MLM Business Model Fix

There is a big flaw in the MLM model.

Sorry, that is just they way it is.

Now, don’t get your undies in a bunch.  Every business has challenges, flaws and problems.  Construction, hair salons, fast food joints…and MLM.

I’ve been, with Success Coach Kathy Zimmer’s permission, on a 3 blog rant.  Took companies to task in yesterday’s blog…and lot’s of comments followed, and a lot of direct emails asking for more specifics.

So it’s only fair I get specific about how both us reps and companies are making it worse and making it tougher to succeed.

The MLM Flaw

Let’s say you have 100 Auto-ship, (let’s call it SDP), and you have 100 reps in your group.

So their ADP comes out, generating $10,000 paid to the company and the product gets shipped.

End of month company pays out commissions.  Let’s say they company is actually paying out 50%.

How much income is coming back to your group?


What does your group pay?



Less Money Paid To Your Team Than Your Team Pays In.

If there is less money coming back to your team than your team is paying in, that means people must lose money for others to make money.

And more people doesn’t make a difference.

1000 reps in your group

$100 ADP

$100,000 paid to company.

$50,000 paid back to your team.

The dirty little secret of MLM companies?

The distributors are the customers.

Imagine you owned a hair salon and had 10 people working there.  How long would you be in business if all the revenue came from your employees cutting each other’s hair and had NO REAL CUSTOMERS?

Companies fault?

In the last 15 years or so?

You bet.

And we as reps are responsible too.

Computers help companies cheat

Companies cannot be ‘self-consumption’ – the law, only 30% self consumption…but because of slick programming, reps who haven’t sponsored anyone show as preferred customers. And show in the reps back office as reps…but not in the companies back offices.  The reports that really matter show non-sponsoring positions AND people off ADP as customers.

Companies ‘Cheat’ The 70-30 Rule, We Make it Worse

They ‘cheat’ so they don’t have to tell you that you need to sell stuff.

I Love Mary Kay

If you talk to Mary Kay ladies, they tell you they are not in MLM.  And we think they are nuts.

Maybe it’s the other way around.

Mary Kay gals say they have a ‘direct sales’ business.

They teach the girls to sell, and do it well.

As your pin level goes up, so do your personal volume requirements.  Into the 1000s.

What do most MLMer’s say?  “Use the product, share the opportunity.”

Companies have made the flaw bad.  We’ve made it worse.

Honestly, how many people in your group are ordering a few 1000 a month in volume?

Look at this again.

There is no debate: Look at your group volume per rep and commissions paid.

ADP is $100 and you have 100 reps in your group.

So their ADP comes out, generating $10,000 paid to the company and the product gets shipped.

End of month company pays out commissions.  Let’s say they company is actually paying out 50%.

How much income is coming back to your group?


And folks, we’re not talking about a lot of selling.

If everyone in your group has 3-4 customers, triples or quadruples your income.

Now there is more money flowing through your organization from real customers than from your reps.

If our products are so good, why wouldn’t we want to develop 3-4 …or more, customers?

Interesting Exchange

On a Facebook page there was a nice curt exchange…sparked by this same stupid (I did it too, don’t feel bad), statement…’just use the product and share the opportunity –  with this system so you don’t have to recruit (I never said that)

Guy named Roger is actually posting that MLM is not a “selling or recruiting business.”

Tony Rush had a great response.  Let me quote him:

“If it’s not a “sales” business or a “recruiting” business…what is it?  I don’t know what kind of business you’re working but the only things I get paid for in my company are A.) selling products and B.) enrolling people who are going to buy products and/or sell products.  Selling and recruiting to sell are the life-blood of the industry.”

What you know and what to do

Obviously Tony ‘gets it’ and has a vital group.  Roger, if he has a group, believes that number of people on ADP is success.

Which means, if there is less money coming back to the group (like Roger’s, it’s what he & his auto-responder series promotes), better than 80% of the people are losing money.

Look, companies use computers to ‘cheat’ around the rules…but we don’t have to.

We’ve Got to Get Out Of Denial, Fix The Flaw

Recruit reps and develop 3-4 customers and teach your new reps how to do the same thing.  You’ll offset the business model flaw.

There are only 2 types of companies…those that have increasing personal volume requirements/retail requirements and those who don’t.

And, there are only 2 types of reps with companies that don’t have big retail requirements.

The reps who do something about it and the ones who don’t…happy to run a business model that will fail.


No authentic customers…with a Direct Sales company, (your company is a member of the DSA, yes?), then what do you have?

A group with 80+% losing money.  And not for long…it will get worse.  Flawed businesses have a tendency to fail.

The fix for the MLM business model?

It’s so easy it’s a joke.

When people decide not to join as a rep use ‘fusion’.  Fusion is fusing together recruiting-retailing.


“Hank, I can see the business is not for you and appreciate you looking.  Is there any reason you wouldn’t want to try the product and be a customer?”

1 out of 3 will say yes.  Some are ‘pity’ sales…so what.

About 1 out of 5 that gets on the your product will stay on your product.

You make more money, your team makes more money, there is more volume flowing through your group…and you’ve got paid to fixed the flaw.



mark januszewski

world’s laziest networker

About the Author

  • Let’s say you have 100 Auto-ship, [let’s call it SDP], and you have 100 reps in your group.

    So their ADP comes out, generating $10,000 paid to the company and the product gets shipped.

    End of month company pays out commissions. Let’s say they company is actually paying out 50%

    How much income is coming back to your group?


    What does your group pay?



    Less Money Paid To Your Team Than Your Team Pays In.

    If there is less money coming back to your team than your team is paying in…..that means people must lose money for others to make money

    Should we expect $10,000 back, the product has to be paid for! or am i misunderstanding this.
    I am with Xango, they pay 50% as in your example

  • Mark, in the past I’ve had a tough time understanding the different compensation plans for different companies, but with your straight forward explanation, you’ve made it clear Chuck and I have hit a home run with our company, product AND compensation plan. If you’d ever like to know more, shoot me an email and I’ll get you the info 😉
    (couldn’t resist that last line) You and Davene are the best!

  • Mark,
    In you example of 100 distributors on 100 point auto-ship monthly; a portion of the unreturned $5k goes to the company to pay for the monthly products shipped out to the distributors. So some value is received. I understand the flaw that many pay more than they get so they remain in the red ink.

  • Hi Mike

    No, you should not expect the company to pay back the same or more……that is not possible nor is it the point.

    The point is……if ALL the revenue comes from your rep’s ADPs is what commission is based on…..and they are all just self consuming…..then people must lose money for others to make money.

    As reps, we must develop a customer base whether the company requires it or not.

    Just do the math.

    Look at your print out…….anyone ordering 30 cases? 5 cases?

    Without **authentic customers** and everyone doing the minimum…..then there is less revenue flowing back, ergo: less commissions paid to your team than your team is paying in.

    The point of the post is not to take companies to task [well, a little for not requiring retail sales], but to take us reps to task for promoting a business model that mathematically does not work.

    Reps simply do not take responsibility for retail sales and it is sheer madness……to think a business model will work without retail sales and real customers……regardless of a company’s postion.

    This is basic business 101……a business that has 10 employees making 20,000 a year [$200,000] that generates $100,000 in sales won’t be in business long. They don’t survive by hiring more people, right? They survive by increasing sales/revenue

    In your case……look at all the ADPs and calculate the volume of active reps. Divide it by 2 and you’ll see the commisions paid back to your team. Should be very clear that it’s not possible for everyone to profit……unless they take the ‘fix’ and all start selling product to **authentic customers**

    Take the same group and add 1000 per rep and you’ll quickly see the difference.

    This means….drum roll please……without volume from OUTSIDE the team…..people must lose money for others to make money.

    Tripling your team size does not change the dynamic.

    MLMers need to embrace this fact and turn away from ‘use the product, share the opportunity’, suck it up and go get some customers.

    Surely, you’d agree that without customers no business can survive…….the truth is MLM companies are in the direct sales business and without sales, just like any other business…..without sales to non-distributors we are just a self consumption company.

    Xango has tremendous products and there is no reason this flaw, rep-by-rep, cannot not be easily fixed by a embracing this simple flaw with responsible response. Reps need to take personal responsibility for what we are represnting. Suggesting to people they do the minimum to make the maximum defies logic and ethics…….set goals for yourself and your team to generate $500 in sales. WIth such outstanding, healthy ‘green’ senstive products…..the products are not the issue……we as reps who refuse to sell anything is the issue.

    mark j

  • Excellent!!

    And I love-love-love that invitaation……you got me!

    Best to Chuck and congratulations on your continued success

    mark j

  • Tom

    That is a given……if the product was worth $2000 and cost $100 but no one sells anything….people are losing money in the group…..the business is costing your reps $5000 total as only $5000 of the $10,000 gets paid.

    No one is saying companies are ‘screwing’ any one or the product does not have value. That is not the point of the post…..the point is…..$5000 paid back to the group in commission that paid in $10,000 ….creates negative cash flow for the business.

    Companies that do not insist on retail are irresponsible and if we don’t fill that void with personal responsibility then the math of 50% being paid in commisions of what it cost reps total… a flawed model.

    The value of the product is inconsequntial ….[as example above points out] …..all that matters is reps take responsibility where companies do not to autheticate their representation to others that this is a great business.

    Use the same example and divide the money equally….

    100 reps paying 100 is 10,000

    5000 comes back

    that is $50 per rep

    We need to change that, not blame the companies….

    This is why we must respect the Mary Kay’s & Tupperwares of the world. Take a look at their personal volume requirements…..those guys and gals are far more honest about what they do…..and probably the biggest reason they are billion and 2 billion dollar companies.

  • Wow,Wow,Wow Mark,
    What a Brilliant Article !
    You have made it Perfectly Clear to see what it takes to increase your income in the Network Marketing Industry.
    Thanks for the info My Friend.

    Keep On Living In The Blessing,

    Your Friend,

    Steve Squillace

  • WOW Mark, I have read several of your posts and commented on a couple. The company that I am with actually has a plan that entices our customers to help find more customers. How amazing is that! I am not sure but I thing the customer to promoter ratio is 7 or 8 to 1. I’m finally glad to see that other networkers are realizing that “customers are good”!

    We own 4 Piggly Wiggly grocery stores. How crazy would it be if we only sold groceries to our employees? I also benefit from the referral of customers as a promoter because, the product that I get for the referrals also counts as my autoship. ie no monthly out of pocket expense even for the products that I personally use. Now I don’t get paid for the free product so there is always a 3 for 1 exchange of value in order to get the autoship for free.

    I am glad that I found a company that realizes what you have said in this post and operates in a way that creates new customers on a daily basis.

    Remember, Customers are GOOD!


  • Hello Mark,
    What number is the next biggest lie in network marketing? Let’s call it the third biggest lie in network marketing.

    No company has as many reps/distributors as it claims.

    The company has 500,000 reps but really only 50,000 are reps the rest are customers signed up as reps.

    Most reps/distributors were signed up that way (a) because the company has no mechanism for customer signups or (b) reps were after some sign up bonus and don’t tell potential customers about the wholesale customer option, because there is no bonus on sign up.

    This then is the hidden part of the rep and customers iceberg in MLM with the majority of customers being called reps.

    Let the Journey Forever be Unfolding

  • That is putting it in a nutshell Mark.If everyone had just 10 customers and maintained them,and teach our groups to do the same then all of us in MLM would be a lot better of.I agree with you totaly,and we would have a better retencion rate

  • bingo……

    get really pumped by doing the math…..

    100 reps doing a 100 is 10,000

    100 reps doing 1000 is 100,000

    Which group makes more money…..


    To do 1,000,000 at 100 per rep, how many reps do we need?


    To do 1,000,000 month will reps doing 1000?


    Which is easier to do? Build a group of 10,000 reps or a group of 1000 where they all are making income?

    Gee, that is a tough one….. 🙂

    Leo, you ‘get it’ ….thank you for stopping by!!

    mark j

  • “Hank, I can see the business is not for you and appreciate you looking. Is there any reason you wouldn’t want to try the product and be a customer?”

    I’m glad you mentioned this ‘turn-phrase’ Mark…I’ve been using it for years after learning it directly from Randy Gage and I can assure everyone reading this it works a treat.

    Love your work Mark!

  • It sure does work!

    And it’s been working since before Randy was born…….gald there are a few people like Randy….and now you…, Big Al….Faila….etc……..teacching it

    Awesome, eh?

  • […] MLM Business Model is Flawed, Heres The Fix […]

  • {"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

    Learn How to Be a Better Network Marketer... Start Now!