Dr. Jon Taylor, the founder of the website Truth on MLM has spent years researching multi-level marketing companies like Mary Kay Cosmetics. He’s done a variety of research, but one of his really interesting projects was surveying hundreds of tax preparers about their MLM customers. He gathered data about sales to actual consumers, commission levels, and profits.

 

I’m also a fan of the 5 red flags of recruiting MLM’s that he came up with. Here are the red flags, with my comments about Mary Kay inserted:

1. Would you, as a new recruit, be permitted and even encouraged to recruit other participants, who would in turn be encouraged to recruit others, and they still more, etc… from whom you could collect commissions and/or bonuses on what they buy or sell?

Recruiting is where they always tell you the big money is made, right? Sales directors depend upon recruits for their paychecks.

2. Is advancement in a hierarchy of multiple levels of participants achieved by recruitment and/or by a combination of recruitment and sales volume, rather than by appointment, as in other work or sales settings?

Think of DIQ and the 30 recruits and $16,000 of production…

3. Are you being encouraged to make initial or ongoing purchases in order to take advantage of the “business opportunity,”and later to continue qualifying for advancement in (or payout in overrides and bonuses from) the MLM company?

Even though there is little or no cost to “sign up” for the program, are there minimum volume requirements that must be met in order to advance to higher levels in the hierarchy or to receive greater commissions or bonuses at some level?

Are you expected to pay for training seminars, workshops, audio or video programs, weekend retreats, etc. in order to stay in the good graces of your upline?

Remember Dacia Wiegandt’s “pull inventory right away” words? Inventory inventory inventory. Minimums to move up. Don’t forget that you also have to show up at the paid events to go up!

4. Does the company pay overrides (commissions and bonuses) to distributors in a hierarchy of more than four levels?

Mary Kay “only” pays on a maximum of four levels. Still pretty bad.

5. Would the total amount of commissions (or discounts, bonuses, etc.) paid by the company to the entire upline of a participant receive more than he/she would receive for actually making the sale?

That depends. In many cases, yes. Consider a $2,000 order by a recruit in a unit that had $10,000 wholesale volume for the month. The commission on that $2,000 order could include 13% recruiter +13% director + $200 volume bonus + $100 qualified recruit bonus + $100 unit development bonus + 5% senior sales director + 10% nsd. Total possible commission = $1,220. That’s 61% commission on the wholesale order. In theory, the seller could get a profit of $2,000 on the order, or 100%. But since we all know that many products are sold at a discount, the math suggests that the profits to the seller may be much smaller, and the upline actually makes more on the order than she does.

If you answered yes to these questions, you are considering getting involved in a MLM that thrives upon an endless chain of recruiting. Is that where you really want to be?

Ask yourself what is more credible: the biased information provided to you by a recruiter who stands to benefit financially from you, or your own independent evaluation of the “business opportunity” as it relates to these red flags?

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