MLMs: Almost a sure way to lose money
Filed under: Ripoffs and Scams
If you're like over 90% of the people who get involved in multi-level marketing, you're going to lose money. The sad thing is that most people get involved in MLMs because they want to make money.
Below is the story of one college student who lost thousands in an MLM. These companies are known for preying on some groups of people who can least afford to lose money: college students, stay-at-home moms, single parents, people looking for some extra income to pay down debt.
Why are these ventures so expensive? They often involve the purchase of expensive inventory, lots of "business tools", attendance at expensive seminars, and all sorts of small costs that add up quickly. Sure, I've heard the phrase that you can't make money unless you spend money. The problem is that the chance of actually making any money in MLM is very, very slim.
And don't forget the most attractive part of multi-level marketing: Trying to recruit friends and family. Most people are wise to the "come and listen to a great presentation about a fantastic opportunity" line. The only opportunity you're really giving them is a chance to lose money. Spare them and yourself the agony!
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
Below is the story of one college student who lost thousands in an MLM. These companies are known for preying on some groups of people who can least afford to lose money: college students, stay-at-home moms, single parents, people looking for some extra income to pay down debt.
Why are these ventures so expensive? They often involve the purchase of expensive inventory, lots of "business tools", attendance at expensive seminars, and all sorts of small costs that add up quickly. Sure, I've heard the phrase that you can't make money unless you spend money. The problem is that the chance of actually making any money in MLM is very, very slim.
And don't forget the most attractive part of multi-level marketing: Trying to recruit friends and family. Most people are wise to the "come and listen to a great presentation about a fantastic opportunity" line. The only opportunity you're really giving them is a chance to lose money. Spare them and yourself the agony!
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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Reader Comments (Page 1 of 1)
5-26-2008 @ 6:26AM
al coholic said...
These scams always appeal to the "get rich quick" crowd. A friend of mine started badgering me about one of them recently.
I tried to explain to him that the money from the new sales people is the only way these payoffs can continue. At least, of course, until the supply of new salespeople runs out and everyone suddenly discovers that they can't live off the commissions.
If people were as zealous about their current jobs they would end up more successful in the long run.
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5-26-2008 @ 10:34AM
Tracy Coenen said...
I'm going to have to disagree on get rich quick. I will agree that it is often pitched that way (Would you like to make $5,000 a month working only 5-10 hours a week?). But I don't agree that those who sign up are necessarily looking to get rich quick. That is what MLM-lovers often accuse them of... that they weren't willing to work hard. I've seen too many failed distributors who did work very hard and put forth effort for years to think that they just wanted get rich quick.
5-27-2008 @ 11:11AM
Emily said...
I agree with Tracy on this one. I am not the get-rich quick kind of person -- I've always worked hard and known that money doesn't just fall from trees. But toward the end of college when I didn't have a full-time post-school job lined up yet, and went to a party at a friend's house where a woman sold adult novelties, it seemed like a fun way to make some money.
The lady was cool, was paid to have fun, told me how much money she made, how flexible the hours were, etc. Being naive and needing money, I decided to give it a go. I worked my butt off, did tons of parties, and sold a lot of merchandise, but was never making money. It's because like you said -- the more people you recruit, the better you do. In this case, the more people you recruit, the more of a discount you can buy the products at, meaning you make more profit. I just wanted to do the parties and sell my product -- not recruit people. I was bad at it and didn't try too hard, so I was never able to get past that first bracket.
Every time I made money at a party, I lost it all either on shipping or on stocking up on new inventory for the next party, or buying things people ordered at the party but I didn't have in stock at the time. Also, shipping was a HUGE rip-off -- min was $15 shipping charge -- which was fine for parties, because everyone was charged a few bucks to cover shipping, but sometimes I would get one client asking me to order a $9 product. There was no way I was going to charge her that much shipping, but I didn't want to swallow the costs either, so I always had to wait until closer to a party or when I could combine orders. Plus, I had to lug around huge, heavy suitcases full of products, and deal with finances and customer service all alone.
Sorry so long -- just wanted to emphasize that joining the MLM was a HUGE mistake. The woman who recruited me is doing extremely well, but it's because she is a great recruiter (very aggressive and persuasive) so is buying things at the max discount, making a ton more profit than those barely recruiting anyone. It was so not for me, and I've tried to actively discourage people from getting involved in things like that. Thanks for bringing this subject to light!
http://blogs.creditcards.com/emilyg.php
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