George Kamel - Exposing Multilevel Marketing (the Business of Using Friends for Profit)

Episode Date: May 24, 2023

In this video, I talk about multi-level marketing or MLMs. Regardless of what you’ve been told, for most people, MLMs are a slimy business model that not only cost you time and money, but also social credibility.  Check out these links: The Truth About eCommerce Side Hustles My Article On MLMs How To Make Money Online Start Your EveryDollar Budget Now! Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

There are two kinds of people in this world. The long-forgotten Facebook friend who messages you about an amazing business opportunity that won't interfere with what you're currently doing. I'd like to talk to you about an exciting opportunity that people are talking about. And the vigilante who immediately shuts that ish down. If you can't tell, I'm a grade A shutterdowner of all network marketing nonsense. And if you happen to be the first kind, it's not that I think you're immoral or that I'm against you as a person or anything. I'm just extremely against MLMs and the system they're working under.

Regardless of what you've been told, for most people, MLMs are a slimy business model that not only can lose you time and money, but also social credibility. And I know them's fighting words in these here parts, so let me walk you through some facts, some stats, some personal stories that have led me to believe that network marketing is a world full of scams. But first, you're a sharp person who keeps your options open, right? That's why I want to tell you about a great opportunity that you might be interested in. It's completely free to get started, and you can do it from your own home. In fact, right where you're sitting right now. And that's hitting the like and subscribe button. Just do it.

Bonus points if you get your friends to do it too, and extra bonus points if you share it with them and they watch it. And that's how you start a YouTube pyramid scheme. So to start, what is an MLM, a.k.a. multi-level marketing. Now, technically speaking, an MLM is a business model that uses a network of independent sales reps to sell products directly to customers.

So an MLM sales rep can make money in two ways, by selling product and by recruiting new sales reps. So the whole business model is based on the idea of network marketing, a.k.a. that the best people to market or sell a product are the people using it, which sounds a lot like influencer culture, if we're going to be honest. Oh, thank you. I know. Right now some of you are saying, well, George, are MLM's pyramid schemes? Well, the truth is there's a thin, thin line of distinction here.

And MLMs are unfortunately legal, while pyramid schemes are fortunately not legal. So what's the difference? Well, a pyramid scheme uses the same structure as an MLM, but with a pyramid scheme, the primary source of profit is recruiting new sales reps, not product sales. So there's almost no talk or focus on product sales. It's all about just getting the next sucker to join and the next sucker to join and take their money and their fees.

Another big source of revenue in a pyramid scheme comes from new sales reps, often being required to invest in the company by paying membership dues and starter packs and buying the inventory, they will then attempt to sell. And if you can't sell, of weight loss supplements, you're left to eat that cost. One of the key indicators of a pyramid scheme is that it can't be sustained long term, meaning its fallout is as inevitable as it was for Howie Mandel's hair.

So why can't they be sustained? Well, think about this. Eventually, you run out of people to recruit and there won't be any more money to make. And that's a pretty good sign. It was a pyramid scheme, which again, is illegal. And while MLMs aren't quite as scammy as pyramid schemes, it's not by much. In fact, the stats show that MLMs are generally a terrible business model, despite what people joining them, tend to believe. You see, while making a good income with MLM is possible, only 1% of participants do.

Literally, 1%. A 2018 report by the Federal Trade Commission found that 99% of people who join MLMs actually lose money. That's right, they don't make a dime, they're losing dimes and lots of them. And this is because similar to pyramid schemes we just talked about, a lot of MLMLNs, require sales reps to pay a membership fee or purchase products up front. And then, reps also have to hit a minimum monthly purchase volume just to remain eligible for commissions, meaning they often spend way more on maintaining their product inventory

than they earn in commissions selling them. Let's take Lula Rowe, for example, which I know sounds like the name of a waitress at Cracker Barrel. At one point, Lula Rowe consultants were reportedly required to pay between $5,000 and $10,000 for a starter pack of inventory. Think about that. That's $10,000 in Lisa Frank Adjave. Mosaic leggings, you have to convince all your friends they actually want.

Yes, there are less expensive MLMs to get started in, like Rodin and Fields, which is 75 bucks for their starter kit, or Doterra Essential Oils, which is 35 to 160 depending on the package. And don't even try to at me with this whole, George, all businesses have startup costs. Remember what we talked about people? According to the FTC, failure and loss rates for MLMs are not comparable with legitimate small businesses, which have been found to be profitable for 39% over the lifetime of the business. That means four out of ten people are successful with small business, whereas less than 1% of MLM people profit. And that's because the MLM comp structure is designed to reward those at the top of the organization, which happens to be shaped like a pyramid, rather than those doing the bulk of the selling.

Hashtag hierarchy vibes, am I right? Yeah, yeah. Indevitably, yeah. You see, those at the top get a cut of everything the recruits below them sell. That's the people you've recruited, and the people your recruits recruited, and the people your recruits recruited, all the way. to your great, great, great, great, grand recruits. What a strange family tree you've built. So if you're just starting out, your commission is tiancy-wincy,

because all the people above you that it's funneling to, which is probably why 73% of participants quit within the first year, and 95% quit within five years, which is pretty close to the retention rate of most CrossFit gyms. Not that I've ever been to one, because I'm highly allergic to wads, burpees, and anyone who uses the word thrusters and assemblies. So if you want the real, real on these MLMs,

good news for you. They are legally required to publish income disclosure statements on their websites, aka how much money people are actually making from joining their little club. So here's a few numbers from some well-known MLMs. Let's start with Young Living. Their entry-level consultants, which makes up about two-thirds of their Salesforce, made an average of $22 in 2023. Now, that's hardly enough to get one peppermint oil roller to cure the migraine you got

from making a whopping $22. Let's move on to Beauty Counter. They're a makeup MLM and their entry-level consultant. which makes up about 70% of their sales force made an average of $41.00. That's 4.1.00. And if you're doing the math, that's almost twice as much as the young living folks. Let's move on to Arbonne. Their entry-level consultants, which makes up about two-thirds of their sales force, made an average of $223 in 2022. Big money. Big, big money. Now, did you notice that all of these products are primarily marketed to women? essential oils, makeup, beauty, skin care.

I guess guys just don't care about this stuff as much. But they should, forget YOLO. I'm all about Yogo's. You only get one skin. And, fun gross fact for you, the skin is the largest organ of the body. But here's the deal. Women make up 75% of all MLM participants.

But that doesn't mean that men are any savier when it comes to business. We just make poor money decisions in other ways, like investing in crypto, which is the modern man's MLM, or day trading or sports betting. or lifted trucks with the underlight LED kits, or surround sound systems, or super expensive grills that you're gonna use twice a year. So we've talked a lot about the stats and the numbers,

but I want to zoom in on a real-life example. Someone recently messaged me on Instagram, and they were asking me for some side hustle advice, some ways to make money, but they also shared they had tried a whole bunch of MLMs and none of them worked, and they all caused them to lose money. And they had tried seven of these MLMs. That's one MLM for each one of Snow White's roommates.

And just like Snow White's roommates, just like Snow White's roommates. Most people who join MLMs, they start out happy and bashful. But they end up grumpy and dopey, which makes me sleepy just thinking about it. And when they're feeling sneezy, no need to go to the dock. They've got a thieves essential oil to cure that. So I asked them to share their experiences, how much they spent on the startup costs, how much they personally invested in the product and how much money they made. And they obliged, but they asked to remain anonymous. Here's the details. For starters, we've got young living essential oils, $1495 startup cost, $0 made, $75 personal investment, negative $90 total.

Melaluka, it's a hard-to-pronounce wellness company, $100 startup, $112,000 made with a $1,200 personal investment, which brings her total to negative $1188. Unique, $99 startup cost, $30 made, $700 personal investment, and she's in the whole $770 bucks. Next up, we've got Advocare. $59 startup cost, $0 made, $600 personal investment, negative $660 total. Next up, we've got Simply Earth Essential oils

with a $65 startup cost and investment, $0 made, negative $65 total. Beauty counter with a $39 startup cost, $87 kit, a personal investment of $400, currently making $7 total, which brings the grand total to negative $5.00,000, $519. Body, B-O-D-I. $56 startup, personal investment $146 a month just to stay active.

Over a five-year period, they've personally invested $12,000, and they've made $600. That brings us to a grand total on this one of negative $11,456. Ouch. So the net negative for our friend who's been jumping into all these MLMs so far is negative $15,000. Not to mention the loss of what she could have made at more. reliable jobs. I mean, think about this. If you just worked in normal retail job for less than 20 hours a week at 17 bucks an hour, you'd make more than 15,000 in one year. And while I hate what MLMs do to people's finances, I hate even more what they do to their social lives. You see, the people who are in these things

are obsessed with them. They sell their souls to it. We all have that friend who's reached out after a decade without talking to you just to sell their latest weight loss shake. Even if dad bonds are your target market, it's not cool to bug your friends to buy your miracle muscle shakes. And constantly reaching out to family and friends with sales offers they're not interested in is a great way to annoy them and isolate yourself. Yes, sales is about relationships, but not like that. A wise guy once said to me, you don't sell to your friends, you make friends to the people you sell to.

But that's not how MLMs operate. In their sales training, it's super manipulative, they give them all of these scripts, and you learn to see every person as an opportunity for recruiting or for a sale. And that turns everyone into your life into walking dollar signs. It turns your relationships into business opportunities, which is gross. It turns new friends into new prospects. And it turns you into someone that people would rather not hear from. Do you really want to become the Kimmy Gibbler of your friend group?

Have no fear. Kimmy Gibbler's here. Listen, I've got 99 problems, but an MLM pitch ain't one. Don't indulge the hype people. Remember, if it sounds too good to be true, it probably is. And I know I'm on my soapbox, and I want to say it again. You're not a bad person if you do MLM. Okay?

There's a lot of great people out there who are involved in MLMs. some of them really love it. They love the product. Some of them even make good money doing it. But don't get suckered into all the lies and promises they tell you about how much money you could make and how great it's going to be. But if you're still listening and you're like, I'm going to do it. I'm joining an MLM.

Here's what I would ask of you. Never, ever go into debt for it. And please, please, don't use slimy sales tactics and cold message people out of the blue and try to push people into it just to make a buck. And if you're not already in an MLM making good money, my recommendation is don't join. Get another job, do something you're passionate about with a normal company or as a side hustle as a business, but don't join these things as an independent contractor. I mean, this is an eight to 10 year journey if you really want to make a good income doing this.

And statistically, as I showed you, you're probably going to lose money. Don't think you're going to be the 1% who rises above those stats. So if entrepreneurship is what you're after, I'm all about that. Go do it. Do what you love. Do it on your own terms while making your own income and setting your own hours. It sounds pretty great, right? But it's not easy and it's not quick.

It's a lot of hard work. And an MLM is not a shortcut to the perks of self-employment. If you're interested in learning more about how to make some extra money, check out my video on e-commerce side hustles where I talk about money-making trends you've probably heard about and whether they're worth your time. And if you've tried an MLM, I want to know about it. Let me know in the comments what it was, how it worked for you, and if you made money doing it.

I'll also link some articles and resources about MLMs, about how to make money online the right way down in the description. As always, don't forget to like and subscribe to get more content like this and share this video with a friend in a non-scammy, non-ketchy, non-pirament scheme kind of way. All right, guys, thanks for watching. I'll see you next time.