Re: Certainly. Re: MLMs are a bad business model???

I guess Warren Buffett(who has embraced network marketing) is wrong about the industry...Warren is such a bad investor....his portfolio is worth billions of dollars....i guess Mel knows more than Warren.....

tony

> Let's look at the MLM business model in respect to an ordinary business.
> I'll use my gemstone importing business (30 years ago) as a model though
> it also held true for my other businesses.

> In MLM, you join (we'll be kind and assume there's no joining fee though
> this is not always true and that there's no autoship fee) and you run off
> to sell something. We will also (unrealistically) assume that you have an
> original product or that there are not 35,000 other dealers in competition
> with you.

> I'll use a typical Mangosteen chain, though there are others:
> http://www.naturalhealthshoppe.com/index.asp?PageAction=Custom&ID=39

> You sell product. You get 5% of what you sell and the rest gets passed
> upline. You recruit someone and you get 5% of what they sell plus 5% of
> what YOU sell (apparently) and you pass some of that on to those above
> you... etc, etc. If you look at the chart (for the last rank on the
> right), the company is paying out over 50% of its profit -or more- to the
> distributors. If there is no bottom to the pyramid, in a few more levels
> they could be paying out as much as 80%. So they have to inflate the cost
> of their product. At each step the seller only gets 5%... and if you've
> got only one person at the bottom of the chain running around and selling
> while everyone else manages, the company isn't really moving much product
> or getting much income in spite of having a big chain of downline.

> Compare it to the gem business:
> The miner mines the stone. It's sold to a cutter. The cutter sells it to a
> wholesaler (me). I set the stone and sell it to the customer (a jewelry
> dealer) who sells it to a final customer. At each step there's
> approximately a 200% markup and the person keeps the profit.

> Not a piddly 5%. Nor do I have to pay 95% of what I make to an upline
> whose only efforts may be to tell me I can do better and that I'm a
> success with my tiny 5% profit and that I need to keep selling because I'm
> wonderful.

> From the business's end, the Mangosteen business gets less than 50%
> profits for each bottle sold. They have to run a manufacturing plant, pay
> workers, pay shipping, pay bottling costs, pay the distributors, maintain
> a warehouse and other business locations, buy materials... and if they
> don't do any R&D and come out with new products their market will be eaten
> by someone else with New And Improved Stuff.

> So we have an MLM business that gets less than 50% on each sale with huge
> numbers of salesmen who are saturating markets. Compare that to a gem
> business like Znetshows.com. They keep ALL their profit (a 200%-800%
> markup.) There's no kickbacks to downlines. In lieu of a thousand people
> who sign up to market and then are unable to sell anything, they can put
> the $500 to pay a downline chain into a large display ad for magazines or
> newspapers... and these ads usually pull in 5 to 10 times their original
> cost. If you have salesbeings for this kind of business, they typically
> get around 30% (not 50-80 to a downline) of sales. So even the salespeople
> get a much better deal than the MLMers, who are being fed hype and a 2%-5%
> return.

> So MLMs are extremely inefficient. They also don't limit the number of
> salespeople or set out territories, so you can have a lot of competition
> and no sales because of it (even McDonalds limits where the stores go. You
> can't have one on every street corner.)