Multi-level Marketing

A while back, a friend of mine posted an event on Facebook to check out Mona Vie, an amazing health product! A quick google search revealed that the product is an acai berry juice that comes with a hefty price-tag and some miraculous health claims. I could easily write a post about the bogus health claims of anti-oxidant products, but instead I want to touch on a subject that I don’t think comes up enough in the skeptical community…business scams. Mona Vie operates with a multi-level marketing (MLM) business model, and although this is legal, you should be skeptical about making any money with products like this.

I’d love to see more business minded people in skeptical movement. We’ve got a lot of doctors and scientists that really help us focus on bogus medicine or pseudo-scientific claims, but we need experts to help us with money. Business is complicated, and if you don’t have an advanced understanding of this stuff it’s easy to get taken by a scam. Most of us have enough common sense to steer clear of “Nigerian scam” emails, but many scams are a lot more sophisticated. I’m no expert in this stuff, but I did learn a few things working for eBay for four years. People try to pull off all kinds of crazy scams on eBay. And we’d also see a lot of victims of multi-level marketing try to offload the products they got stuck with.
Many people confuse MLM with a pyramid scheme. They are similar, but there are some important differences. Traditional pyramid schemes are illegal because there is actually no product. The scam is to get “investors” to contribute money to a fictional business. Each investor then has to go out and recruit other investors. They get paid for each investor they find, and on and on until the pyramid collapses. The money travels up to the top, where the perpetrators then cut and run, and those left at the bottom get nothing. MLM is different because there is an actual product. Those at the top “level” distribute the product to the level below for a price. These people then try to sell the product at a higher price than what they paid. You are then encouraged to find other sellers or promoters, and they are compensated for the people they find. The overall structure of the business is still a pyramid shape, with the money flowing upwards. The difference is that the products are real, so there is a real potential to make money. However in practice, people on the bottom level rarely do.
So far you may be thinking that this sounds like a risk just like any other business investment would be. However MLM has two features to consider. Firstly, the business model is designed so that you make more money recruiting other sellers than you do selling the product. The push to constantly recruit means you are always signing up people to compete with you, and the market quickly becomes saturated. This is not a sustainable model if you are at the bottom of the pyramid. Secondly, the risk is not spread around. The risk moves down the pyramid as the money moves up. When you invest in a typical business, and the business fails, everyone loses. But in an MLM, the higher levels do not lose if the lower levels fail to sell products. They have already made their money.
In Canada there is a very fine line between an illegal pyramid scheme and a legal MLM plan. Obviously, you have to sell a real product, but legally you cannot charge participation fees when signing up sellers or make minimum purchase requirements. Also, MLMs in Canada must have a buy-back plan if front-line sellers get stuck with inventory they can’t sell. Unfortunately, many companies ignore the law, or skirt the line very carefully, so be cautious of anything that looks remotely like it.
MLM business often recruit people by promising that you can quit your day job and make six-figure salaries in no time. The bottom line is while some people do make money from MLM, they usually make it off the backs of others. Most people lose money, or at best break even after a lot of hard work.
If it sounds too good to be true, it probably is.

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  • Melany Hamill

    Melany proudly uses the titles of both geek and nerd. As a science-enthusiast and fan of debate, Melany likes to get her facts straight. She graduated from the University of British Columbia with a degree in Chemical Engineering. Since then her career path has meandered to its current spot as a project manager at a video game studio. Melany lives near beautiful Vancouver, British Columbia. She is not seeking treatment for her caffeine addiction.