MLM – a dangerous marketing strategy

[1miau]

Disclaimer: Please don't invest in MLM Systems, you won't get your invested money back. In the following topic is explained why:


How to detect MLM Systems

When you are searching for good investment opportunities, you might come over a business model called MLM. MLM means Multi-Level-Marketing and is often used to attract new customers. Multi-Level means that existing users are recruiting new customers. For each recruited customer, the existing customer receives a commission of a predefined percentage of the deposit from his referral.

Often there are several levels, where commissions are paid:
When your referral advertises and gets a new member in, you’ll also get a small percentage bonus of his deposit.
That sounds profitable at first, that you get a bonus by recruiting another customer, but if you look further it isn’t very useful and it's a better decision to stay away and don't invest in Multi-Level-Marketing systems.

MLM-Structure of BitConnect Ponzi-Scam. Recruiting new users was awarded with a small bonus depending on how much your referral deposited.

Another promise of such shady projects is to multiply your invested crypto in a short period of time. Some MLM projects will also have a special bonus if you invest more money, to offer you faster and bigger returns:

MLM is very popular in the crypto space because crypto offers high returns and inexperienced “when moon” people are the main target group of MLM. During the hype in late 2017, many Ponzi MLMs used the “when moon” atmosphere to raise money, no matter if the business model was lending or mining, in most cases it was just an empty promise to get people in.
Furthermore, Bitcoin and cryptocurrencies are very complex for new users, and it is quite easy for scammers to fool such people and sell them fake business models as supposedly realistic.


An MLM can be recognized by a pyramid-like structure, if you have several levels of referral bonus and mostly huge returns per day or per month. Well known MLM systems were BitConnect and BitClub for example.

After BitConnect crashed, their coin lost almost its entire value.

To sum it up, here are the general disadvantages of MLM systems why you should avoid investments in any case:


1. MLM and Scam match together

MLM does not necessarily mean that a project is a scam, but in most cases it is. This is mainly because MLM is suitable for operators to get many new customers recruited by the existing customers when they advertise for the service. It’s very beneficial for the owner of the platform, since the advertising is made by the customers and also funded by the deposits of new members. So, the owner of the MLM system has zero risk and no expenses for marketing.
If enough funds are collected later, the owners will close the platform and no customer is able to withdraw his money anymore – a so-called "Exit-Scam".

A Ponzi will always come to that point, when not enough new customers make new deposits because the current users are paid out from new deposits of new customers. It’s only a redistribution of money because no profits are generated.

But even if an MLM generates real profits, there are a few things to keep in mind.


2. MLM causes significant costs

If there are profits generated, a business based on MLM will have to spend a significant part of their profits on the commissions that have to be paid for MLM-expenses. Depending on the number of levels and the amount of the individual commissions, this can make up a large part of the profits.
In addition, the profits that have to be spent are no longer available for normal investments, which has a negative impact on earnings for customers. The customers are paying for the marketing here.

Therefore, a legit business model won’t use MLM in most cases because it’s just not profitable for a good development of the company.



3. Only the people who invest early and get many people in will benefit from the MLM

As a result of the affiliate structure, the people who invested early (mostly the founders) and those who referred the most people will benefit the most. These referral commissions are directly financed by the customers who are below them in their downline.
And of course, the owners are always making a profit in MLM systems, otherwise they wouldn’t run them.

Another important point is that the people advertising their projects are very biased when they present the business model. They will advertise the product in a way where it is likely that they’ll get more referrals (and a bigger bonus) due to the affiliate structure. The result is a dangerous dynamic that gives a very biased impression of the product often called “shilled project”.



4. There is no transparency in MLMs

Legitimate projects are always interested in making their business model transparent as a reason that people invest, like how are profits generated, which team is behind the project and how the revenue is split (team / expenses / profits for investors). However, in most cases such projects do not have a multi-level marketing system.

Often there is no transparent structure of the company in MLM projects, in which the operators are unknown or only barely known and the marketing is done by the customers itself. A perfect strategy for the owners to hide themselves but get a huge marketing.

Especially inexperienced people are the target of this marketing strategy by promising them "a new Bitcoin", "Lambo or Moon" or other unrealistic returns.


If the business model a good one, an MLM with clear commissions can be a viable and legitimate marketing measure, but the past has shown the opposite.

Finally, multi-level marketing systems are generally discouraged because there is a very high risk of a scam and even if it’s not a scam, the structure is very unfavorable for customers and only enriching the founders.



Translations:

Language	translated by	Title
___________________________	_________________________	_______________________________________________________________________
Română (Romanian)	GazetaBitcoin	MLM – o periculoasă strategie de marketing
Nigeria (Naija)	Mia Chloe	MLM na dangerous marketing strategy

Reserving new translations is currently not available.

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[CryptopreneurBrainboss]

Well written OP, Not forgetting MLM is also been used in the ICO market enabling shitprojects raise huge funds even more than the somehow legit projects in the aim of deceiving the general public.
Projects using MLM to hype their ICO are usually shitcoins with nothing to offer except tokens been tradable on few worthless exchange in future. I discourage investing in projects that uses MLM.
No doubt MLM benefits only the early adopters and they need those I call "new fools" to keep the project they're using MLM to promote alive.

[hacker1001101001]

All MLM (multi-level-marketing) schemes are sure to become a SCAM/PONZI in the future. It's that simple
This Picture would explain it better through:

[zhekinsp]

MLM is one of the best free advertisement strategy to get more consumers or investors where the people who are at the initial cycle can make money but after that they will become consumers instead of investors.

[pooya87]

MLM is one of the best free advertisement strategy to get more consumers or investors where the people who are at the initial cycle can make money but after that they will become consumers instead of investors.

there are no "consumers or investors" in an MLM, there are only fools and gamblers that are fools. the fools think it is an investment which will give them good profit and the gamblers know it is already scam but are still foolish enough to make the bet and enter it thinking they can beat the system and actually make profit.

[romelitounknown]

Don't go with the MLM , that is always going to become a scam for some point of time. The money you've earned in MLM were coming from the new investors money.

[Kakmakr]

I have knowingly experimented with MLM schemes before, because I wanted to understand their business model and also look for warning signs, when they might collapse. <Selling expensive vacuum cleaners and other products>    I never recruited other people, because this was just an experiment and I did not want other people to burn their fingers on scams like this.

Some MLM strategies are more legit than others and are actually backed by good products, like Tupperware and some cleaning and health products, so this can be used as a good direct marketing strategy without the Ponzi scheme connection.  

[ABCbits]

Regarding points 4 about "There is no transparency in MLMs", few MLMs try to deceive user by make their MLMs system open-source or put it on blockchain's DApps to make user think "it's not scam/dangerous if it's transparent".
But the fact that their system is open-source and audit-able doesn't change the fact the risks mentioned on points 1-3 still exist.

[UserU]

While there are legit MLMs out there (e.g. AmWay), I just dislike their persuasion and "lies" they churn out to rope you in.

And while we're at it, BITCONEEEECCCCTTTTT!!!

[nc50lc]

-snip-
Some MLM strategies are more legit than others and are actually backed by good products, like Tupperware and some cleaning and health products, so this can be used as a good direct marketing strategy without the Ponzi scheme connection.  

But will still collapse at the very bottom of the pyramid when the recruits find it hard to get referrals or sell their initial paid products/merchandise and ended up as a "sales agent with a tuition fee" than a marketeer.

By the way, (Overpriced) health products are the number one candidate for pyramiding scams, specially "heath" juices and stupid herb pills which mostly doesn't have a significant heath benefits (like putting a bitter gourd flesh in a capsule).

[zhekinsp]

MLM is one of the best free advertisement strategy to get more consumers or investors where the people who are at the initial cycle can make money but after that they will become consumers instead of investors.

there are no "consumers or investors" in an MLM, there are only fools and gamblers that are fools. the fools think it is an investment which will give them good profit and the gamblers know it is already scam but are still foolish enough to make the bet and enter it thinking they can beat the system and actually make profit.

Yes literally they were fools if they think that they also can make huge profits from this type of marketing.

[DdmrDdmr]

Just this weekend I was watching a documentary on a MLM scam run by a guy from Spain that took place a couple of year ago (2013..2015). The scammers made their scam work in 78 different countries, making away with 228 million Euros.

What they did, and this was something like the last step in a serious of pre-crypto scam attempts that ended-up turning to crypto for the final act, was create a digital currency called Unete. An investor was promised a ROI of 188% per year. In order to do so, you needed to invest at least 60 euros per month and perform a routine task: copy/paste adds on social networks, investing around 10 minutes per day of your time. The investor was paid in Unetes based on his monthly investment.

Each Unete theoretically had a value of 1 USD, but really lacked any value at all, and the digital currency extent was limited to those that entered the Ponzi scheme.

[1miau]

Well written OP, Not forgetting MLM is also been used in the ICO market enabling shitprojects raise huge funds even more than the somehow legit projects in the aim of deceiving the general public.
Projects using MLM to hype their ICO are usually shitcoins with nothing to offer except tokens been tradable on few worthless exchange in future. I discourage investing in projects that uses MLM.
No doubt MLM benefits only the early adopters and they need those I call "new fools" to keep the project they're using MLM to promote alive.

Do you mean referral links? It's similar when you compare that both are free advertising by the existing user and therefore he is interested in geting referrals. MLM is much bigger because the referrals of your referrals etc. still get rewards.
But in general agree, many ICOs use it and it's always recommended to keept that in mind when you get over a referral link that the person posting it is interested in getting you in. Don't trust, verify  
Good point.

[Juggy777]

Don't go with the MLM , that is always going to become a scam for some point of time. The money you've earned in MLM were coming from the new investors money.

I remember a meeting I had attended they took me to an expensive restaurant, they were wearing expensive suits and speaking sophisticated English, all was going well till they said it’s a tree model. I took my bag and left I warned the guy who was with me saying these guys will scam, but that poor chap believed them as he had got few paycheques from them. A year later I read in the newspaper how their scam was busted, and they went to jail while I was sipping my hot chocolate like I always do.

Moral of the story a tree based model is a big scam, they’ll dangle the carrot in front of you to bait you and then you’ll be beaten by the stick when it’s busted, earn less money but never loose money in such scams. A popular scam of this type is those Hyip sites and those sites which have level based earnings never put your money in there, even if people are getting paid never do it.

 *Disclaimer I lost a good fortune in those hyips and level based earning schemes, hence I’m biased against them but if anyone wishes to go ahead and loose their money by all means do it*.

[magneto]

I think that the most obvious giveaways about these MLM schemes is their promises of passive income. How you can be able to get one referral, and they are able to refer even more people which can all be traced back to you and if they invest into the scheme, you're able to receive dividends.

This is never a sustainable business model. None of these schemes have ever survived past the point where they don't have sufficient funds to pay back previous investors with new investments anymore, and the owner decides to exit scam, since MLM is highly synonymous with pyramid/ponzi schemes nowadays.

I do see this mistake made very commonly by beginners who think this is a viable investment option. You simply never invest in anything which the underlying fundamentals does not generate any profit, but rather recycles money through the system. It's far too risky to even touch MLM, and you may even be accused of wrongdoing if you promote one.

[UserU]

I remember a meeting I had attended they took me to an expensive restaurant, they were wearing expensive suits and speaking sophisticated English, all was going well till they said it’s a tree model. I took my bag and left I warned the guy who was with me saying these guys will scam, but that poor chap believed them as he had got few paycheques from them. A year later I read in the newspaper how their scam was busted, and they went to jail while I was sipping my hot chocolate like I always do.

Moral of the story a tree based model is a big scam, they’ll dangle the carrot in front of you to bait you and then you’ll be beaten by the stick when it’s busted, earn less money but never loose money in such scams. A popular scam of this type is those Hyip sites and those sites which have level based earnings never put your money in there, even if people are getting paid never do it.

 *Disclaimer I lost a good fortune in those hyips and level based earning schemes, hence I’m biased against them but if anyone wishes to go ahead and loose their money by all means do it*.

That's how most MLMers roll; they'll find random friends/ victims on social media, invite them for some chit-chat and eventually introduce the model, sometimes by bringing in their upline(s).

I was an ex-MLMer and their meetings mostly force you to do anything for the sake of bonuses.

[dothebeats]

All MLM (multi-level-marketing) schemes are sure to become a SCAM/PONZI in the future. It's that simple
This Picture would explain it better through:

Except that in working a daytime job, you are still somewhat secured from getting fcked over and that they don't take something from you except your time and your effort, though it somewhat resembles a ponzi scheme in its level of organization. Also, working under a corporation, big business firm etc. is perfectly legal in any books, and that the workers are protected by a multitude of corporate laws in every government. MLM is an okay business model, only if the people running the operation really sells something that provides for their underlings, but if not, then there's really no point joining these schemes as 99% of the time they are scams.

[Harlot]

MLMs can be recognized in a lot of things all of which relates to commissions on the top of the pyramid. They mostly refer it too level 1,2, 3 and so on commissions that even if the top of the pyramid hadn't recruited someone below him he will still earn from him. With the endless possibility of earning a lot of MLMs fail as they will always run out of money to pay the top users back. And to top it all there is really no business happening new members are just paying of the old members and that how the cycle continues.

[Artemis3]

MLMs can be recognized in a lot of things all of which relates to commissions on the top of the pyramid. They mostly refer it too level 1,2, 3 and so on commissions that even if the top of the pyramid hadn't recruited someone below him he will still earn from him. With the endless possibility of earning a lot of MLMs fail as they will always run out of money to pay the top users back. And to top it all there is really no business happening new members are just paying of the old members and that how the cycle continues.

Basically you won't get paid anything until you manage to convince a number of people (victims) to invest in the scheme. After all, its from them the actual money is coming from... That's how you recognize them. Most won't let you quit right away (after you invested) and give you a refund. I knew one that allowed refunds but only for 24 hours.., i guess to comply with local laws (somewhere, often NOT your country, but some fiscal paradise).

The very early ones to enter and leave might be the only ones able to cash something, but it depends on the life of the MLM. I read some estimations say about 8% can profit, so 8 in 100 people will gain at the expense of the other 92 who will lose all.

How long they last? Until someone or group finds out and convinces enough people its a scam; then it bankrupts. Similar to a bank run (and fractional reserve banking is similar to a Ponzi scheme). Basically it lives and dies by word of mouth.

IF its a business that uses some MLM style marketing, but the main income comes from selling actual products or services, then you should research further. If you are selling soaps and get a commission for each one sold but you also manage to recruit people to sell them and earn like 1% of their cut for each sale they do, its still the soap that is making most of the profit, not the people joining to work under you and expand your network.

Sometimes they are very clever and blurry the lines, its not always easy to recognize. You might think they are earning their main profits with another (actual) business when in reality they are doing pure MLM. Sometimes they happened to have another business but secretly isn't doing well, or they buy an actual business (possibly failing) and try to combine it with MLM to give it a decent facade.

[tbct_mt2]

Last year, I planned to invest my money in a profitable business in order to ensure a passive income. I have been looking for a long time for a place where there would be reliability and security for my funds, but I could not find, although these companies are many, but MLM is exactly the thing where a lot of scammers are spinning.

Many people get trapped with MLM because both sides:
- They are lazy to learn, and investigate to find really good companies, projects for their investments.
- They are greedy and want to get rich fastly.

On the sides of scammers, they provides exactly what lazy investors are looking for:
- High ROI
- Easy method to get rich
- Huge passive income with limited initial capital
- and more.

I don't have any words to protect lazy and greedy investors because they deserve their losses. I believe if they read the topic, they will still fall into MLM traps again.