Sample MLM Evaluation
Is WEALTH PLUS a “Recruitment-driven MLM*,” or Product-based Pyramid Scheme?
As illustrated in Table 1 below, when one examines the compensation plan of WealthPlus (a fictitious MLM), one finds all five red flags of a “recruitment-driven MLM*,” or product-based pyramid scheme. When at least the first four of these five red flags are present, available data lead to the conclusion that the loss rate (counting ALL participants and subtracting minimal expenses) approximates 99.6% - far worse than the average 90% loss rate of clearly illegal 8-ball (1-2-4-8) no-product pyramid schemes. In other words, of all participants who sign up for such recruiting MLM programs, approximately 99.6% can be expected to lose money – especially if purchases from the company to qualify for commissions and advancement in the scheme are subtracted as a business expense! (See “Shocking MLM Statistics.”) In this fictitious evaluation, we find all five red flags in its compensation plan which, taken together, has been found to result in such abysmal loss rates.
You can perform this analysis on any MLM yourself in our “5-step Do-it-yourself MLM Evaluation.” If you want to do a thorough investigation of MLM as a business model and as an industry from the viewpoint of an informed consumer advocate, read the new ebook by Dr. Jon M. Taylor titled: The Case (for and) against Multi-level Marketing.
For shorter reports on the five red flags of a recruiting MLM, or product-based pyramid scheme, and related reports, check out the listings on our page of consumer guides on this web site – and/or read other reports on research related to MLM or network marketing. You will also find interesting information on legal and regulatory issues related to MLM or network marketing on our page on law enforcemen t and MLM or network marketing.
* A recruitment-driven MLM is an MLM with a compensation system that rewards recruitment more than actual sales of products to persons outside the network of participants. So significant income is unlikely without recruitment of a large downline. In fact, after subtracting “pay to play” purchases and minimum operating expenses, virtually all participants lose money – except for those at or near the top of the pyramid of participants – who are often the first ones to enter the program.
|How does WealthPlus stack up against the "5 Red Flags" of a recruiting MLM, or product-based pyramid scheme||Yes||No|
|1.Recruitment of participants is unlimited in endless chains of empowered and motivated recruiters recruiting recruiters.||X|
|2. Advancement in a hierarchy of multiple levels of participants is achieved by recruitment, rather than by appointment.||X|
|3. Significant requirements that participants "pay to play" the game via product purchases and services from the company. New recruits are the primary customers, rather than non-participants in the scheme.||X|
|4. Most of the incentives paid by the company goes to the upline, rather than to the person on the front line selling products, creating excessive incentive to recruit and inadequate incentive to sell products (except to new recruits) – and an extreme concentration of income at the top of a hierarchy (pyramid) of participants.||X|
|5. MLM company pays commissions and/or bonuses to at least 5 levels of participants, greatly increasing the "leverage" at the top; i.e., leveraging the efforts and investments of participants at the bottom for the benefit of those at or near the top.||X|