Friday, May 20, 2011

The Working of Multi Level Marketing Business for Dummies

Last day one of my friend excitedly told me about a new scheme to make money. There is this company that sends us online surveys about various consumer products. You get Rs 500 per survey that you participates. You can earn up-to Rs 4000 a month. For starting you have to pay Rs 11000 and subscribe for their e magazine. So calculation is very simple, 4000 per month and from third month you are in profit. You can even have up to 7 IDs by paying 11000 each time you enroll again. That makes a cool 28000 per month. Also they have a referral scheme where you can refer friends as a chain below you and earn commission. Wow! I was bitten... There is at least one person I know who is really earning through it. Adverts are shown in news papers, on TV in between cricket matches. I am a fool if I let go this chance... After all, sitting idle and making dough is the best career option possible!

But after some moments of delusional thoughts of idle days, comfortable wears and sufficient funds to dine and lead a lavish retired life, my rational part of brain took control. Who will pay 500 rupees for a survey?.. I tried the maths once again. This time noted every thing down. And what I found was this:

Click to enlarge
What I did, was to assume a hypothetical situation where a company starts from scratch, with zero investors. On first month they make 100 members, who pays 11000 each, which makes a total of Rs 11 lakh. That month company need not pay anything. Surveys are distributed, and received back. Next month, the promised money is given to members. More people are referred by existing members. Considering each person makes two people to join the scheme, there are 200 more members in the end of second month. 

The company collects Rs 2,200,000 out of which, it paid back 400,000 to previous month's members for taking surveys. Also as referral remuneration  company pays some amount to those who referred new members. I am not very sure how much each person may get for this. But in this case, I take it 50% of the joining fee, which I feel is a huge return for the members. That makes it 5500 per new member. Total in second month 200 persons joined. A referral remuneration of Rs 1,100,000 is redistributed to 100 members. By second month company has earned for itself a total profit of Rs 12.5 lakh. 

By this time you may feel that we can believe them. Isn't it? Out of 33 lakh rupees they collected, they returned back 20.5 lakh to the members. 62%...! Okay, let us move on till ten months, every month assuming double the amount of new members join through referral, surveys are filled promptly by members, money for  surveys and referrals are distributed promptly by the company. By ninth month end, company made a profit of 8 crore change. But they have redistributed 48 crore change to its 51000 subscribers... 

How do you feel now? A completely believable revenue model? An honest company that promptly pays its dues and delivers on its promise? Quite good. But, assume in the end of tenth month, they chose to close the shop, without paying a single paisa for its subscribers, and abscond with all collection done on that month. That month alone company gets 56 crore as fees from new members.  With the 8 crore profit made in nine months, that is a whopping 64 crore rupees. 

You may have noticed that I never mentioned in the table, the revenue generated to the company through the Online Surveys, which are filled by its members and which they are supposed to deliver to their clients. Well that is because there are no online surveys...! That was just a cover for the entire operation. All survey forms you filled out are resting in piece somewhere in the recycle Bin of the company server. Online surveys make the whole scam believable. We suppose that the company paid us for participating in surveys, but, actually they are returning just a portion of the money collected as the initial start up fee. With every new start up company gets a buffer time for 3 months. By the end of 3 months new members pump in more money. This will not go on for long. The bubble will burst some day. So before that happens, the company dissolves with all the funds...

Foot note: You might already have known the scheme about which I mentioned here. It is very popular these days. My intention here is not to tarnish the firm, as I have no personal enmity to any one involved in it. My intention is  just to prove to the public that, the cover of online surveys that this company takes the help of IS A LIE. It IS possible to return the money back to the members or panelists as they calls them, ( bakras as I decipher the word) without generating a single paisa from online surveys or any other source. And if they are prompt in paying your remuneration back now, it is because they are waiting. They already told you a lie, and they won't be reluctant to cheat you. If they don't abscond by the tenth month, they may do it at twelfth, or may be in the second year. Because that the later it goes, it may get riskier, but the wealthier they becomes (as is evident from the table). 

16 comments:

  1. Awesome. Really!
    Some friends of mine were members of such a scheme until a few days back.. till I actually saw it in the news, Star News or some channel I think that their 'bubble had burst'! Apparently, the channel dug up on the happenings, and all of the big companies(whose surveys were supposedly being sent) denied any involvement in that!

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  2. I believe the company has the advantage of choosing their time to exit, if they do it after 10 years, the scam would be worth 6000crores on geometric proporation, if i go by your pyramid calculation. Wonderful detective job. Kudos. I will link up your post to my blog on the same subject

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  3. @priya: its quite evident that products in MLM schemes are just a cover..

    @ramesh: thanks

    @ deguide: thanks for dropping and linking.

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  4. @Harish: These MLMs are just babies. If you are indeed interested in making money you need to get into something very very credible.. with a whole lot of logic behind it and excellent products (not AMWAY), which you will not be able to disprove.
    If you are really interested, I can tell you about it. Write to me at skylimits10@gmail.com :)

    about the post: good and informative !! :)

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    Replies
    1. @yamini: What makes you exclude "AMWAY"?
      Why people start calling "We are not like AMWAY"?
      And in many otehr cases, what is the reason every company that opens up in "MLM" tells we are just like AMWAY?

      Is AMWAY a scam? Have you ever tried to validate AMWAY? or is it just "YOUR OPINION"!

      Delete
  5. Your warning has already come true. the firm has had its bank account frozen and that there are no clients at all! Like you cautioned, the later ones to join are the losers! Very well analysed.

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  6. @yamini: no thanks..

    @zephyr: I am not happy about that... some of my friends had joined it.. Did not wanted my pessimism to come true.. :(

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  7. Harish- I happenned to visit your blog after you liked my post on "Manipal Rains". I loved this post by you. Thoroughly intellectual. Awesome. So I go your follower now:-)
    Cheers
    Sush
    Catch up for more entertainment posts if you like on sushmaspage.blogspot.com

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  8. @sush: thanks sushma... I will definitely visit your place..:)

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  9. There is a difference between Pyramid schemes and genuine MLM companies !

    More money flows to top in "Pyramid" schemes. In genuine MLM companies, money is distributed to you based on your "efforts". The more you put efforts, the more you get paid.

    Genuine MLM is not a get rich quick scheme! It has "genuine" products which are sold thru a network of people, by removing the middleman and hence a direct selling industry!

    If you are not building a genuine MLM, you are already paying your incomes to the middleman anyways! ;) It may be your "OPINION" that you are not paying to those middleman (of traditional business market system). But it is a "FACT"!

    Note: "Genuine MLM" means the ones which are recognized by Government authorities like IDSA (India) and WDSA (globally)

    @sushma: This is a well thought post. Well done.

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  10. Yes in MLM looks like pyramiding but on how the markets run. But in the sense of genuine. A not SCAM!

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  11. It has been some time since I visited website with NetworkMarketingNewsinIndia.Thank you so much for providing such helpful information. This is really informative and I will for sure refer my friends the same. Thanks.

    ReplyDelete

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    Thanks

    ReplyDelete
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