A couple of years ago, I was speaking with a colleague when he brought up network marketing. My fellow worker was selling me its advantages and how amazing it was. Saying things like network marketing is the future and quoting people like Robert Kiyosaki to support his words.
At the time I wasn’t aware of what network marketing was, and I felt pretty foolish, how could I’ve missed such a big thing? As soon as I came home, I made some search an learned about it. What I discovered wasn’t what I was expecting.
The promise of network marketing.
After some research, I learned network marketing was basically word of mouth marketing and door-to-door sales. Nothing wrong with that, there are legitimate companies like Tupperware who used network marketing to develop their brand and increase their sales. Network marketing also known as Multi-Level Marketing (MLM), but the name doesn’t matter. (I’ll use both MLM and network marketing in this post, but they mean the same thing)
The problem is there aren’t a lot of legitimate companies with a real product like Tupperware. Most network marketing companies look like Herbalife. They don’t make money from selling their products; the product is used as a facade to comply with the regulations. The real revenue is made from the new members. Each member that gets in has to pay a few hundred bucks for the membership. The money is then redistributed among the members on top of them. That’s what we call a pyramid scheme.
The real face of MLM.
People working in these MLM are very good at manipulating people, they look professional and always like to use an advanced vocabulary to make you think they know what they’re talking about. That’s how they easily gain trust.
Fancy conferences where teams from all over the world meet are organised, it gives people confidence that it’s a legit company, it makes them feel more connected to the company. People become emotionally and financially invested. In the end, it only profits the persons at the top.
I went to one of these conferences where they preach the benefits of network marketing and I can tell you; it’s not difficult for them to convince new people. Why?
They target desperate and uneducated people. Most of the time those people don’t know anything about sales or marketing, they’re just promised tons of money for little work, and when they don’t see any other alternative, they jump in and become members. There is a lot of pressure on the new candidates, it’s difficult for them to say no.
At the conference, the guy who was at the top of the pyramid, the N°1, tried to convince me to pay €500. As I wasn’t showing any interest, he showed me his bank account; there was €10k on it. He earned this in less than a month. He kept going and told me “what’s €500 anyway? Are you really going to pass on this opportunity for €500.” He then continues and speaks about his mother and how he wanted to help her. Lots of people believe him and relate to his story; they don’t realise he’s trying to scam them by using their emotions.
Of course, he has 10k on his account he is at the top, he gets a commission on EVERY new member. But you as a new member you’re at the bottom, don’t think you’ll earn as much as him.
Most people get fooled because they don’t understand how a pyramid scheme work, don’t be one of them.
The origin of profits.
If you ever get caught by one of these companies, ask them how much of their revenue is made from selling their products. The person will avoid answering you, or he’ll improvise some BS.
Understanding where the money comes from is pretty simple. People pay a huge membership fee, and they’re promised to be refunded as soon as they convince three other friends to join their team (Each friend will pay €500 of course)
Let’s do a simple math.
You pay €500 for the membership; then You get three people to pay €500 (total=€1500). You get your €500 back. Great, but where is the rest of the money going (€1000)? This money will be redistributed to the people on top of you. That’s how they make money. People are happy to get their 500€ back with only three people convinced, but they don’t see the €1000 they created.
The worst part is every person I met thought of themselves as an entrepreneur. They genuinely believed they were entrepreneurs; they don’t even realise this is a scam and it doesn’t have anything to do with entrepreneurship. All they see is the possibility to make quick money.
An unethical business.
In an MLM very few people get rich, yet when you meet the company for the first time, all they show you are successful people in their team. From your perspective, it looks like it’s accessible and everyone has a chance to get rich, but it’s not.
The way a pyramid scheme work make it impossible for everyone to win. At this game, 99% of the members lose money, and only the top is making money. If everyone was succeeding where would the money come from? Remember, the money comes from the new members, not the sales. To get rich (If you’re at the top), you have to trick people to pay the membership. Once there are no more people to fool, the people at the bottom of the pyramid find themselves broke, unable to refund any investment they’ve made.
Even if you’re one of the guys at the top, do you think this is the right way to make money? Are you willing to scam your friends and family so you can make some money? It is a very unethical way of making money.
Don’t fall for this scam or you’ll learn it the hard way. As I mentioned at the beginning of this post, Herbalife is one of those MLM, and you can find plenty of people who have invested in Herbalife and lost their savings thinking they could get rich quick. If you want to learn more about this, you can watch Netflix’s documentary “Betting On Zero.”