Wednesday, March 31, 2010

Business or badness Part 2

In this series, I'm investigating some of the issues that surround multi-level marketing. If you would like part 1 go here and you will be up to speed.

For now, I'd like to examine the business aspects of the MLM, specifically, the products.

Often the products of a MLM are not available anywhere else than the founding company. In a sense, this is what keeps the company alive, financially. And I am not saying that the products in these companies do not have merit. In many cases, the products are very good.

I am a personal fan of Shaklee's vitamins "Vita Lea" and their cleaning product, "At Ease".

There are so many new companies out there that these probably pale in comparison to what is actually out there. But before you buy the testimonial evidence of your local MLM rep, you may want to do some investigation. Many of these companies have come under legal investigation and been charged with false claims. I guess the best way to test the product is to really test the product yourself.

If the products did not have significant impact in the lives of the users, there would be no business at all. So, something must be working.

So, if the products are great (assuming they are), what's the problem, then?

1. Too expensive retail pricing. The cost of these products has to be high, in order to sustain the business model. The goal is not to obtain a ton of retail customers; the goal is obtain a ton of distributors. The high priced model sustains the multi-level industry and allows the industry to function on a retail level. Anyone who likes the products and has their head on straight will automatically "want" the distributor discount, right?

And if you do like the products, this may be a viable plan for you. The problem is with business quotas. Now, you have a year to make your quotas. So, you start getting customers.

An ideal MLM situation would be the type that has no minimum quotas and no start up fee.

Another idea situation would be to sell your products at the minimum discount allowable to everyone.

Well, wait, this isn't business then, is it?

Did you start out with the intention of making money or obtaining products that you like cheaply? So, when did you go from enjoying your products at a discount to starting a business?

So, am I saying that having a business is bad?

Not at all! I love business. I'm all about making money from a business. But for something to be considered a business (in my book), it has to have the following requirements:

1. A product or service sold at competitive prices--not prices completely jacked up through the roof. Let the market decide what the price is. An MLM structure completely eliminates the competition by locking you into a "system" of buying. If I can buy vitamins at the store for $10.00, why are they $28.95 in an MLM? (Oh, but they are soooooooooo much better..)

2. My work in the business, whether selling a product or service is profit for me, not for the other 17 million people ahead of me. If I have hired someone to work under me, I will pay them wages. If I've hired a sales person, I will pay them a percentage. But paying someone a cut from my hard work who provides nothing for me (no insurance, no benefits, no retirement) is kind of odd, don't you think?

A 20% profit (on the retail price) is not enough for my time. I need 50%, and that is not ever rewarded to an MLM rep, even at the highest level. When I was selling Bosch, my distributor who sold $60,000.00 a year, only got 35%!!! You've got to be kidding me!

3. The profits should be calculated in cash inflow, not ranking in the system, discounts on products, cars, trips, and other weird stuff. If it truly IS a business, there should be cash inflow at the end of the year (eventually). People who have entire basements full of inventory (in order to meet their quotas) are not enjoying a cash inflow. They may be enjoying the products at reduced prices. They may enjoy a tax deduction at the end of the year. They may even enjoy the prestige that goes along with being thought of as a top sales rep within their industry, but very few MLM sales people actually receive cash inflow.

4. Of course, some people make money and have cash inflow, but it's not going to be you. Why? How do you know that? O.K. I take that back. YOU could invent a scheme, a product, a line of products and come up with your own MLM. You could be sitting at the top of your pyramid. And trust me, if it weren't for ethical reasons, I would have started five of these already. Seriously. Money is to be made, but not by you. It's the guy at the top, or else why else would he do it? The Dark side of MLMs for more on this topic.

Do you think it is from the "goodness of his Christian charity" that he willingly "shares" his profits?? Now, we are touching on the crux of naivety. Oh, they share it alright. A big fat 20% of the retail price.Italic

So, the product is produced for $2.00. It's retail price is $8.00. Let's say you are a the highest level of an MLM structure and you make 35%. So, 35% of $8.00? Are you ready? Inhale... $2.80!! That's right. Realistically, you will never get to that level. It's more like 20%. So, what really is the total? $1.60! Did it cost you more in time, gas, free samples and the like to make $1.60? And did your upline make a cut of that? Well, if they did, they had to share a portion of their 35%. They only make 35% from direct sales, which is a small fraction of what they are doing at that level. They are making a lot of recruiting at this level. So, either way, corporate still makes 65%!! ($5.20) So, let's do the math. It cost $2.00 to produce this product, remember? After expenses, corporate still has made $3.20! What a good deal, eh? (for them)

And the owner of the company still makes a lot more money (per sale) than anyone else. And if you are a distributor of products, do you even have access to what it costs to make the products? Have you thought to ask? What exactly does go into making this product? Something tells me that that information would be highly confidential.

5. So, I feel the products are WORTH the price that I am selling them at, and I am content with a 20% profit, so is it still wrong for me?

No, I think you have the freedom to make strange choices with what to do with your time and money. But you do not have permission to inflict your recruiting techniques on your friends and family and most definitely do not have permission to bring it into the church. And this was the main impetus for the writing this series.

6. There are so many good resources out there for helping people recover from this drama of being highly involved in an MLM, primarily PINK TRUTH, which I doubt is a Christian resource, since it was formerly "Mary Kay Sucks". Since that was too offensive, they changed the name. In other words, if you are not a Christian and you really do not care how this affects the church, but you still want help sorting this out, go to these other sources and click around. And I can hardly get myself to stop laughing at this: Believe.
A must see!!!

More later on the Christian perspective in this article.

7 comments:

sara said...

So interesting!

An aunt of mine, many years ago, paid a lot of money for a huge kit of Mary Kay stuff to sell. I don't think she made a single sale. But her makeup was flawless.

Also I think my DH is somehow related to one of the higher ups in that company. I saw her at a wedding once. I don't know how that's relevant.

To tell the truth, I had no idea that this was coming into the church. I'm interested to read your thoughts on that but also would like to know what you mean exactly - are you referring to individuals who solicit after prayer meeting or announcements from the pulpit or what? Maybe you can't be too specific because IRL a person may recognize himself/herself? But if you're saying what I think you're saying, it is den-of-thieves serious. Then again, I could make that case about bake sales and youth group car washes. In fact, I know of one church that has Monte Carlo nights. There I go off on a tangent again.

Braley Mama said...

Yes I am anti Mary K. My cousin does sell it, but to very few people with no one under her. She likes the makeup, and she is a believer. But all of these pyramid things do drive me bananas:O) Good post mama!

Herding Grasshoppers said...

It gets tied up with the church (and Organizing Mommy is probably going there...) when they

1. Try to guilt their church friends into joining. We're way too trusting and undiscerning of our friends, sometimes.

2. Tie it into a health/wealth gospel. Amway is rife with this.

3. Try to position it as something a "godly Christian wife" can do, while still being a SAHM.

I'm sure there's more.

Go Jena go!

Mrs. Parunak said...

Fascinating. You sure do know your stuff and you seem very passionate about this. Was your Bosch experience traumatic, or did you just realize that you were getting the short end of the stick?

Organizing Mommy said...

Actually, my Bosch experience was not traumatic at all. I didn't even realize it was an MLM until years after I fizzled out of it. The reason I quit it was that I sold the Whispermill for a "lifetime warranty" to very good people who really trusted me. But when the company started having to replace mills, they declared bankruptcy rather than take the brunt. I lost faith in the company and stopped selling. I was actually a very successful salesperson in Bosch things, but it was not something God wanted me to continue in.

Sara, no there is no IRL person at my church doing this! But I have heard of meetings like ours that it has taken over. Recently, it has become an issue among the homeschooling Christians in our area.

So, I do not have a personal beef with anyone in particular. Freedom to speak!

Kristi Lea said...

Wow. I don't even know what to say. Maybe I should quit reading these posts, for the sake of keeping our "blog friendship."

First of all, on a side note...Mary Kay is 50% off. Just thought I'd throw that in there. The top percentage discount in my company is 40%. You are missing so many points. I can't speak for all companies, but I can speak for mine. First of all...you are neglecting to mention that MILLIONS are spent each year by non-MLM companies on adverstisements to sell the product. Our company doesn't pay these costs, they rely on their consumers and employees (distributors) to advertise for them. Almost all distributors in my company take the products themselves, believe in them, and can share HONESTLY about what tremendous products they are.

Secondly, in my company, once you earn a certain level of discount, you stay at that level. You never loose what you've earned, even if you stop selling for a while. If you make it to a Master Affiliate, the income continues to come in whether you ever sell another thing a day in your life, and if you die, you can will the money that still comes in, to your children.

It costs only the price of the informational and instructional kit to join. $40. That's it. You don't ever have to stock up on inventory to have a succesfull business, or make enough to get your own products.

I just don't get where you are getting so mad at these companies. Giant Retailers like Walmart have the worst values I've ever seen, in and out of the company, and most days I don't shop there, because it just isn't worth saving the money. In MLM companies, everyone shares the money that is to be made. Those who work harder, get more..what's unfair about that?

Our products are worth the retail price, I promise you that. If you don't think it is, don't buy it. I don't see a post downing JC Penny's for charging $100 for a bottle of perfume that you can get for $10 at Target.

And we all have the right to say no! We have ladies in the church who sell Mary Kay, Pampered Chef, Homeschool Curriculum...what's the problem? If you don't want it, say no, and move on. I don't get where the anger's coming from??

Organizing Mommy said...

Wow! 50% is pretty good. Kristilea, thanks for correcting my errors. I think there is a range of spectrum within these companies that are noticeable.

If I sound like I have anger, I apologize. I'm not feeling anger, but words and thoughts can be deceptive.

You are totally right about the high prices of retail stores also. I prefer to buy things second hand if possible.

And we do have the freedom to say "no" if we want to.