We here at Orca, love when John Oliver exposes industries for what they are, such as MLM's.
You have probably been approached or know one of your friends that have been approached to join this “amazing opportunity” to be your own boss and sell this product that is “flying” off the shelves and it is just as easy as recruiting your friend and family to make money with you, All you have to do is get 10 friends or family members to sign up with you and you will make money! Now, how do companies like HerbaLife, Vemma, and Mary Kay get labeled as Multi level Marketing companies and what is it? And is it better to take that money and invest it?
Multi-Level Marketing: A company where they pay their distributors a portion of their recruits profits, as well as distributors make a small amount of money on direct sales.
Pyramid Scheme: An illegal scheme, which is based upon a hierarchy and does not involve the direct sale of products. This is set up where there is constant inflow of money that get distributed up the hierarchy, like when you recruit in an MLM.
MLM is in fact a LEGAL business strategy, although they often blur the lines and can morph into a pyramid schemes. They often promise their distributors money for recruiting some of their friends or family, and the more you recruit the more status you get. Let’s break this down
• You join a MLM company and are flown into a conference
• You are shown the levels you can climb buy selling product and/or recruiting people. Ex diamond, ruby, platinum members
• You are shown the “success” stories
• You have to buy their product upfront out of your own money, then sell it, often buying products to maintain your status level, which will determine your commission payouts
• You get paid a commission based on the people’s sales of who you recruited who fall into the same cycle you do.
As you can see the idea of getting commission from people at lower levels below you plays into the idea of a “hierarchy” with a constant inflow of cash
The Good, The Bad, and The Ugly
• MLM companies like Herbalife are “technically legal” and do have few success stories (Good)
• You have to buy the products upfront and pay a start-up cost that you never get back unless you recruit enough people (Bad)
• Often times, people report losing most of their money and wasting their time, and most of these companies get shut down or go through lawsuits that show how they are schemes (Ugly)
Better To Invest
Now what If you took that start-up money and started investing it, remember that term compound interest you heard about? Well the earlier the start the better. Yes, you can’t annoy all your friends on social media with what awesome product you are selling, and yes you won’t feel physical cash in your hand, but you will start reaching your goals. Through strategic investment at a young age, you can realize gains and truly put that “start-up” money to good use without loosing it over a product that expires, you know what doesn’t expire, dividends and compound interest.
Never, think you have to find quicker way to get money, if you have some extra cash be smart and patient learn about strategic investments or learn more about our short term portfolios here.