Multi-level marketing companies will never tell you the truth about how many people lose money in their schemes. Some provide “income disclosure statements,” but those are massively deceptive. They omit important information such as the churn rate of distributors and the definition of an “active” distributor. Even more deceptive is they purposely omit data on tons of distributors who earn zero commissions, which makes the earnings numbers look better than they really are.
Two in-depth studies were done by academics who wanted to know the true failure rate of distributors involved in MLM. Robert FitzPatrick and Jon Taylor did separate studies using different methodologies, and both concluded that over 99% of of distributors lose money. The MLM companies try to explain this statistic away, saying most people don’t really want to make money anyway. But at the same time, the most common tool used to recruit people into multi-level marketing is the income claims. Recruiters defend their schemes by saying that there is an extremely high rate of failure across all small businesses. That’s not true. Depending on who you believe, probably 50% of small businesses fail within 2 to 4 years. But that’s a far cry from the 99% failure rate in MLM in the first year!
The FitzPatrick report included an analysis of 11 MLMs , including Arbonne, Cyberwize, Free Life, Herbalife, Melaleuca, Nikken, Nuskin, Reliv, Usana, Your Travel Business, and, Amway/Quixtar. Why only eleven companies? Because these were some of the few who distributed income disclosure statements. He focused on some larger ones, including five which were publicly traded companies. The annual revenue of these companies collectively exceeded $12 billion, and about 9 million people around the world were recruited into them each year.
Recruitment into these companies creates billions of dollars of losses to consumers each year.
The massive losses among MLM recruits are explained away by MLM’s lobbying organization with the claim that the great majority of MLM participants don’t want to earn money. They only are interested in buying the MLM goods at a “discount”, the Direct Selling Association claims. The explanation does not address the impossibility of broad-based profitability – regardless of time commitment, intention, motivation or levels of talent – in an “endless chain” recruitment model. The claim of “discount buyers” also does not account for the extraordinary churn rate among MLM participants, the majority of whom quit the schemes within a year and stop buying the MLM goods forever.
In virtually all cases, MLMs require monthly or annual purchase quotas by the sales people in order to qualify for the promised “commissions and rebates” gained from new recruits. The required purchases gained by making false promises of future income account for virtually all of MLM “sales,” not consumer demand or legitimate marketing.
What does all of this mean for Mary Kay? After all, won’t the Mary Kay supporters claim that Mary Kay is different from all of these companies and these aren’t their numbers?
Mary Kay may not be directly represented here, but you can bet their numbers are no better than these. We have former directors from all levels who can attest that these numbers are true for Mary Kay. Women are not making a living with Mary Kay. The very top distributors earn mostly small incomes (not real career earnings) and a very tiny number of distributors earn big money. Everyone else earns next to nothing… with most everyone else actually losing money.