Internet Money Part 1 – MLM

Internet Money Part I: MLM
Internet Money Part II: Clickbank – Scammers’ Haven. What’s Wrong with Online Affiliate Marketing
Internet Money Part III:  Paid Surveys

pyramidWelcome,

This article is your first step in making thousands of dollars a day with the power of the internet. Sound familiar? I am sorry to disappoint you, but this article doesn’t have any secrets to an online wealth. It’s not a lie though. This is indeed the first step in your possible online career. You need to know what roads to avoid in order to find the right path.

This article is the first part in the make-money-online scam series. First topic I will cover is the multi-level marketing or MLM. If you’ve arrived here via a search engine seeking an opportunity in MLM, you really need to pay attention to this article and the future ones to follow.

I personally got into MLM as a high school student looking to make some cash. I got a few people to sign up below me, but ended up losing close to a $1000 and lots of my time. I don’t regret it though. I used a portion of savings I had, and I learned a lot as a teenager about money and no harm was done. This was a while ago, and many have evolved with more professional looking websites and better disguises. The term MLM is not used as much. “Affiliate marketing” is the new popular term. Any affiliate program with multiple levels is an MLM.

What is MLM?

MLM, abbreviation for multi-level marketing, is a marketing structure where you make commissions not only on your own sales but on sales of other promoters you introduce to the company (or downline members). This level of downline depends on the preset structure.

There is nothing inherently wrong with MLM. It can be an effective marketing strategy for the company. The company doesn’t have to spend as much resources on advertising to the customers as the promoters will do most of the work.

There are various types of compensation plans.

  • Unilevel plan – This is the simplest plan. There is no limit to how many frontline members (your direct referrals) you can have. You encourage your frontline to do the same. The depth of your line is usually limited to up to ~7 levels deep.
  • Stairstep breakaway plan – You can think of this structure as having a leader for each group. Once a group reaches a predefined volume of sales (or simply the number of members in pyramid schemes), the leader of the group breaks away from the line and is no longer compensated for his downline. However, there are usually other forms of compensation for the original upline. Each member in the downline moves up a compensation level, and so on.
  • Matrix plan – Under this plan, there is a limited number of frontline members you can have. Once you go over that level, the new recruit will be placed under one of your frontline members. It can also have a depth limitation. Once reached, a new matrix will start.
  • Binary plan – Allows only two frontline members. Like the matrix plan, excess recruits will be placed under your frontline members. This is attractive to members who may think less work is required due to spillovers. But a member must balance their two downlines, so that one side constitutes no more than a specified percentage of the total, to earn commissions. And, a longer depth is required to compensate for the narrower width.
  • Hybrid plan – There are also hybrids that combine different elements of these plans.

Why MLMs You See Online Won’t Make You Rich

When you search for MLM opportunities online, you will find that the vast majority of advertised programs emphasize downline recruiting. MLM should be an assisting factor to the sale of a product or service and not the main focus.

When recruitment becomes the main focus, it is nothing more than a pyramid scheme. Pyramid schemes, by the way, are illegal in many countries including US, UK, and Canada.

Let me just give you a number. 99.9% of participants in recruiting MLMs lose money after expenses. A fundamental problem is that members end up competing with each other and causes market saturation.

All in all, MLMs have a higher failure rate than other businesses, so why enter MLM.

Pyramid Scheme

Pyramid schemes are simply put, MLM without any products or services. The whole scheme is about making money from downline members.

Most of the MLM opportunities advertised on the internet are in fact pyramid schemes. Yes, it is illegal in many countries. How they survive is by disguising themselves as legitimate businesses. In an ideal MLM environment, the company will have a product, and promoters will earn commissions on their own sales as well as downline members’ sales. There is no commission for simply getting someone to join.

However, with many MLMs you see online, you are promised a commission for recruiting a new member. The commission comes from a percentage of the new member’s membership fee.

They want you to think they have products and services to offer, but what they have is simply a cover. Often times, you will see an MLM program with online marketing education as their service, some dubious tools or an ebook as their product.

Take a look at iJango, a new pyramid scheme BBB warned about recently. It advertises, “An online community where members are rewarded for the online activities we all do every day.” You can read news, search, email etc through their portal. That is the service they are providing and also the cover they are hiding behind. The focus is on recruiting to make money. It costs you $149.95 to become a “community director” and $19.95 per month. Community directors make money by recruiting new members.

The Math

“A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula which is used for profit.” – Wikipedia

It doesn’t matter how the program is put together. A different equation cannot create more wealth.

It is a non-sustainable business model. Pyramid schemes emphasize how much you can make with so many downlines, but they always fail to show you how many people are required to achieve that goal in the grand picture. You are probably already way down in the line, and looking at the picture below, you can see how much of a hopeless position you are in.

Pyramid Scheme

Below is an example of the binary plan. It shows you that 112 out of 127 members (88%, red circles) will lose money. This holds true no matter how large the model becomes before collapse. This is not including the fact that the first several downline members are likely fakes.

Binary Plan

You can never get in at the beginning and enjoy the spillover.

Ethical Business

People are blinded by money. People will convince themselves that what they are doing is amoral as long as there is money to be made.

Let’s say you know a founder of a new pyramid scheme. You manage to get in early. Sure, you have the opportunity to make money now. But what about the hundreds or thousands of people whom you are ripping off? You know most people below you are going to lose money.

The same goes for selling most of the crap you see on Clickbank. Most of them are scams and rip-offs. This affiliate marketing will be covered in the future article.

To Sum it All Up

  • As with any make-money-online opportunities, stay away from programs that advertise: lots of money with little or no work, no experience needed, as seen on…, pictures of cruise ships and BMWs.  Don’t be lazy. There is no loophole!
  • Most MLMs you see online are pyramid schemes hiding behind a worthless product or service.
  • Avoid companies that emphasize recruitment of downline members instead of selling products.
  • 99.9% of participants lose their money. Don’t think you can crack the 0.1%. Those positions are already taken before you know it.
  • Don’t be allured by complex sounding level structures. No matter how you rearrange the equation, the answer is always the same.
  • Even if you do have the opportunity to make money with MLM, don’t turn to the dark side.

I tried to keep this article short and concise. If you want more details, see the following links.

Related Posts:

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2 Comments

  1. KVNPark says:

    Glad you like it, Tom.

  2. Tom Humes says:

    Nice article. I am looking forward to reading more from you.

    Tom Humes

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