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Disadvantages Of An MLM Business Model

Jan 3, 2008
Most Multi-level Marketing (MLM) business models involve selling to close family, friends & business colleagues and recruiting them in your downline. You pay a small sum of money to join and then make money both from your own sales and the sales of the people that you have recruited.

Initially your friends will humour you and take time out to listen but in the longer term they will slowly start to keep their distance or even become downright intolerant of your attempts to treat them as a cash cow.

What happens when you do manage to persuade a close friend to join your MLM programme? Most of the time that person will have no business experience and chances are that they will fail; up to 80% of new start-ups fail within the first five years. This could lead to you losing your best friend.

Another problem with the MLM business model (which is legal) is that it is hard to distinguish from a pyramid scheme that is illegal.

The main difference between a legitimate MLM business model and a pyramid scheme is that in MLM, real products are being sold to real people whilst in a pyramid scheme you make all of your money from the people that you recruit; your downline.

What has happened is that because pyramid schemes have been outlawed, many have come back disguised as MLM. This has created an intense feeling of distaste and hatred due to the fact that so many people have now lost money participating in such programmes.

In reality most MLM programmes are just pyramid schemes in disguise. When you attend the initial seminar you are presented with a picture of huge potential based on your downline. In reality only the people at the top of the pyramid stand a chance of making any serious money. The rest will pay their joining fee to find that there is no market for their products and be faced with trying to either enrol new recruits or lose their joining fee.

If you remove the product from an MLM scheme all you are left with is a pyramid business model which is definitely going to collapse at some point leaving only the very few that joined in the beginning with any chance of making money.

Let us examine the mathematics of a downline. Say I am at the top and I recruit 5 people. Each of those 5 people recruit 5 more. The new 5 then recruit 5 more. This is classified as 3 levels deep.

How many levels can the entire population of the UK sustain? By the time you reach 12 levels... the entire population of the UK is now involved in the pyramid scheme! This is never going to happen in reality but you can see that if there are only 3 or 4 people above you in your upline, then chances are that you are now entering at the very point of collapse.

Be very wary of any scheme whereby you make most of your money from recruiting other people. If you do not understand the mathematics speak to someone that does.
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