For almost everyone who invests MLM turns out to be a losing financial proposition. This is not an opinion, but a historical fact. Consider some notable examplesfrom among the largest MLMs.In the largest of all MLMs, Amway, only 1/2 of one percent of all distributors make it tothe basic level of "direct" distributor, and the average income of all Amway distributors isabout $40 a month. That is
income before taxes and expenses. When costs arefactored, it is obvious that nearly all suffer a loss. Making it to "direct", however, is not aticket to profitability, but to greater losses. When the Wisconsin Attorney General filedcharges against Amway, tax returns from all distributors in the state revealed an averagenet loss of $918 for that state's "direct" distributors.Extraordinary sales and marketing obstacles account for much of this failure, but even if the business were more feasible, sheer mathematics would severely limit the opportunity.The MLM type of business structure can support only a small number of financialwinners. If a 1,000-person downline is needed to earn a sustainable income, those 1,000will need one million more to duplicate the success. How many people can realistically be enrolled? Much of what appears as growth is in fact only the continuous churning of new enrollees. The money for the rare winners comes from the constant enrollment of armies of losers.The vast majority of the losers in MLM drop out within a year. In a 1999 court case brought against Melaleuca, one of the country's largest MLMs, the company claimed ithas the highest "retention" rate among distributors in the entire MLM industry. Melaleuca boasted a drop-out rate is 5.5% per month.
This equates to about 60% per year, if thedropouts are replaced each month.
In its annual report to the SEC, Pre-Paid Legal, another large MLM, revealed that morethan 1/2 of all its customers and distributors quit each year and are replaced by another group of hopeful investors.This pattern of 50-70% of all distributors quitting within one year holds true also for NuSkin, the industry's second largest MLM. NuSkin also exemplifies the accompanying pattern in which a tiny percent of the distributors gain the majority of all companyrebates. In 1998, NuSkin paid out 2/3rds of its entire rebates to just 200 upliners out of more than 63,000 "active" distributors. The money they received came directly from theunprofitably investments of the 99.7% of the others.In 1995, Excel Communications, another "fast growing" MLM, reported to regulators an86% turnover rate of distributors and 48% drop-out rate among all customers.To obscure their dismal numbers, some MLMs classify their distributors as "active" and"inactive." The Active group includes only recent participants and those still buying products or receiving rebates. Payout and retention statistics are then disclosed only onthe "active" group.