It’s time for the nitty gritty reality of cold, emotionless numbers. Many people in MLMs are lured in by the glamour and enthusiasm of being an MLM “independent business owner,” so the truth of the numbers bounces right off their emotional armor.
But obviously, numbers matter. They pay our bills, pay for our basic life necessities, and affect our well-being. So let’s talk numbers. (If you’d like to just skip to income reports from the companies themselves, look here or there. But read on to learn why their numbers are not accurate representations.)
Where do the numbers come from, and what do they say?
Source 1: Jon Taylor
Ever wonder where the whole “99% of MLM participants lose money” came from? My search led me to some light anti-mlm reading on the FTC website—a 381-page ebook from 2012 by Jon M. Taylor, MBA, Ph.D, founder of the Consumer Awareness Institute. If you want the short version of just his numbers study, it’s here. (Don’t worry, it’s only 40 pages.) Sadly, Taylor’s work of 20+ years analyzing over 600 MLM companies fell on deaf ears.
Here’s a jolly chart from this document on the FTC website:
If the numbers look depressing, that’s because they are. Numbers can’t market themselves and “fake it ‘til they make it” the way MLM sellers can. (Though MLM companies CAN lie and mislead about them—more on that later.) This chart comes from Taylor’s findings, who also explained in his study why he found multi-level marketing product-based pyramid schemes to be more costly than classic pyramid schemes. Ouch.
Data from tax preparer interviews in Utah
Taylor gathered this data by interviewing over 300 tax professionals across several counties in Utah, the heartland for MLM companies. The conclusion is that out of 34,500 tax returns for which MLM participation was included, only 2.1% reported a profit…and those were all in the county where the TOPPs file their taxes. (Top of the Pyramid Promoters—the top 1%, or in this case, the top 2%.)
2008 Nu Skin Income Disclosure Report
The 2008 report for Nu Skin looks like this, except it doesn’t show the ugly numbers that were added in bold—like how 85.89% of sellers are making $0. That number may be invisible, but it’s there: just add the rest of the other “Average % of Active Distributors” together—they equal 14.11%—and subtract that from 100%.
If you’re not depressed enough, a second glance shows that of the 14.11% making money, 12.14% are making less than $500 a month—BEFORE EXPENSES AND TAXES.
2017 Nu Skin Income Disclosure Report
If you can’t see this, find it here on Nu Skin’s website, as of 12/06/2018. Zoom in—it’s tiny!
As you can see, they’re missing the “Active Distributors not earning a check” numbers. Calculating it for ourselves, we discover 100%-15.41% = 84.59% of sellers making zero, and 12.89% of the remaining 15.41% making less than $500, BEFORE EXPENSES AND TAXES.
Their fortunes aren’t improved much.
Taylor obviously looked at the data from multiple MLM companies, so look at his study to learn more. To conclude, Taylor says:
“MLM loss rates are extraordinary – at least 99% for all of the MLMs for which I have been able to obtain relevant data.”
“Product purchases become the means of disguising or laundering investments in the scheme.”
“We then asked if they were profiting from their participation. Nearly all said “yes” and that they were reporting a profit on their taxes. When we asked if the MLM was their sole source of income, only eight [out of 275] of them answered “yes”. Then when we asked if they received from the company more in commissions than they paid to the company for products and services, most of them balked, said they didn’t know, or suggested “That’s pretty personal, don’t you think?” – or “I won’t disclose that information.”
“It became apparent that most were not honest with themselves about the amount of money they were spending on products and services compared to what they were being paid by the company. They had convinced themselves that they were making money even when they were spending more than they were getting.”
Source 2: Robert Fitzpatrick
Another consumer advocate, Robert FitzPatrick, has also spent 20+ years studying MLM companies. His work and knowledge have been utilized by Congress, the FTC, China, and other countries. The data for his 43-page report in 2005 came directly from the public income documents of seven MLM companies who, at the time, were considered representative of the MLM industry as a whole. I really recommend his report for a deeper look at multi-level marketing.
His bullet points speak for themselves.
His report did come out in 2005, so perhaps some of these sellers are believing times have changed for the better? Like Arbonne, for example?
2017 Arbonne Income Disclosure Statement
It doesn’t look so terrible, what with 90% averaging $287 a month or less (most are less). But where’s the consultants who earned zero??? Not included, is where they are. So the 100% totals here are only active consultants, and not all 100% of every consultant in the company.
Here’s what their income statement looked like in 2005:
Guess they didn’t like how that looked hanging on their “this is a great business opportunity” motto.
“This report reveals that 99% of all sales representatives each year in the sample of companies analyzed earned less than $14 a week in rebate income. This figure is before all business expenses, inventory purchases and taxes are deducted.”
“Yet, even using the MLM industry’s own restrictive method of accounting, analysis of available data reveals that more than 99% of all “active” consumers who invest money and time in multilevel marketing never earn a profit. Some lose hundreds, others thousands of dollars. And still others are drawn into financial ruin gripped by the myth, which the MLM industry has carefully cultivated, that the multi-level marketing business offers the best opportunity for earning a living and becoming wealthy.”
Source 3: MagnifyMoney
And of course, if the 99% loss rate doesn’t scare you, there’s always the survey of 1,049 MLM participants conducted by MagnifyMoney in 2018. They found that:
- Most participants make less than 70 cents per hour in sales – before deducting expenses.
- Fewer than half of participants made $500 in the last five years.
- Men report earning significantly more sales than women.
- Married men and people who got money from friends and family to participate are the most likely to lie about how much they’re earning, fight with close friends and family, and even lose friendships than other groups.
Source 4: TINA.org
Another organization, truthinadvertising.org (TINA.org), reviewed 32 income disclosure statements of MLM companies that were also members of the Direct Selling Association (DSA).
They found that:
“More than 80 percent of distributors grossed less than $1,200 annually or less than $100 per month before expenses. And for about half of these companies, the disclosures indicate that the majority of distributors made no money at all.”
MLMs often misrepresent the truth on purpose
In their studies, both Taylor and Fitzpatrick condemned MLM companies for not being completely honest in their income statements (read more of Fitzpatrick’s accusations here, including eight ways MLMs cover their true numbers with deception). The biggest sin was that most companies didn’t include consultants who weren’t “active” in the numbers. That means that the ACTUAL number of human people who forked over money to the MLM, but hadn’t quit yet, was not hitting the mark—so neither was the actual number for loss rates.
A blog by Talented Ladies Club highlighted the same problems in their post, “Why we’re not publishing any more MLM income disclosure statements.” Their reasons:
- MLMs make it very hard for you to learn the truth
- It’s gotten boring—every single income disclosure reveals the same trends:
- Their earnings are pyramid shaped
- Their ‘earnings’ don’t include expenses
- They don’t include reps who earn zero
Another blog, Sequence Inc., who has been examining business fraud for over two decades, also says of MLM reporting:
“Multi-level marketing companies purposely omit important information that would allow potential distributors or investors to have real insight into these plans.” They omit:
- Total distributors throughout the year
- How the total distributor count is calculated (as of a certain date, using averages, or other methodology)
- Number of new distributors during the year
- Number of distributors who quit during the year (so you can calculate the churn rate)
- Turnover rate
- Number of distributors earning $0
- Definition of “active” distributor
- Total number of distributors at a supervisor or leader level (i.e. have recruited other distributors)
- Total number of “active” distributors at a supervisor or leader level
- Amount of product purchased by each level of distributor for the year
The most important takeaway from these numbers is that every number represents a real person. 99% sounds easy to brush off, but that percentage equals thousands and THOUSANDS of people who are joining MLMs, failing, and being blamed for failing because they “didn’t work hard enough.” No matter what happens to them, the top 1-2% carry on with life, unaffected, soaking in their lavish riches.
It’s wrong and unethical.
Most sellers in an MLM are deceiving themselves and probably won’t be swayed by numbers. If that’s the case, there’s not much we can do—except keep spreading the word about how truly awful the MLM “opportunity!!” is for anyone but the greedy few on top.