Failure Rate of MLMs vs. Small Businesses

Many MLMers bring up the idea that small businesses fail too. The implication is that because both MLMs and small businesses fail they are the same.

Unfortunately this is another HUGE MLM myth.

The U.S. Small Business Administration has this handy PDF of information of small businesses in general. It quotes:

"7 of 10 survive the first two years, half at least 5 years, a third at least 10 years, a quarter stay in business 15 years or more."

We can easily flip this around to show that 30% fail in the first two years, 50% in 5 years, 70% in 10 years, and 75% in 15 years.

We also have extensive proof that failure rate in MLM is 99.5% or worse each year.

Let's imagine that a million people start small businesses. After the first two years, 700,000 are still in business. After 5 years, we have 500,000 in business. After 10 years, we have 300,000 still in business. Finally after 15 years, we still have 250,000 successful small business owners.

Now let's see what happens with a million people who start MLM businesses. Assuming a generous 90% failure rate (again it is typically much higher) after two years, we are left with only a thousand people. After 5 years, we are left with 10 people. We can't go any further on, because then we'd be looking at fractions of a person.

It's not even a close competition.

With small businesses you have 500,000 successful businesses. With MLMs you have 10.

It's like comparing the failure rate of running a 5k with running 3000 miles across country. They may both be able to point to success and failures, but the scale is so very different that anyone who attempts to make such a comparison looks ridiculous.

This post involves:

Bad MLM Arguments

... and focuses on:

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2 Responses to “Failure Rate of MLMs vs. Small Businesses”
  1. Scott Says:

    This is simply a bad comparison. The numbers with small businesses is actually far worse. 90% don’t make it in the first 5 years. Another 90% are gone in 10 years. Regardless of whose numbers you want to use, it’s still a bad comparison. 90% of those who enter into MLM’s aren’t there for the big money. Most not even for some part-time or extra money. Most are there to first try the product at whole sale and must become a distributor for whole sale prices. What you would need is to know how many actually came on board the MLMs for the opportunity. With those people, you can start making some comparisons. And, what and how would you compare? Some would be facts and others would be subjective. Like how hard did the people really work? Or, what really was their commitment? Was their preparation satisfactory for success? Did they fully understand their business and how much of a learning curve is required? Will MLM people, how many had to be dragged by their collars to get to training meetings and appointments? How many dragged their trainers to appointments?

    Other factors to consider would be how much money did the losers lose as a small business owner or MLM? Small Business owners most likely lost tens or hundreds of thousands of dollars and filed bankruptcy while MLM losers lost s few hundred dollars and still had their full-time jobs. As far as the winners, MLMs win bigger and without the overhead costs of small business owners. They also get to enjoy much more of their time as they receive residual and more leveraged incomes.

    MLMs or Network Marketing is not for everyone as a full-time business. But, what does it hurt for someone with a full-time job they hate or love to give it a try? Nothing…Those that feel they are losers are cry babies and have nothing to cry about.

  2. mlmmyth Says:

    I agree it is a bad comparison, but MLMers like to create it. Glad that you agree.

    I cited the numbers from the Small Business Administration. You cited numbers from no source. I hope you can agree that my source has more credibility.

    What does it hurt? Some 99.8% of people lose money. You’d probably be better off just buying lottery tickets. It’s a lot less work.

    It’s also possible to lose thousands in MLM by staying in it buying overpriced product, going to seminars, marketing materials, etc.

    Sounds like something a scamming salesman might say, “So what if nearly everyone doing this loses money, don’t be a cry baby!”

 

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