Business Models: MLM | The Ambition Show Podcast | Episode 30

2024-05-23

We all have that friend - “Man, I just started a businessman, and I’m looking for people like you to be a part of something bigger.” Whether it's insurance, finance, beauty, or fashion, we have all had a run-in with someone selling something. Still, instead of selling products, they are more focused on growing the number of members, distributors, direct sellers, or whatever their organization calls them. In this episode, we examine the business model of Multi Level Marketing. WHAT IS MULTI-LEVEL MARKETING Multi-level marketing (MLM) companies are involved in sell...

We all have that friend - “Man, I just started a businessman, and I’m looking for people like you to be a part of something bigger.”

Whether it's insurance, finance, beauty, or fashion, we have all had a run-in with someone selling something. Still, instead of selling products, they are more focused on growing the number of members, distributors, direct sellers, or whatever their organization calls them. In this episode, we examine the business model of Multi Level Marketing.

WHAT IS MULTI-LEVEL MARKETING
- Multi-level marketing (MLM) companies are involved in selling products and services by using a non-salaried workforce in a pyramid-structured commission system.
- These companies are also referred to as referral or network marketing companies. According to a 2021 report issued by Grand View Research, the size of the MLM industry stood at $189.71 billion by the end of 2021.
- The industry is projected to experience an annual growth rate of 6. 1% from 2022 to 2028, reaching a substantial size of $286. 7 billion. As of 2021, the Asia Pacific region holds the largest market share at 45%. MLM companies are gaining market share in key economies such as China, India, and Indonesia.
- Many MLM models are legal, but there are also illegal operations run as pyramid schemes, and this has cast some negative light on legitimate MLM businesses.
- Multilevel marketing is a legitimate business strategy that certain direct sales companies employ to market and sell their products and services.
- Existing members are strongly encouraged to promote and sell their offerings to others and recruit new individuals.
- Participants are paid a percentage of their recruits' sales.
- Members receive some form of commission at all levels, meaning the more layers there are, the more money people can earn.
- The FTC investigates MLM programs to ensure they do not operate as illegal pyramid schemes.

IS THE MLM MODEL A SUCCESSFUL MODEL, AND ARE THE BUSINESSES SUCCESSFUL

- According to the Yahoo Finance MLM market analysis report by Amia Aheer, he identified these are the top MLM companies in the world are
  - Herbalife
    - https://www.herbalife.com/en-us
  - Natura & Co
    - https://www.naturabrasil.com/
  - Amway
    - https://www.amway.com/
  - References: https://www.insidermonkey.com/blog/5-biggest-mlm-companies-in-the-world-1116272/
  - https://finance.yahoo.com/news/17-biggest-mlm-companies-world-144157353.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAALUQQwrOz7DRxaxj-F2ZEnK3SyRmlLb6ZuksZG_RBXNJXwv4IOFY2fYmR8LegX2tDydu4cWeRvqGJ5MdTrxvdS1mbbIxJnpv64pX0nQXieaxvaKn_wafN0cGS0Qv0T984eQfHkSQIjor4r2sIjXfT7_GgiUXAZglbBWJqXewVGH7
- MLM participants
  - Direct sellers, distributors, agents, members, consultants
- MLM companies
  - Tupperware, Amway, Primerica, Herbalife, Mary Key, Avon, Zumba
- Real numbers and reality of MLM
  - Article on Fundera https://www.fundera.com/resources/mlm-statistics
- They cited these top 10 stats:

About one in 13 adults have participated in multilevel marketing (MLM).
There are about 6.2 million Americans actively involved in “direct selling.”
The MLM industry grossed $35.4 billion in 2018.
As of 2009, 94.2% of Direct Sellers Association (DSA) members use MLM.
Wellness and cosmetics/personal care are the top direct-selling categories.
52% of MLM participants say the company’s representation of making a profit is “not too accurate” or “not at all accurate.”
At least 50% of MLM participants drop out after one year.
It costs an estimated $25,000 to launch an MLM business.
66% of MLM participants invest less than $1,000.
Only 25% of MLM participants turn a profit.

ELEMENTS OF AN MLM
- https://www.investopedia.com/terms/m/multi-level-marketing.asp
- References
- Product/Services
- Growth opportunities
- Emphasis on Independence/Working Independently
- System in place
- Compensation Structure

WHAT TO READ “Ponzinomics: The Untold Story of Multi-Level Marketing” by Robert L. FitzPatrick

About the author
- Robert L. FitzPatrick
- Reference: https://www.amazon.com/stores/author/B08PY935QG/about
How it relates to our topic
- Ponzinomics by Robert L. FitzPatrick, author of False Profits, is the first comprehensive account of how "multi-level marketing" was created in America, escaped criminal and civil prosecution, and spread worldwide. It is the first book to investigate the multi-level marketing phenomenon profoundly and to fully explain how the legitimate business of "direct selling" was turned into deceptive pyramid recruiting. Ponzinomics dissects the elements that distinguish "multi-level marketing" from legitimate sales and reveals how a "business" could become a delusional belief and a pyramid scheme, a pseudo-business model. Ponzinomics reveals how multi-level marketing helped to lay a foundation on Main Street for the presidency of Donald Trump with a program of pervasive deception, financial self-destruction, authoritarian leader-worship, and economic make-believe. Ponzinomics is a discomforting look at the threads of American culture, business, and politics that were woven into what has become the largest scam on Main Street.

How to purchase the book
- On Amazon: https://www.amazon.com/Ponzinomics-Untold-Story-Multi-Level-Marketing/dp/0578443511

WHAT TO WATCH “Betting on Zero” Written and Directed by TED BRAUN
- About the author
  - Ted Braun
  - Reference: https://www.imdb.com/name/nm0105862/bio/?ref_=nm_ov_bio_sm
- How it relates to our topic
  - A critical review of the growth and impact of Herbalife Inc. It investigates the allegation that Herbalife is a pyramid scheme. It follows Bill Ackman's short investment in Herbalife, which is ostensibly a billion-dollar bet that the company will soon collapse. The documentary follows billionaire hedge fund titan Bill Ackman and several former Herbalife distributors after Ackman takes a billion-dollar short position in Herbalife, alleging it is a pyramid scheme destined to collapse. The film also chronicles Ackman's feuds with Herbalife CEO Michael O. Johnson and investor Carl Icahn and the resulting controversy over both the short and Herbalife's business practices.