Consumer guidance – based on extensive research
This research and information on MLM (multi-level or network marketing, etc.) was prepared with the help of top experts over fifteen years by the Consumer Awareness Institute , directed by Dr. Jon Taylor . Opinions vary widely on MLM's legitimacy. But here you will find independent research on success and loss rates, compensation plans, viability of MLM as a business model, etc.
What went into the research by Consumer Awareness Institute. The investigative research that formed the basis of these reports includes:
Analysis of the compensation plans of over 500 MLM programs
Extensive comparative research on MLM compensation plans and alternative business models to clarify differences
Worldwide feedback from thousands of MLM distributors and ex-distributors in a wide variety of MLM programs over a period of over 15 years
Interviews with the top experts in the field
Surveys of hundreds of tax professionals where MLM is concentrated – representing millions of tax returns of MLM participants
IRS income tax records of top distributors in one state
Public court records in MLM cases
Household consumer surveys regarding MLM participation
Surveys of leading MLM company presidents
Private and public financial disclosures by MLM companies
Communications with law enforcement officials at all levels
Direct experience with prominent MLM companies.
MLM is a fundamentally flawed business model
After over fifteen years of research on over 400 MLMs (MLM programs) such as this one, and the receipt of thousands of emails and other communications from all over the world, some generalizations can be made about MLM as a business model:
All of the hundreds of MLM compensation plans we have analyzed allow – and even encourage – unlimited recruitment into a whole network of endless chains of participants. They assume infinite and virgin markets – neither of which exists in the real world. They are therefore inherently flawed, deceptive, and unfair – profitable only for those at or near the top of a pyramid of participants – who are usually the first ones in the chain of recruitment. MLMs are also extremely viral and predatory, taking advantage of the most vulnerable of prospects.
Again, MLMs are rarely profitable for new recruits – who are being sold a ticket on a flight that has already left the ground. In fact, available data (from company reports of average earnings and in surveys of tax preparers) demonstrates a loss rate of at least 99.6% in recruitment-driven MLMs. That means that at best one in 250 earns a profit after all expenses, including purchases necessary to qualify for commissions and advancement in the hierarchy (pyramid) of distributors. Those who do profit are those few who got in at the beginning and who are positioned at or near the top of the pyramid of participants. We call them TOPPs, for top-of-the-pyramid promoters.
Many compare the pyramidal pay structure of MLMs to corporations, in which the top management gets huge salaries. But at least a minimum wage is earned by all company workers. Conversely, in MLMs or chain selling schemes, almost everyone loses money – except for TOPPs.
MLM recruitment typically depends on a whole set of deceptions.
We have compiled a list of typical misrepresentations used in MLM recruitment. The primary deception is the presentation of MLM as a "business" or "income opportunity." In most cases, MLM is no more a business than betting on the roulette wheel in Las Vegas is a business. In fact, the odds for many games of chance are much greater than the odds of succeeding at MLM. (See “MLM’s Shocking Statistics.”) And you don't risk jeopardizing your "social capital." After all, your relationships are some of your most valuable possessions – worth too much to exploit for personal gain.
Are there "good" MLM's – which are not like typical MLM's?
Probably not – the notion of a "good MLM" may be an oxymoron.
In studying the compensation plans of over 400 MLMs, I have not seen one with a compensation plan that would not be considered a "recruitment-driven MLM." The compensation plan of a "good MLM", if such existed, would be very different from typical MLMs that incentivize an endless chain of recruitment of participants as primary customers.
We also see MLM companies that were once focused on legitimate direct sales to end users. However, perhaps because of unfair competition posed by recruiting MLMs, they begin to make tradeoffs that take away from what was once a great program. Some engage in "channel stuffing," or pressuring participants to buy products they have a hard time selling, leaving them with out-of-pocket costs that are difficult to justify in conducting a profitable sales operation. Or they have steep "pay to play"(minimum quota of purchases) requirements that make them marginally if not technically recruitment-driven MLM's. Or they may have excessive levels of distributors that give leverage to those at or near the top of their hierarchy of participants, but make it very difficult for those at the bottom to profit except through aggressive recruitment. Or they may actually pay more per sale to up-line participants than to the person selling the products, again creating excessive incentive to recruit and inadequate incentive to sell to the general public. All MLMs we have studied have at least some of these features.
MLMs with at least 4 of the 5 red flags
of a recruitment-driven MLM* (H-M)
After the most extensive research ever done on MLM as a business model, Dr. Taylor has identified five causative and defining characteristics, or “red flags,” in MLM compensation systems that lie at the root of the deceptions and horrendous loss rates suffered by MLM participants. Where data is available, and at least the first four of the five "red flags" appear, approximately 99% of
all participants (including dropouts) are found to lose money, after subtracting incentivized purchases and minimum operating expenses. But before we share our list of over 500 MLM* programs we have evaluated, it is important that you do your own "5-step Do-it-yourself Evaluation." We will not be responsible for the consequences of a decision that is ultimately yours to make. (See Disclaimer.) But we are confident that here you will receive the best advice available on how to make that decision. To begin, obtain the compensation plan of the MLM program you are considering. Then answer the questions for each of the five steps and follow the links to its conclusion. You might also want to review some of the feedback we have received.
Listed below are MLMs we have found to use recruitment-driven and top-weighted pay plans, which the case with virtually all MLMs. For a thorough discussion of problems associated with such programs, download and read the ebook – which can be downloaded in whole or in sections from this website. The Case for and) against Multi-level Marketing
(MLM's come and go, so a few may now be defunct.)
MLMs Evaluated A – D
MLMs Evaluated E – G
MLMs Evaluated H – M (below)
MLMs Evaluated N – R
MLMs Evaluated S – Z See a sample evaluation
See a list of MLMs shut down by law enforcement
HBW Insurance & Financial
Health 4 Wealth
Healthy Coffee USA
Heritage Health Products
Hsin Ten Enterprise USA
Ignite/Stream of Energy
Independence Energy Alliance
Interior Design Nutritionals – later
Pharmanex (Nu Skin)
International Galleries, Inc. (IGI)
iZigg Mobile Marketing
Jewelry by Park Lane
Joy to Live (Elite Marketing Alliamce)
Juice Plus (NSA)
Jus Int’l (later Havvn – shut down)
Learning Global USA
Legacy for Life
Liberty League International (LLI)
Life Force International (2-up)
Life without Debt
Live the Source
LR Health & Beauty Systems
Mary Kay Cosmetics
Mavericks (World Health Card)
Monarch Health Sciences
My Harvest America
My Leisure Business
My Travel & Cash
My Video Talk
NOTE: This list includes only those MLMs for which we have obtained and evaluated compensation plans. Most of the MLMs were listed following requests for information by website viewers.
*A recruitment-driven MLM, or product-based pyramid scheme, is an MLM with a compensation system that rewards recruitment more than actual sales of products to persons outside the network of participants. So significant income is unlikely without recruitment of a large downline, which requires deceiving recruits into believing it is a legitimate "business opportunity – and persuading them to invest in inventory (front-loading) and/or to subscribe to ongoing monthly product purchases or payments to "do the business," to "be a product of the products," etc. For purposes of analysis, a recruitment-driven MLM could also be considered a "product-based pyramid scheme;" i.e., a pyramid scheme that requires purchases of products to participate in commissions or advancement in the scheme, rather than a cash investment such as those required for no-product pyramid schemes.
For more information
You should find on this web site the answers you seek to questions about MLMs like the ones you may be considering. For a more thorough analysis of MLM as a business model, read Chapter 2 of the eBook by Dr. Jon Taylor titled – which can be downloaded from our web site at – mlm-thetruth.com. Other chapters explore typical misrepresentations, statistics on average earnings of participants, legal issues, etc. The Case (for and) against Multi-level Marketing
Also, for a brief analysis of the inherent flaws of multi-level marketing, read the article by Dean VanDruff titled "What's Wrong with Multi-level Marketing" – available at vandruff.com. And some excellent reports and information can be found at the following web sites: pyramidschemealert.org and mlmwatch.org.
Aside from the standard job market, there are many satisfactory alternatives for earning an income. Almost any of them are superior to MLM. Read more about them in the article "1,357 Ways to Make a LOT More Money than in MLM/Network Marketing."
Disclaimer: These reports are intended purely as a communication of information in accordance with the right of free speech. They do not constitute legal or tax advice. Anyone seeking such advice should consult a competent professional who has some expertise in endless chain or pyramid selling schemes. Readers are specifically advised to obey all applicable laws, whether or not enforced in their area. Neither the Consumer Awareness Institute nor the authors assume any responsibility for the consequences of anyone acting according to the information in these reports.
Sample Readers' Comments
Congratulations for a great lifetime of research! Coming from a background of IT and Political Sciences, I like and appreciate the scientific way in which you present information.– Claire Zarb
OMG, Dr. Taylor, your research is incredible and a direct hit. I'm trying [to counter this], but this cult is getting stronger as our economic down turn continues to plague us. . . It is sad in this case because this family will pull their son from his sophomore year at University of San Francisco to work full time in this MLM cult. I escorted my family members to this conference and felt like it was a version of the Jonestown revival act episode II. - Karen H., California
"Thank you for your great insights and all the work you have put into researching this little-understood subject. If every [person] interested in joining recruiting MLM's would just take the time to read your [reports] and educate themselves, they could save a lot of grief." —Michael Rawlings
__________________________ "Thank you for your work on MLM! It is exactly what I've been looking for to get a data-based picture of the opportunity I am currently pursuing. Your logical questions and objective research are exactly what is needed in this industry." —Donna Horowitz
While I was looking for a little bit of information on MLMs, I found your page through Wikipedia. I also read your 44 page paper "The 5 Red Flags: Five Causal and Defining Characteristics of Product-based Pyramid Schemes, or Recruiting MLM's." It didn't take me long to figure out that MLMs were much worse than I had thought. I thought about it from a business and an economic standpoint and I realized that this business model makes absolutely no sense. . . I can’t thank you enough for the information. It may have saved my mother from disaster. I am going to do what I can to spread the message to others. - Noah Abrams
I found your paper on the internet – "the five red flags" to identifying product based pyramid schemes. Very informative. I forwarded it to my friends and tried to get them to understand that what they are involved in is unethical at a minimum . . but they just sent me back the published hype – all the typical things you referred to in your paper. These [MLM] companies seem to prey on housewives who don’t understand the basics of market supply and demand. They are so naïve that they cannot see the forest for the trees.
It was the compensation structure that got me suspicious – when I realized that these minimum purchases were involved I started doing a little break-even analysis and realized how much I’d have to sell at these low commission rates to just make back the money they have you spend as monthly minimums. It really does not become clear until you start to calculate how many people you have to sell to just to break even! Then it became clear to me that you had to recruit people to make any money. I thought this was very fishy – and so I jumped on the internet and found your article…and then it all really clicked in my brain. – Susan S., MBA
RE: Accolades and Thanks
Since a trusted family friend got me started on a food supplement distributed by a multi-level marketing (MLM) company a few weeks ago I have been searching academic databases and the web for specific, evidence-based research on the company and its products. The line of reasoning which goes, "If it works, buy it," is simply not good enough for me. I need to look at the larger picture of who is producing, what kind of business are they operating and how are they treating people. My question is a more general, "Does this company have integrity?" If I'm considering committing $150 a month for the rest of my life to a supplier of food supplements, it had better be a company that serves not only me but the society my children, my neighbors and I will live in. So if it is defrauding its distributors, no matter what good its products are doing for me, I won't buy. Searching academic databases and the web, I found nothing whatsoever on the supplements I was ingesting. No science at all, strange since the company has been selling them and claiming amazing results for eighteen years. The only scientific data I found was about the business practices of the MLM companies. That was on your web site. I very much appreciate your dedication to fact finding about the MLMs and their 'contributions' to our society. What you have found is yet another example of Americans with money and power defrauding middle and lower class people with much less. I applaud your painstaking, research carried on over decades and at your own expense. The future of democracy depends on the kind of public awareness that you are making possible. – Jonathan B., MCS, MEd, college instructor, BC, Canada