:13] What happens is that you have the suckers at the bottom, the last people to be signed up, who wouldn’t be able to sign up anyone else, so they have no way of making the money that they had been promised, because the country had run out of available people.
[00:09:30] This is one of the major criticisms of multi-level marketing schemes. Their pyramid-like nature, and the requirement for people to continue to recruit more sellers downstream from them, means that it is mathematically determined to collapse, because when you run the numbers, when you do the calculations, it doesn’t take very long at all for a town, a city, a country or even the entire world, to run out of available people.
[00:10:03] Now, you will perhaps have noted that I said pyramid-like nature, rather than simply called them a pyramid scheme.
[00:10:13] Multi-level marketing companies are insistent that they are not pyramid schemes, and they spend millions of dollars every year on lawyers and lobbyists to make sure that nobody is allowed to call them a pyramid scheme, and there is one major difference that they are quick to point out.
[00:10:33] A pyramid scheme relies purely on recruiting new people.
[00:10:39] I find five people and tell them to each give me €10, and then they need to find five people to give them €10, and people make money only by recruiting people below them.
[00:10:53] Multi-level marketing schemes are different in that you can make money by selling the product, be it vitamins, beauty products or clothes. It's technically possible to make money without recruiting anyone, but it is very hard, as all of the company marketing materials will tell you.
[00:11:12] And why is it so hard to make money purely by selling the product?
[00:11:17] Well, according to almost every critic of almost every multi-level marketing company, it’s because the products they are selling are expensive and poor quality.
[00:11:29] And you, as essentially a travelling door-to-door salesman, are competing with Walmart, Amazon, huge retail and online stores, which will always be able to provide a better selection and lower prices, so what chance do you stand?
[00:11:47] As a result your best chance of making money is by selling the dream, not the physical product.
[00:11:55] In other words, you make money by signing up other people and making a commission on the product that they buy, just as the people above you make money from commission on the product that you have bought.
[00:12:08] Or to put it another way, even more plainly, the real customers for these multi-level marketing companies are not random people on the street, but the people who have been duped into becoming sellers of the product, and been forced to buy large amounts of the product as an “investment”..
[00:12:28] Now, multi-level marketing companies tend to have all sorts of different ways to encourage their sellers to buy large quantities of stock.
[00:12:39] Firstly, sellers are encouraged to “invest” in their business, being told that they need to spend money to make money, and that buying stock isn’t a cost, it’s an investment in themselves and an investment in their future.
[00:12:56] What’s more, as you might expect, sellers get discounts for bulk buying, for buying large quantities. Fair enough, you probably think, this is how any business works.
[00:13:07] But there are many other convoluted, complicated, structures too. Sellers might need to buy a certain amount of stock every month to keep a particular “tier” level, they might need to hit a certain amount of purchases every month in order to qualify for another bonus, and one company even required its top sellers to keep $20,000 worth of stock at all times.
[00:13:35] Most multi-level marketing companies have a large range of different levels that their sellers can progress through, and the commission structures and details of how you go from one level to the next can be very difficult to follow.
[00:13:51] A cynic might even say that they are deliberately opaque and confusing so that sellers don’t fully understand how much money they might make, and hopefully, optimistically, overestimate their future earnings.
[00:14:06] Now, according to one recent report, 8% of all Americans have been part of an MLM, with 20 million Americans saying that they either are or have been actively involved in a multi-level marketing organisation.
[00:14:23] Statistically speaking, people involved in multi-level marketing tend to share certain characteristics. Women are more likely than men to participate in multi-level marketing, as are more recent immigrants to a country, and people from lower income communities.
[00:14:41] This is, on one level, unsurprising.
[00:14:44] The sales pitch of multi-level marketing is that it will allow you to achieve wealth and freedom that you would not be able to achieve through “traditional” means.
[00:14:55] A quarter of American mothers are stay at home moms, and therefore have limited opportunities to participate in the workforce.
[00:15:04] New immigrants are less likely to have gone to university and have been able to get a good high-paying “traditional” job, so it is perfectly understandable to be attracted by the promise of riches and freedom.
[00:15:19] And there is also the social element to it.
[00:15:23] Joining a multi-level marketing organisation, or MLM, allows you to feel like you are part of something, like you are part of a group of entrepreneurs all in it together, chasing your own dream.
[00:15:36] Unfortunately, the reality is that almost everyone who joins an MLM will not make more than a minimum wage job and probably end up working longer hours. And many will find that they actually lose money, that financially they would have been better off sitting on their sofa doing nothing rather than starting to “work” for an MLM.
[00:16:01] And this gets to the crux of the issue.
[00:16:05] According to their greatest critics, many MLMs have no real customers.
[00:16:11] The customer is the next sucker to be recruited, the next person who thinks that they will be selling the supplement or vitamin or whatever it is, but in fact ends up stockpiling product in their garage and spending their days attempting to recruit friends, long-lost highschool classmates, and distant relatives.
[00:16:33] There was even a famous case from 2012 when one large Wall Street investor called Bill Ackman put his money where his mouth was, declared that the MLM Herbalife was a pyramid scheme, and that he was “shorting” the company to the tune of $1 billion dollars.
[00:16:54] Essentially, he was betting that the stock price was too high, and that the company was a fraud.
[00:17:03] To outside observers however, Herbalife looked like a reputable company.
[00:17:09] It was worth billions of dollars, it sponsored football teams like LA Galaxy and had brand ambassadors like Cristiano Ronaldo. It looked and seemed like a real company, but there was a Wall Street investor saying that this huge company was essentially a fraud with no business model other than duping unwitting people into becoming unpaid salespeople for it.
[00:17:37] Now, this turned out to be an ugly battle between Ackman and another rival from the world of finance, and indeed he never managed to prove that Herbalife was a fraud, or at least, he never managed to push the share price down to the value he believed it deserved to be at.
[00:17:56] The share price has since crashed to a certain degree, but as of the time of recording this episode at least, Herbalife is still a billion dollar company, like several other multi-level marketing companies, and it shows no sign of going to zero any time soon.
[00:18:15] Now, clearly there are some people who get into multi-level marketing and manage to achieve great success, wealth, and freedom. Primarily these are the owners and shareholders of the multilevel marketing companies themselves, but there are some stories of some individuals who have done it.
[00:18:35] Unfortunately they are a tiny minority, who typically have got in incredibly early and have recruited masses of people below them, whose “investments” flow up the pyramid towards them.
[00:18:50] And it’s these people’s stories that you’ll see on the multilevel marketing websites and hear about at conferences, not of the recent immigrant who was told about this great opportunity and then spent $5,000 on stock, only to find that she wasn’t able to make a penny selling it, and she was now struggling to make the rent.
[00:19:11] According to one report, multi-level marketing is an almost $200 billion dollar industry, and is projected to grow to $330 billion by 2030, a growth of more than 65%.
[00:19:29] Globally, more than 100 million people are involved with multi-level marketing, with 8 million of those in the United States alone.
[00:19:39] To be fair, for many it is some harmless fun, a way to meet new people, work on a new project, and potentially make a little bit of money on the side.
[00:19:51] If you are going into it on this basis, sure, be my guest.
[00:19:56] However if you are going into it believing that it really is the money-making opportunity of a lifetime, all I’d suggest is thinking about why someone is pushing you so hard into becoming a salesperson for the supplement or vitamin or whatever it is.
[00:20:13] Perhaps, you’re not the entrepreneur or business owner or whatever they are telling you you’ll become; you are the customer.
[00:20:24] OK then, that is it for today's episode on multi-level marketing.
[00:20:29] I hope it's been an interesting one, and that you've learnt something new.
[00:20:32] As always, I would love to know what you thought of this episode.
[00:20:36] The obvious question is are you in multi-level marketing, have you ever been involved in it, or do you know someone who has?
[00:20:43] What has your experience been of it?
[00:20:46] I would love to know, so let’s get this discussion started.
[00:20:50] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:20:58] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:21:03] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
