Multi Level Marketing

I was recently approached by an MLM person. His persistence simply baffled, I decided to do a little research, and this is what I think.

An MLM is certainly not a pyramid scheme, but it operates in a similar manner. A pyramid scheme, which is patently illegal, doesn't have any products, it is just about recruiting other distributors. Joining fees are collected and this flows through the system from the bottom to the top.  This is also called Franchise churning.

Am MLM, is legal. It sells products, and the distributors can recruit other distributors to get a cut of the sales. But I feel, even this system will degenerate into something similar to a Pyramid. The emphasis will end up being on recruitment and not on product sales. Here is why -

1. A company with a distribution system that has to pay complex additional commissions cannot compete with a company with an efficient streamlined system.

2. So, MLM products will naturally be overpriced and will have very minimal outside sales.

3. If all the income is coming from inside, the company's profits and the distributors' commissions are also coming from the inside i.e. the distributors in the lower levels.

4. So, just like a casino or a lottery, in an MLM if someone has made money, more people should lose money. This is the design of the system

5. This is why there is such an enormous desperation to get random, reluctant strangers in as distributors. The truth is that they are needed as consumers i.e. they are needed to buy and not for selling. The overwhelming majority of them will remain so. 

6. Just like a lottery or a casino, people are lured by the promise of great riches, but most of them will end up losing money. They are kept inside though cult like propaganda, which is also another source of business for the top level distributors i.e. by selling motivational tapes, books, seminars etc.

This is the FTC line too..  http://www.consumer.ftc.gov/articles/0065-multilevel-marketing

It says- "One sign of a pyramid scheme is if distributors sell more product to other distributors than to the public — or if they make more money from recruiting than they do from selling."

So, outside selling is a crucial factor in determining if a business is legitimate. "Who is the customer?", Is he the same as the distributor? Which is why you should ask for these numbers, they should be open for any legitimate company

1. Amount of total sales
2. Percentage generated by selling to outside consumers.
3. Percentage of commissions paid to distributors.

Any feedback on this is welcome..