MLM Companies: Where’s All The Moolah?

It's easy to theorize how multi-level marketing can make you a mint but theorizing won't get you rich

In case you weren’t aware, multi-level marketing (MLM) doesn’t have the greatest of reputations.  People refer to one of the biggest, Amway, as ScamWay. I’ve often heard MLM compared to a giant Ponzi scheme.

To set the matter straight, MLM is not a Ponzi scheme. Well, not exactly. A Ponzi scheme involves earlier investors earning “returns” generated by capital brought in by newer investors. Bernard Madoff was running a Ponzi scheme in which many well known brokerages and celebrities were duped. The capital in a Ponzi scheme is never invested in a real wealth creation project that can increase the size of the pie for all the investors. The capital is just shifted from one investor to another to create the fiction that the Ponzi fund is performing spectacularly, which then brings in fresh investments to keep the scheme going.

MLMs work by members paying a fee, usually an annual one, to join up. Membership entitles a person to buy the company’s products at a discount. The idea is that you get other people who are interested in the products to join up as well, with you as their sponsor. You then get a cut off every product they ever by. You also encourage them to get their own buddies to join the MLM and purchase products for themselves. You’ll score a cut, albeit a smaller one, off those people, too. All the people whom you continue to make money off of are called your downline. All the people who continue to make money off of you are your upline.

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