Multi Level Marketing; Its Moral and Ethical Applications

By Rabbi Eli Teitelbaum

ABC (not the real name) is the name of a company that sells energy such as gas, electricity, oil and many other commodities. All one needs to do is pay an initial $1,000 membership fee and one becomes an “official agent” for the company, and earns commission on all his sales. To really make lots of money, one is encouraged to get other agents called legs. Then you also make a commission on the sales that they make. And when they get legs that also make sales, you make additional commissions. As you build up the people beneath you (called your downline), your commissions can add up to big money.

This structure is commonly known as Multi Level Marketing, or MLM. As long as the main emphasis is on selling a product (such as gas or oil), the courts have declared it perfectly legal. And so, companies like Amway and many others continue to operate despite the many lawsuits that have been brought against them for misrepresentation of earnings. Amway has now closed its doors. While this method of sales sounds like a simple and legal way to become rich, it has one major flaw: Market saturation.

No product can have a limitless amount of salespeople. A simple calculation will show you that if each person just gets two legs under him, then within less then thirty generations one will run out of people in the world to sell it to. Everyone will be a salesman for the very same product. Obviously those at the bottom who paid $1,000 to become distributors will have no one to sell it to and will lose their $1,000 investment.

All MLM companies will of course deny that there is a saturation point. They will try to convince you that the world is so large that there are always new people being born and therefore it will go on endlessly. They will also tell you not to worry about what will happen 50 years down the line. In the meantime everyone is making lots of money so who cares what happens in many years to come. Does it make sense to say that a market can never become over saturated if distributors can be endlessly added to the network?

Anyone that has followed the workings of MLM’s knows that these schemes, no matter how good they may sound, just don’t work forever. We are informed that 99% of MLM companies themselves “spike and disappear in eight months.”(See False Profits page 181.) Pyramid schemes are structured to inevitably fail. They take money from those at the bottom and feed it to those at the top. The initial success of such a business is an illusion (See False Profits page 8). Early entrants make their money from the loss of later enrollees.

Most people who started with Amway left in disillusionment when they realized that they were not making the huge profits they were promised. The average Amway distributor earns a gross profit of around $780 a year. (F.P. page 152) (See the many books on the subject written by former Amway distributors, such as Behind the Smoke and Mirrors, by Ruth Carter. Another excellent book that should be required reading is False Profits by Robert Fitzpatrick and Joyce Reynolds,-1-888-334-2047 Herald Press.)

The FTC allowed them to stay in business because the initial investment to become an agent is only about $50, not very much at all. When the initial investment is a $1,000 or more, it becomes a different story. Anyone who wants to make commissions selling gas or oil can call up any oil company and they will gladly accept him as an agent and give him a commission if he can bring in as few as 5 or 10 accounts. Some companies will even pay to train you if they think you can be a good sales rep. So why pay anyone $1,000 to become an agent?

Another question we should be asking is, if everyone is making money and getting rich, where is all the money coming from? The answer is that it will be coming from the many people that are left hanging at the end of the chain and now have no one to sell to, and therefore will lose their $1,000 initial investment. It can be mathematically proven that 70% of the investors will eventually lose their money when the MLM collapses.