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Understanding Multi Level Marketing

By Rabbi Eli Teitelbaum

Nearly all products are sold in a multi level type fashion. The producer or manufacturer first sells it to a wholesaler who then sells it to a distributor who then sells it to a store who then sells it to the ultimate consumer. These various different levels are referred to as Multi Levels and this is the normal way of doing business. The more levels there are between the producer or manufacture and the consumer, the more the product will ultimately cost since everyone wants to make a little profit. When it reaches the point that there are enough people or stores selling the same product, we will then have reached what is called the “saturation point.” After all, we can only have a limited amount of fruit stores, groceries and hardware stores in one particular neighborhood. Open up too many stores of one kind and soon some of them will be forced to close up for lack of enough customers.

Any Multi Level business that is built in a way that just keeps adding an endless amount of distributors will soon reach the saturation point and will not be able to continue on any longer. So far everything is fine and dandy and we have no problem with this type of arrangement. The problem arises when one must pay a fee in order to become a distributor.  Let’s say that one pays $1,000 to become a distributor for a Carvel Ice Cream shop and then is left with no one to whom to sell the product because there are already two Carvel shops on the block. Obviously there can only be a certain amount of distributors of the same product in one neighborhood. When you reach the saturation point then some of the shops will have to close down for the lack of business.

Yet some businesses are set up in a way were everyone and anyone becomes a salesman for the same idem. If one has to pay a fee in order to sell this idem then eventually people will be paying a fee but will not have anyone to whom to sell the product. This type of MLM is called a pyramid and will eventually fail with all the last investors losing all their money.

Take the person who pays $1000 to become a distributor of jewels. Instead of actually selling any jewelry he decides to sell his distribution rights to ten others for $1,000 each making $9,000 in the process. Each one of these 10 people does the very same thing each making $9000 in the process. It sounds like a great business with lots of people making lots of money. Yet, a little math will show you that it can’t last too long. In less than 10 levels everyone in the world will have become a distributor and there is no one left to sell it to. It’s quite obvious that all those millions of people at the bottom of the pyramid that paid $1,000 to become distributors will of course have lost their money. This is why this type of MLM (Multi Level Marketing) scheme is sometimes referred to as a pyramid scheme and is illegal.

Depending on how they are structured, they may even be legal but not always moral or ethical. Making false claims about a product is strictly forbidden. This of course applies to any business.

Most MLM’s do actually sell a product and encourage you to get others beneath you to also sell the product as well. Those beneath you are called your “downline.” They convince you that the more people you get beneath you to sell the product, the more money you will make. This may work for a little time but can’t go on for long. You may also find out that you don’t make the big money they claim for the time one must put in. That’s because there are already too many distributors for that particular product or there may be many cheaper options available to the consumer.

Most MLM’s deny that their business is a pyramid scheme even when they are. Time has proven that they all come to a quick end and that most of the investors except for the first few at the beginning ultimately lose their initial investment.  Most people soon quit when they realize they are not earning enough money to make it worth their while. Lots of these companies make their money by selling you their sales promotion tapes and kits and inviting you to their many sales meetings where they hype you up by telling you how much money others are making by selling the product. Most of what they tell you is just a balloon filled with lots of hot air! I recommend you read “Behindthe Smoke and Mirrors” by Ruth Carter who reveals the multi-level delusion and guile in the Amway business. One must also read “False Profits” by Robert L. FritzPatrick

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