All posts by Lancaster

MLM as a hidden pyramid

Pyramid schemes are bad. And illegal. You won’t take part in one, right?

But guess what, every MLM is a hidden pyramid.

Is every MLM a hidden pyramid scheme?

 

You know what a pyramid scheme is? You give your money to someone, usually an organization, and lure others, make them give money to you. Usually the money is not transferred directly to you – it goes to organization, the person that recruited you gets some, yu get some, your whole “upline” may get some

So basically it is – give your money to us, and find more suckers that will do the same. And if you find many of them, you eran big buks. And if you find many suckers, that in turn will find even more suckers, you will get rich

Does it resemble you something?

Yes. The MLMs work in a similar way.

But MLM is NOT a pyramid! You say.

So, lets see whether MLM is or is not a pyramid scheme.

No listen closely, this is a good story:

Imagine that someone invents a pyramid scheme. You need to pay money to get in, and then recruit others that will give money to you etc.

Imagine you need to pay $100, and get others to pay $100, so you make some cut of their money, and your upline take some part of it too.

Is it pyramid right?

Now, imagine you but pencil, for $100, and then sell pencils, each for $100,  and recruit others to make it so. The pencil is just an ordinary one worth one dollar. Yet, you bought it for $100, and look for people that will sell it for $100.

Now tell me – is it a pyramid scheme, or an MLM?

Does it have product? Yes. Is the product worth it’s price? No. But, it is an MLM.

What is the difference? Just the $1 pencil?

And what if instead of pencil you would sell one potato for $100? Or a bottle of water?

But those are imaginary examples! you say.

Okay.

Lets consider real examples.

What if you take fruit juice, put into fancy bottles, that resemble wine bottles and sell it in packs of four for $135?

What if you take vitamins, and sell them for ten times the usual price?

What if you take alaskan blueberries and salmon, make supplements of it and sell for high price? Does it matter that those berries do not grow at Alaska?

Of course, you need a good dose of bullshit to sell some overpriced stuff. Magic berries, rare ingredients, cancer-curing effects in anecdotal evidence. The super-concentrated washing powder.

The inevitable lack of new prospects

This quote from Wikipedia may be also applied to MLMs, doesn’t it?

As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.

 

But pyramid schemes are illegal, and MLM are legal! You say.

Yes, pyramids are illegal in many countries.

MLMs are legal in most countries. But, do you know, there are some othher countries that banned MLMS?

Anyway – MLMs are mostly legal – so what? Jumping from a roof on your head to and on concrete is also legal. It probably won;t make you happy though.

 

Jobs, organizations are in pyramids shape too! you say

Yes. They are. You have an owner, or CEO, then executives, chiefs and common workers.

But in a JOB you get paid for your work. Not the other way round.

 

Greed in both

In pyramids, people think: if I pay money to get in, and get many suckers to join too, I will make money. The suckers below will pay for my success.

In MLMs people think: If I buy products (even if those are overpriced or not needed by me) and get many “downlines” to join too, I will make money. Get rich. Earn passive income. Walk the beaches of the world.  The downlines below will pay or work for my success.

 

Why are pyramids bad

The 1997 rebellion in Albania was partially motivated by the collapse of Ponzi schemes; however, they were widely referred to as pyramid schemes due to their prevalence in Albanian society.[

On 12 November 2008, riots broke out in the municipalities of Pasto, Tumaco, Popayan and Santander de Quilichao, Colombia after the collapse of several pyramid schemes. Thousands of victims had invested their money in pyramids that promised them extraordinary interest rates.

 

Why are MLMs bad

False promises.

If you are told, that you can earn lots of money, just by buying products and finding six (or one, or two) people that will do the same…  Sound good, right?

What if you were told to put money into somebody’s else pocket until you find other people that will put money into your pocket? And you  – most probably – will loose money, not earn? It would not look so good, right? But they will not tell you this – or they would recruit no one 🙂

 

 

 

Lead System Network – LSN – is it a scam? My opinion.

At June 1st, 2014 LSN – LEAD System Network is going to launch. Now in may 2014 the Internet (well, at least mlm-prone part of it) is buzzing about it. What is is? Is it a scam or pyramid scheme or legitimate MLM?

LSN – piramid scam or MLM

Let’s think first, what is it? Is it MLM with good and useful product, or is it pyramid scheme, where people down the line pay for those up the line?

To decide we need to analyze the product (good solid and needed product indicates MLM, shady virtual useless product indicates pyramid scam). We also need to look at compensation plan.

Lead System Network: the product

The product here is a set of “marketers’ tools”. Many people do not look deeply at the product, they just talk about finding new downline members, But let’s see what we have here:

  • Autoresponder – if it is good autoresponder then it has some value (if you know how to use it), otherwise – there are some free autoresponders out there. So it needs to be good to be worth anything.
  • Blog. Well.. anyone can start a blog for free. On many platforms. And you must have something to write about, or it is useless otherwise.
  • Voice Autoresponder. Very interesting, looking forward for details.
  • Lead management – is it for LSN leads, or external use?
  • Lead capture pages – same as above
  • Chat. A chatroom? Who you gonna talk wiht there? There are plenty of free chats.
  • google hangouts – really? It is free
  • Postcards (post leads followups). Who will pay for stamps? In which countries will it work? Anyway, interesting.
  • Webinar room. For how many people? Is it stable?

In $100 pro packet there is also mobile app creating tool. There are free tools, maybe this one will be better. And bulk mailer?. To do… bulk mail? To who?

100% commission

Very interesting. The company promises 100% commission. I wonder how? And if so, how do THEY earn money? Who pays for the tools costs (server, transfer)? Let’s not be naive. Santa Claus will not pay for running those tools.

I see a simple solution to this puzzle – you pay $50 a month, and your “sponsor” gets $30, and this is called 100 % commission . The company gets $20 (19,95 to be exact), sponsor gets $30 and he is convicted that he gets 100%. Everyone is happy 🙂

Note also that the 100% commission is for $30 products only. And just for customers you find directly, not those that spillover (or spillunder) in the matrix.

In the case of the pro package ($100) however, the commission is 50 %, and the other half goes to the “matrix”

$1000

Many people are excited by the fact that they can get $1000 without recommending others – just for the registration. But remember, that you need to spend $150 on products first ($100 for pro , $30 for basic and $20 for nothing)

You must also have 3 levels of paying members – 3 + 9 + 27 people = 39 people , paying a total of 39 * 150 = $5850 per month.  And remember that you will get $1,000 without sponsoring anyone just once, if you want more – then you will have to find person willing to pay $ 150 a month.

Note that this is not so, that you sign up you pay $150 and get $1,000. You also need to have 39 people under you in the matrix , each paying $150 a month.

And what if you do not have so many people that bought the pro version ? Then perhaps you will be paying $ 150 a month until you find them 🙂 For example, if you have 2 people under you, each paying $150 you will earn 2$. See first comment after this article for explanation (thanks, WealthTeam 🙂 ).

Here we return to the story of Santa Claus – do you think that someone will give you $1000 for nothing? Or maybe instead of giving that money to you the organizer of this MLM should enter himself in that position and collects $1000 himself – why don’t he/she do it? Continue reading

Herbalife under FBI investigation

herbalife

Herbalife and FBI

It is clear that there re many scams in MLMs, but FBI going after Herbalife is a surprise even for people most skeptical about MLMs.

Herbalife is now subject of a criminal investigation by Manhattan US Attorney Preet Bharara and the FBI. this was reported by Bloomberg, CNBC, NYPost, CNN

Preet Bharara is well know as the “Man Busting Wall Street”, he took part in busting Madoff’s Ponzi scheme, Bank of America suit, SAC Capital, tracking insioder trading. In 2012, Bharara was one of “The 100 Most Influential People in the World” accorifng to Time, and 2011 Person of the Year by India Abroad

According to NYPost sources New York Attorney General Eric Schneiderman is investigating Herbalife over claims it is a pyramid scheme.

And Reuters reports that Herbalife was hit with a shareholder class lawsuit on Monday, Apri 14th 2014, that accuses Herbalife of failing to disclose to investors that its operations were based on a pyramid scheme. It was filed by Abdul Awad, an Herbalife shareholder. He claims that he bought Herbalife stock at inflated price, and Herbalife misrepresented and failed to disclose that it operated a pyramid scheme in which distributors primarily generated revenue by recruiting other distributors rather than selling products. and that Herbalife failed to disclose to investors that it engaged in “deceptive trade practices” to pressure customers to buy more products as distributors (case: Awad v. Herbalife Ltd, et al, U.S. District Court, Central District of California, No. 14-02850.)

 

Herbalife denies knowledge of FBI actions:

“We have no knowledge of any ongoing investigation by the DOJ or the FBI, and we have not received any formal nor informal request for information from either agency.”

Herbalife does not intend to make any additional comments regarding this matter unless and until there are material developments

Herbalife is currently not accused of any wrongdoing by FBI

Herbalife shares plummeted

At Friday (April 11th, 2014) afternoon, when the news was out, Herbalife stocks dropped 14%, – $8.36 to $51.48, with heavy trading volume.  That was the biggest one-day decline since Bill Ackman accused company of being a pyramid at 21 Dec 2012.

 

Why?

Is it really a pyramid scheme, or is it just an accusation of Bill Ackman who wants Herbalife shares to drop? Ackman accused Herbalife more than a year ago of running a pyramid scheme in which salespeople make more money recruiting new sales agents than selling products. Was Abdul’s case connected with Bill too? He states similar claims.

 

How much Platinum Amway IBO earns?

Did you meet Platinum IBO bragging about earning $75.000/year?

Do you believe him or her?

The truth is different. Amway Platinum IBO may earn closer to $30.000-40.000 yearly.

According to 2013 Amway Business Overview brochure, average annual compensation of Q12 platinum was $55.042, and highest annual compensation was $190.264. Only 0.32% of North America IBOs achieved at least Q12 platinum status (but not sapphire or higher) in the year 2012. That is, one of about 312 IBOs was platinum. By the way: approximately one of 1000 IBOs was Founder Emerald, and one of about 3000 was diamond.

Go diamond, you have 0,03% chance.

In 2009 it was $40,125  average,  $966,290  highest,  and just 0.26% of IBOs were at that level – that it one person for about 384 IBOs.

 How about Amway in Europe? How much Platinums earn there?

Based on data from years 2007-2010 it was €2,434 a month (€29,208 a year or about $40.000) at Founders’ Platinum level.

In year 2010/2011 it was €32,548/year, but that data included Founders Platinum/Ruby/Sapphire and was based on Western and Southern European countries, which are richer than Central and East European countries.

Please note, that in Europe there are other limits – 10.000 PV instead of 7.500PV and 21% instead of 25%.

Platinum income depends on downline structure

As you probably know, the platinum income largely dependents on downline structure (and of course on bonus form Amway company).

The more equally distributed the structure is, the bigger income. Unfortunately not equally distributed structures are very common.

Remember, that the bonus is calculated is through differential – percentage difference between Platinum and hid downline.  Imagine that you have 8000 PV in given month, and have two legs – 3900 PV each. That will give you (8000 PV * 3 BV/PV * 25%) – (2 * 4000 PV * 3 BV/PV * 21%) = $6000 – $5040 = 960$ a month. Not so great.

The scenario when all your business turnover comes mostly form one leg – is even worse.

Obviously it would be best to build, say, 6 legs of similar size – but reality is usually different that this ideal example.

But wait… what about expenses?

Numbers above represent money earned. Bot what about money spent on Amway “business”?

In 1982 the state of Wisconsin found (case State of Wisconsin vs Amway and others) that the average Platinum IBO, that was Direct Distributors at that time, lost by average $918 a year – income was smaller than expenses!

The expenses consist of:

  • driving  – increased amount of gas, tire and car wear, oil changes
  • eating or drinking out while making or sustaining contacts,
  • phone calls,
  • motivational and educational books, CDs, etc
  • seminars, functions, meetings
  • babysitting
  • buying overpriced products

All of those may sum up to $5.000-10.000 or more yearly.

The OTHER money (not so obvious Amway platinums’ earnings)

The platinum IBO may earn additional money besides that earned at Amway. For example, he may be compensated for speaking at opens, seminars, functions held by local motivational organization.

There might be also some money fro distributing motivational and educational materials to his group.

This may be substantial amount of money, even bigger than money form Amway.

[MYTH] 95% businesses fail in 3 years

Have you heard that from person trying to recruit you to MLM?

“95% (or 80%, or 90%) of traditional businesses fail in (first year, three years, five years)”

Sounds that MLM is better option. But is.. NOT.

Let’s check the facts.

Various businesses have various failure rate in on, three or five years.  For example funeral businesses usually do NOT fail in many years, while 60% of restaurants may be gone in 5 years. But this is still far form 95%!

How many businesses fail in first years?

Not as much as MLMer will tell you 🙂

For example restaurants – very “risky” business – about 20%-30% of them will fail in first year, 60% will fail in five years (sources: 1 2 3 4)

On the other hand – funeral homes usually lasts – just 1% of them fail (source: 1)

What about other business? Failure rate vary among businesses but you can assume, that
just 10-20% percent will fail in first year.

And 50% of businesses continue to exist after 5 years.

So, if you start a business, statistically you have 50% chance that it will last over 5 years.  After those 5 years, most of the businesses that still exist, will continue to exist for many years. (sources:  1 2 3)

See this graph by Bureau of Labor Statistics

Business failure rate
Establisment survival rate

How does it look after 4 years, by industry:

Industry Operating After 4 Years
Finance Insurance and Real Estate 58 %
Education and Health 56 %
Agriculture 56 %
Services 55 %
Wholesale 54 %
Mining 51 %
Manufacturing 49 %
Construction 47 %
Retail 47 %

Best and worst rate of success after 5 years:

Businesses with Best Rate of Success After Fifth Year
1 Religious Organizations
2 Apartment Building Operators
3 Vegetable Crop Productions
Business with Worst Rate of Success After Fifth Year
1 Plumbing, Heating, Air Conditioning
2 Single-Family Housing Construction
3 Grocery Stores
4 Eating Places

(source)

Now compare that to MLM

How many people will still be in that MLM after 5 years?

How many of them will make money?

 

Do you have better data? Or other comments? Please share!

 

Monavie Company

Okay, maybe this is a scam, maybe there are some dubious health claims, but now let’s talk about the company.

Monavie LLC is a company selling juices (or, to be more precise:  “products made from blended fruit and vegetable juice concentrates, powders and purées”. Those juices are being sold through MLM (Multilevel Marketing).

Now, get to the facts:

The company is BIG

In 2009 it was in the list of 500 fastest growing companies – it was 18th on Inc. 500 2009 list; AND 1st in Food & Beverage category. So it started pretty well.

Fast to 1 Billion Dollars in Revenue, or not?

 

The business is shrinking

In 2009 it was one of the fastest growing companies – but now the situation is not so good.

 

There are some not so nice things from the past