Multi-Level Marketing BS

Jul 19th
posted in

Excellent Penn & Teller program on multi-level marketing. BTW, NSFW. Those who are easily offended, shouldn't watch it. Any of it. Not one minute.....

As Penn & Teller rightly point out....

Easy Money Is BS

These multi-level marketing schemes aren't limited to home parties for sex toys, BBQ accessories, and household cleaners, of course. They are rife on the internet. If you've spent any time in internet marketing circles, you'll have seen hundreds, no doubt.

Worst business ever.

What Is Multi Level Marketing?

Multilevel marketing is where the salesperson sells items on commission - with a twist. The real "opportunity" - supposedly - is to be had recruiting a downline. A downline consists of other commission-only salespeople who try to recruit other commission-only salespeople. And so on. Some may even sell a few products!

Apparently you're not allowed to refer to the triangular-shaped Egyptian icon anymore....

The Problem With Any Marketing Opportunity

One major problem with MLM, or any market opportunity, be it affiliate or otherwise, is the size of the market.

All markets are limited. All markets are limited because the number of people is finite. Some markets are significantly more limited than others. For example, the number of people who have $2K, or whatever, to spend on, say, a rapid-mass-cash-code-instant-money-generator is quite small.

That isn't to say there isn't money to be made, however the more people trying to flick products, or recruit a downline, and the more people trying to rank well in the SERPS, the less chance a paying customer will arrive via any one site. Claims about making a lot of easy money on-selling such products, therefore, should be taken with a large grain of salt.

Evaluating Market Size And Potential

Over-hyped marketing opportunities often fail because they attempt to sell commodity product into very saturated markets. Or, there may be very little demand for the end product. If there was a lot of demand, surely they'd invest money in experienced salespeople in order to grab market share ahead of competitors.

So how do you size up a market, MLM or otherwise?

If there was an easy way, well....life would be too easy :) Really, it all comes down to some educated guesswork.

Here's one simple way of thinking about it:

Market size = the number of buyers in the market x quantity of product purchased buyers in the market per year x price per unit

You could get a rough idea of the number of buyers by looking at search volume against keywords you deem to have some level of buyer intent. Estimating the quantity they buy depends very much on the product. Does it need to be replaced often? i.e. a battery. Or is it a one-off? i.e. A house? When multiplied by the cost, you can estimate the potential size of a market.

There are a number of methods you can use. Some more complex than others. All involve guesswork. However, it's important to have a rough idea when deciding where to best focus your efforts.

Quantifying the potential of a market is somewhat more difficult.

I could find out the size of the car market in the US using the above equation, but that doesn't mean I could successfully enter that market. I would also have to evaluate my abilities, the level of competition, and the level of investment required.

This is often the mistake rookie affiliates/multi/level marketers make. They get suckered by the potential numbers, without stopping to think if those numbers make any sense. Even if they do, then does that mean the marketer can successfully enter that market?

Really, the marketing approach - be it MLM or otherwise - is irrelevant. The key questions to ask when considering any market are fundamental ones: how big is the market, how many competitors are there, and how can I compete?

Published: July 19, 2010

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Comments

July 19, 2010 - 10:43am

Hi Peter,

I do agree with your "concern" about market size in MLM and any other business for that matter. However, I do feel that this "problem" is so far down the list that it is hardly worth mentioning.

The real problem in ANY business (MLM and other type) is with the people working it. Most don't have what it take to have their own business and that alone can fill up the Top10 of why MLM or any other business won't work.

It has nothing to do with the business itself but rather with the people trying to work it.

Or that is what I believe...

/Mikael

July 19, 2010 - 12:18pm

"It has nothing to do with the business itself but rather with the people trying to work it."

Well MLM typically preys on the weak and desperate and naive and ignorant, so I would say that within that vertical the above is not accidental...but more of a design feature / core marketing strategy.

How else would you get people to buy a bunch of useless junk at double retail (in bulk) hoping to resell it later to a greater fool? :D

Normally the media needs to hype up a bubble for people to get suckered with that crap. But with MLM they teach the sales people to exploit every relationship they have - friends, lovers, extended family, etc.

NOTHING is more sacred than a sale.

The only way you get to be successful at MLM is by screwing your own friends and family. Some people are too trusting and fall for it, but the world is a crappy place if we feel that the victims are guilty because they trust a loved one.

July 20, 2010 - 8:12am

Hey Aaron,

Starting a debate based on personal assumptions, generalizations and convictions will be pointless. There are too many of them all over the place and they never go anywhere. I do however feel, that unless people have actually spent a couple of years in MLM they can hardly ever rightfully "judge" it.

And this isn't just in MLM. It goes with anything that people will argue about. Most people judge based on poor (or no) evidence or from what the media tells them. Unfortunately those "facts" will hardly ever be able to go as "evidence" of anything.

July 20, 2010 - 8:46am

Life is a game of choice.

To be successful you must filter.

A person would have to be a true idiot to have to experience every mistake personally to be able to pass any type of judgement on it.

You don't have to murder people to know that it is generally wrong. You don't have to steal from people to know that it is generally wrong. And if a certain type of theft is coated in sugary powerful feel-good words then it is still theft.

Evidence I have seen recently was seeing one extended relative get *swindled* by another relative who started working for a sleazy MLM program. Evidence I saw before that was when one of my wife's friends was bankrupted because *yet another sleazy MLM salesperson* acted like they were a friend of that person and drove them into the poorhouse.

Yes there are sleazy dirtbags and sharks in *any* field. I have warned people off of them in other fields. Multiple times!

However few fields (outside of say the top of banking cartel, a few fake religions & some aspects of the military) are built entirely upon the idea of scamming people. Most MLM operations are!

Which is exactly why the FTC goes after those folks!

If they had leading quality products they would invest in brand and keep the margins for themselves rather than having to push salespeople to engage in a pyramid scheme.

Might a couple MLM programs be almost legit to legit? Sure. But that would be a small small small minority. And there is no debate on that front.

July 20, 2010 - 8:58am

I am not arguing that there are scammers in MLM and I am not arguing that there are crooks everywhere else as well. What I AM arguing is that Peter (and yourself) are taking one or two personal experiences from people you know and dragging it all over an industry.

It would be like me saying that because I know an Eskimo that drinks and steals, then all Eskimos are like that. I could even show an article from a news paper backing it up. But that doesn't make it true in every case.

Are the major MLM companies listed on the different stock exchanges legit? Well I certainly hope so. But with the recent scandals in investing business, who knows?

Does this mean that everyone working for (or with) a legit company is acting fair, honestly and with integrity? Definitely know. Heck I know "White Hat SEOs" doing an awful lot of black hat stuff that they're just not telling.

So yes I guess we could argue all day on most points. But I think it is easier to just agree on the fact that we do not agree on these points and we never will :)

July 19, 2010 - 1:17pm

MLM scams are formulaic, and prey on people's needs in truly devious ways. They try to offer hope to people who want to earn something for doing nothing...which is everyone, at some point. They use math that reality never supports and stories that prove too good to be true. But they are trained to hook you, and pull you in - so all it takes, is timing. If you are in the right frame of mind (that is to say, the wrong one), you might believe the fairy tale.
I might argue virtually NO ONE is truly cut out for this kind of work, they are simply led to believe in the impossible long enough to ante-up.
Loved that Penn & Teller - and have ordered my own ampersand!

July 19, 2010 - 3:59pm

Since you've "seen it all," or at least a lot of it, I wonder if you'd fill me in.

Suppose a person is reasonably familiar with online marketing. He or she knows the fundamentals of SEO well, can create websites with Wordpress using Thesis, and understands how to use Google Analytics to see what's working and what isn't.

What do you think would typically happen if that person started devoting about 15 hours a week to creating affiliate websites? I'm talking about creating good quality sites, knowing how to do keyword research so the sites have a reasonable chance of ranking, and doing some honest link building over time based on good content.

What would happen if that person devoted about 15 hours a week, creating affiliate sites, and did that for three years?

I know there is variation from person to person, but I also know that after three years, surely this person would end up making more than $100 a month income, while it would be unlikely for them to pull in $50,000 a month income after three years.

There are always outliers - amazing successes that happen to only a few, and amazing failures too. Given that, what's the expected range of success for most people?

I'm describing myself, and I've just completed one site. So far I've made $10. That's fine with me. I know I'll have to experiment with many sites, and probably most won't pan out.

Can you give me some idea of what I might expect over the next three years? I have no idea, so any comments you have will be quite helpful.

Thanks!

July 20, 2010 - 3:41am

It depends on how hard you work, who you follow, how aggressively you invest, what markets you pick, what sets you apart from the competition, how scalable your business model is, etc.

The idea of aiming for average isn't particularly inspiring. Most people (ie: pretty close to the average, since it is over half) make nothing because they don't treat their online business like a real business. And lots of people often get roped up into buying snake oil or some MLM crap.

Another way of putting it: the bottom 90% of almost any market isn't very interesting or exciting.

If you are aiming to be a profitable webmaster there is no point trying to be average. Your goal need to be being #1 in your niche (or at least something close to that).

I have a hard time predicting my own year to year income, let alone some random arbitrary average. And the average is irrelevant because nobody who is successful aims to be average.

I can state this with confidence though: if you have been online for only a year or so and you are already onto sites like this one (as opposed to the scrolling salesletters with red headlines types of sites) then you have great potential to make good money because that means you already are getting to where the signal is online. You just have to focus on the 6 points outlined in the first paragraph.

July 19, 2010 - 4:22pm

Direct sales in the 70's is the affiliate marketing of today.

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