Multi-Level Marketing Will Leave You Broke
Posted on 21. Jan, 2010 by Mike Key in Entreprenuership, Featured
It was Wednesday morning, and I had dropped JorDanee off and had decided to get gas. So I pulled into the local Wawa, and it was busy that morning with folks at every pump. I got out an proceeded to pump my gas, my thoughts on business strategies, when a young man on the other side of the pump peaks over and says to me:
“Wow, nice Audi, what kind of gas mileage does that thing get?”
“I manage to get about 21-22 city and 27 highway” I said
“Awesome man!” he replied unusually enthusiastic.
“Hey, I saw your license plate, can I ask what you do?”
Then it hit me, this guy is an IBO, and I was suddenly leery of whatever sales pitch he would throw at me.
However, I was pretty candid in my response. “I enjoy life on a daily basis, but if you mean what do I do for an income, I own a web based business and help other companies improve their online presence. I also write a blog where I discuses entrepreneurship and lifestyle.”
“Oh wow, good deal man. I’m actually working with a business team out of Raleigh, North Carolina, helping folks develop web based businesses. We’re actually looking for some sharp folks like yourself who are looking to earn some extra income. Do you keep your options open?”
“Do I keep my options open? Yes. Do I keep them open for multi-level marketing? No.” I replied.
With that note, I finished pumping my gas and got into my car. He looked a little stunned with my response. Perhaps it was the fact that I had readily identified his pitch. Perhaps I was a little rude, but the number of times I get approached by people involved in an MLM is annoying.
If you have fallen victim for this ploy, chances are you gave your phone number to an IBO. He’ll most likely call you within 1 to 2 days to setup a time to do an in-person meeting. The entire point of this quick meeting is to gauge your interest in coming to see his business plan. He will ask if you are interested in making an extra two to three thousand dollars, and who wouldn’t? If you say yes, then chances are you are going to an open meeting where some guy will speak to you about how to make money while drawing circles on a white board. If this has happened to you recently, do not return the phone calls of these people.
Since I was actually in a form of multi-level marketing for a couple of years, I’ll give you my perspective on the subject, and my warning. You see, I was in Quixtar (aka Amway, same company). And to be honest, it’s not 100% a scam. There are a lot of really decent and honest people in these systems, and it is slightly possibly to make money in them, about as possible as you winning the lottery.
The problem is, most people in Quixtar are going just short of broke. If you attend one of these business meetings you’ll be presented with a display of just how easy it is to get setup in business for yourself and to start making money. They’ll draw some circles to show you how fast you can be a millionaire. They tell you all you have to do is get 6 people under you and then you’ll be rich. They probably even give you a book called Rich Dad, Poor Dad (Which by the way, Mr. Kiyosaki was sponsored by Amway to write that book.)
But there is a BIG FAT SCAM right in the middle of this whole “Business System” that you won’t see at first. Most people don’t realize there are two businesses at work here. Quixtar is just the same as say Avon for example. YES, you can make money in Quixtar and some people do. If you sell products, you get a portion of those sales. If you sign up other IBO’s, you will get a portion of their sales. Quixtar itself is not a pyramid scam. Pyramids are outlawed by the federal government and Quixtar is a valid, privately held corporation that does billions in sales annually.
The REAL SCAM and the scam that Quixtar itself turns a blind eye to on a regular basis is the training systems. You see, to become an IBO you have to be registered by another IBO, called your “upline”. Once registered you can sign up all of your friends and anyone else you’d like. The people under you are called your “downline”. Now generally once registered you’ll be a part of some business team. You could always go rogue, but I doubt many people ever do that or know that they can. Besides, it’s the team that is providing all the training you are going to receive to run your business successfully.
Once you join up and start going to these weekly meetings you will be reminded over and over again how important it is to cut off negative associations and to listen to the CDs promoted by the training system.You’ll be encouraged and reminded over and over again that you need this training to be successful in business. According to them, you can’t succeed in your Quixtar business without listening to their CDs, without attending their seminars and 3 day conferences. You will also be told to buy books from their system and sign up for over-priced web hosting, voice-mail and a half dozen other useless services you could get elsewhere for free.
However, the money spent on this per month still seems trivial to the average cost spent on getting a traditional business off the ground. Most IBO’s never realize how much money they are actually spending in comparison to how much they actually make in Quixtar because the money invested is so low. Until you start to add up the money spent over the course of a year do you begin to see the real damage being done. The average IBO is typically in the red.
Let’s do the math, from my experience.
It cost $151.00 dollars to register, and I also had to buy my 100PV (Point Value of products purchased from Quixtar to get paid) which was $175.00. I was also signed up on the book/CD program which was $60.00 a month.
The very first month I had spent a total of $368.00 (Not counting the open meetings).
Each Tuesday I was suppose to come attend a weekly meeting, it cost $4.00 dollars to attend.
$4 x 52 weeks = $208 (If an important speaker came out, I had to pay $6).
Now lets add up 11 months of 100PV and 11 months of the books/CDs.
$175 x 11 = $1925.00
$60 x 11=$660.00
Then there was the 4 major conferences every year at $110 dollars a ticket which equals $440.00 a year.
So far that’s $3619.00. I haven’t even included how much money was spent on gas and food.
Do you see where this is going yet? If your Quixtar business doesn’t earn you over $4000 dollars a year, guess what? You are broke and foolish. YOU MIGHT AS WELL DO THIS WITH YOUR MONEY:
The problem here is that the whole system is promoted like it is the most cost-effective way to do business. The truth is, it isn’t. You will be spending more money a year running your Quixtar Business than you are likely to ever make. Check Quixtar’s own stats. Most of their IBOs never make more than $100.00 a year.
Thinking about quitting then? You will be brainwashed to believe the people who fail or quit the system are weak and don’t want their freedom from the 9-5 bad enough.
BULL CRAP. I have watched good people in this system work and work and destroy their own marriages because they were working this broken business model as hard as they could, and today, they still aren’t free. They still work a JOB and pour that money into Quixtar, believing that someday doing the same thing over and over again will actually work.
So where is all this money coming from that these Kingpins, the Diamonds of Quixtar, are always talking about? Well it’s not Quixtar, because they limit how much you can make. You can only ever make $32,000 dollars from Quixtar. The real money-maker is the books, CDs, and conferences. That is where all the real money is that THEY are making off of you. I would attend a conference with a stadium of thousands of IBOs and listen to a fat man on stage tell me he put the whole event on just to make me successful. Bullcrap. How do you think a concert works? What’s $110 x 5,000 IBO’s. Answer: $550,000 dollars. More than enough money to bankroll production and have lots left over.
The real kicker though was the local business meetings. I took it upon myself to find out how much money it cost to rent out the space they where using. I don’t want to get anyone in trouble, but by my estimation at $4 a head with about 500 IBOs in Va Beach, they where raking in $800 dollars every Tuesday after expenses. Whose pocket did that end up in?
You see, it’s not Quixtar, it is the training systems that are the real scam. I figured this out early on, but I, like many other people, stuck around because I believed in the other things they promoted. Things like helping people get free, living better lives, and fixing broken marriages, etc. I saw the business have a positive impact on the lives of people. Truly, at each conference I went to, I saw people give their lives by the hundreds to Jesus Christ.
While all of that is good and dandy, it is deceptive as well. The truth about the real money is never openly disclosed. Most people never truly succeed at this business, and I suspect most are going broke. A quick Google search will show you thousands of blogs and posts about people claiming it is a cult or scam. Most are angry victims who didn’t have a clue.
Be warned! Multi-Level-Marketing has its ups and downs. I quit the business, not because I’m weak, but because my heart was no longer in it. I still have a passion to see people succeed and achieve and break from the template lifestyle. That is the reason and purpose behind this whole blog.
I’m not denying that you can make money in an MLM, but I am highlighting what I think is an often glazed over and sweep under the rug.: the reality of how “successful” the business model really is.
(I would love to hear your thoughts on the matter below in the comments. I will allow all comments so long as you are not directly insulting me or another person. )
23 Responses to “Multi-Level Marketing Will Leave You Broke”
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Larry Cole
21. Jan, 2010
I find this article interesting, and not all-together untrue. The one thing I find particularly humorous is the reference to Robert Kiyosaki’s book, Rich Dad Poor Dad. I have read the book a couple of times as well as listening to it on audio a couple of times… it is a great book. However, I think Michael is stating here would be echoed by Kiyosaki. In other words, Robert Kiyosaki specifically states that to become rich you need to travel through life acquiring assets. (He describes and asset as anything you spend money on which generates more revenue than it costs on a regular basis.) To Michael’s point, the IBO’s (independent business owners) he is describing, are not taking an accurate cost/benefit analysis. In other words, their “business” is not an asset. Bottom line, like any other business venture, you have to periodically take a truly honest assessments of the ROI (return on investment.)
BTW, if you are interested, you can get Kyosaki’s book at any book retailer, or here: http://www.richdad.com
Mike Key
21. Jan, 2010
To make Quixtar work you have to take it very seriously like a real business. And it’s a business that requires you to hussle. I also argue that you don’t actually need all the CD’s and Books to succeed in the business.
Some people do make it work, but most simply are going broke, waiting to be the next person on a late night news special crying about how the system abused them.
Mark - Productivity501
22. Jan, 2010
I have found I get approached by a lot of people trying to sell me on MLM “opportunities” in the business section of bookstores. When someone strikes up a conversation out of the blue in the business section it is always because they are trying to present a business opportunity. If you know this, you can have quite a bit of fun with your answers to their questions.
Mike Key
22. Jan, 2010
YES! So very true Mark. I do recall that we where originally told to go to places like Barnes & Noble to meet people, but then someone started the trend of “meeting people while living your life” as they called it, so you didn’t seem like a marketer, but like someone sharing a real opportunity, where now they look for people at places like Walmart, Gas Stations and Grocery Stores.
Gordie
22. Jan, 2010
Hi Mike,
Even here in China I’ve been approached by Amway people on buses!
Thanks for this article. I’ve read many articles for and against MLM. At the end of the day, my gut feeling tells to not to get into it.
Maureen
22. Jan, 2010
So what does your license plate say?
Control
22. Jan, 2010
MK3Y LLC
Valerie M
22. Jan, 2010
Hi Mike,
I did not realize this fact about MLMs. I did get pitched to one or two times, and it did pique my interest, but I never took the leap just because of all the negativity surrounding them. I wasn’t sure why, however, because a lot of business follow the same model (people referring someone else and getting a portion of the profit, e.g. joint ventures). I just assumed maybe the people in them were just looking for a quick buck and didn’t try hard enough or that the products were not in demand. I did not know about all the paid training that is pushed on IBOs. I guess I do now.
Thanks so much for bringing this to light, I definitely learned something today!
Mark - Productivity501
22. Jan, 2010
I lived near Amway’s headquarters in Michigan for awhile, so I know some people who have done well in Amway from actually selling the product. The problem I see with those types of systems is that they don’t take any less work than starting some other type of business and if you do become successful, you own a position in a sales channel–not the actual business. The person who owns the business (usually the founders) can make bad decisions and destroy your income and you can’t do anything about it.
Moon Hussain
25. Jan, 2010
Mike, great post. I wasn’t aware of MLM’s or any of the details but you did a good job goign in-depth here and keeping it entertaining.
I knew someone who was into Amway (a couple) when I was much younger and they used to attend local meetings and sell products to me from time to time. I do remember them believing that they would make it; they’d come back from those meetings with renewed energy.
I think Mark has a great point there: if you’re going to put in that much effort into a business, why not your own?
Maren Kate
25. Jan, 2010
Great post! So true
I can’t stand multi level marketing… on any level 
mikekey82
11. Feb, 2010
I was kind of hoping some IBO's would find this and post a comment, get their perspective and maybe a little debate going.
Salvador Russo
12. Mar, 2010
Interesting. I'm an IBO and can definitely see how people can get indoctrinated into the various "extras" of the business. Personally I stick to the actions that make money – sales and sponsorships. I've been to a couple of events and honestly their are just pep-rally type things. Some people need that, some don't.
The system works for sure though, the products are amazing, and it can work if you make it. Amway is totally on top of things technologically and the numbers don't lie. Besides, at it's most basic level it's just like buying a Costco membership and getting access to all the goods. This translates to better value for your money and increased quality of products. It pays for itself easily if you have half a brain, LOL
mikekey82
12. Mar, 2010
Yup, the Amway model does work. But Amway Global on it's site states the limits one can make. But it's the other business systems that are a problem, some aren't as bad as others. Personally, not my thing anymore. Opened my ideas to things, but I got myself financially free 100x faster than if I had kept working the business.
Salvador Russo
14. Mar, 2010
I hear you. It’s not for everyone. For us it’s a nice thing to develop while we tackle other entrepreneurial projects. If you ever want access to the products again, just give us a shout =)
lotuslinkinternational.com
Great blog and hope you have an amazing week!
youtube.com/user/lotuslinkintl
Avin
30. Mar, 2010
I think this is a pretty good estimation of how it works 99% of the time.
My only comment is that Amway/Quixtar does not ‘cap’ you at any number – you mentioned $36k – you must be referring to the 25% compensation plan.
There are plenty of people making 6-7 figures directly from the corporation, but you’re right, the majority of the money that has been promoted through the years has actually come from the ‘education’ side.
Administrator
30. Mar, 2010
I think a bunch of things have changed since I was in the business. As I noticed they are no openly calling themselves Amway Global again instead of just Quixtar like they where. So I may be wrong about those numbers, just quoting what I thought I recalled.
Matt Conkle
01. May, 2010
Your summary of MLM is kind of like me saying I don’t go to movies anymore because I saw Glitter once! An entire industry cannot be based your experience with one company. There are thousands of companies out there and some are bad and some are good, you just picked one a bad one in terms of making money.
I agree Amway’s comp plan is horrible, but their training is second to none (even if you have to pay for it)! There has not been an IBO that I have talked to that didn’t have a good approach. I think your forget about what you learned at those conventions/meetings you went to. How to accept rejection, how to deal with people, being part of a team, how to network with people, the things you saw no doubt helped you grow your personal business. It wouldn’t surprise me if some of those people have become your clients. Take a look from that perspective and tell me if that $4000 may not have been such a bad investment.
All business is built on Network Marketing(AKA Word of Mouth). Whether you like it or not, you Network Market every single day. So please change the title from “Multi-Level Marketing will leave you broke” to “Quixtar is a bad business” or something like that.
On a side note, I look forward to meeting you soon. I’m sure our paths will cross at one of the Meetup events. And I’m curious do you keep your options open? =)
Mike Key
07. May, 2010
Sorry Matt, but I you must of missed my main point. Most people don’t apply the work in multi-level marketing, spend all thier money on the mostly worthless training and then go broke. So I completely disagree.
I say worthless, because after exploring on my own, various books and authors, I found some of my old Quixtar cd’s and decided to listen to a few, and discovered they where rehashing other peoples words ver betam. That makes it worthless. All those conferences, never helped me to grow my business. They just keep me motivated to stay in the business and keep buying the crap.
NoAmwayThankYou
23. May, 2010
I have had friendships completely destroyed over MLM marketing. I went to a classmate’s wedding and the bachelor party was an ambush AMWAY style. I sat through an hour and a half of “what is your goal in life” on a white board speech. The most painful experience of my life at the time. I flew in from Japan for the event and couldn’t believe it. I wasn’t interested (as well as other classmates) and it damaged our friendship for years because there is something in their training that prevents them from socializing with folks that aren’t part of their “network”. I hope they do well but the ‘cult’ nature of MLMs and the obtrusive false pretense is fascinating and sad at the same time.
Mike Key
23. May, 2010
You know what’s the saddest is I know folks just like you, who 10 years later are still in Amway or whatever it’s called now, still chasing their “Dreams” because that’s what it is a pipe-dream, still talking about how they’re going to be free and it’s the best business, yet none of them are free yet. Hey, I’m free and I’m not in Amway. I don’t wake up every day and rush off to a job. So obviously if you’re still in it 10 yrs later and still broke, it ain’t really working for you. I just have to laugh at these folks.
Michelle Tukachinsky
26. May, 2010
wow… love the story… very compelling. MLM is a tough industry. I think it is addicting, and can pull people away from their reality. There is some “comfort” being part of an MLM even though one is not making any money.
I still want to believe that there is the “perfect MLM” with a great product, affordable, with great leadership and training.
It does not exist. It is a dream. But I still have a glimmer of hope. Not in any MLM now.. but still vulnerable.. lol
Thanks again!
Mike Key
13. Jul, 2010
You know, the environment is what really makes MLM’s so attractive. That’s all I was ever attracted to. I’ve recently found that in my own mastermind group.