When analyzing any scheme where the income is reliant on recruiting it becomes clear that it is unsustainable. The FTC warns that MLMs that rely on recruiting are likely illegal pyramid schemes. For example, MLMs may require you to recruit as many as 30 people just to break even in the business. At a minimum they require that you recruit 3 or 4. Anyone with a basic understanding of math will know that it is impossible or everyone to be able to recruit a 3 to 30 people.
When you present this information to someone who is in MLM they'll claim no MLM has ever been saturated and that there are always people to recruit. Like many MLM proponents claims, it might seem true on the surface... especially if a particular MLM only has between ten thousand and a few hundred thousand people in it. With more than 300 million people in the United States, there's many more people to recruit, right?
MLM and Total Addressable Markets
Any true entrepreneur will look at the Total Addressable Market for the business opportunity. This is typically evaluated by looking at the customers who might be interested in the product or service. In this case we'll look at the Total Addressable Market for recruiting someone into an MLM.
Let's start with the entire global population of Earth which is estimated at around 7 billion people. Let's break that down a bit and look at the addressable market.
- Limitation by Global Geography - However, MLMs are limited by the countries that they do business in. Furthermore, distributors are unable to choose to expand to a new country on their own. For this reason distributors are restricted to their own country. In the case of the United States a distributor will be limited to 300 million. That's still a very large addressable market.
- Limitation by Profession - The business of recruiting others is one of constant sales. MLM distributors may pretend that's not the case by suggesting that you are simply "sharing" the opportunity, but that's just mamby-pamby talk for selling. The fact is that not everyone wants to be a salesman. In fact a vast majority of people don't like sales, which is why MLM distributors created the illusion of "sharing" the opportunity. I would think than 10% of people are genuinely interested in sales.
- Limitation by Local Geography - Even if you have 300 million people in the United States, the reality is that you will never be able to have a conversation with all of them. Some people live in big cities where there are access to a few million people, but many others live in the suburbs where access is limited to fewer than 100,000 people. That's still a lot of people, but more than likely you won't cross paths and have a meaning conversation with more than a thousand of them... and that's being generous. That's not a lot of people to "share" or sell the opportunity to.
- Limitation by Industry - Of all the people local to you who are interested in sales, how many are interested in MLM? If those people are intelligent, they probably realize how bad an MLM business opportunity is because there is no barrier to prevent new competitors and there is no opportunity to control the business. Furthermore they may be smart enough to do their own research and learn that well over 99% of people involved in MLM lose money.
- Limitation by Company - One thing that MLM companies rarely talk about is that most of them have non-compete clauses in their distribution agreement. For example if one signs up to be a distributor for MonaVie, the person signs an agreement that they will not try to sponsor someone in another MLM. Even though MonaVie may sells primary juice, energy and weight-loss products, it doesn't want to compete with another MLM that sells collectible coins, for example. What does this all mean? It means that MLM companies know that there are limited people interested in the industry and that they don't want to share the people with other MLM companies. More importantly this means that even if you met someone local, who happens to enjoy sales, who doesn't know what a bad opportunity the industry is, there's a chance he/she will have signed with another MLM previously and not be interested in joining your MLM company.
- Limitation by Product - There's a chance that the prospective recruit simply doesn't like the product. Many distributors in MLM don't really care if they are selling pocket lint as long as it makes them money. That's why you'll see MLM Distributors jump from Zrii for LifeVantage. However, there are a few salesman out there who believe in the product enough to choose a business based on it. To get these loyal folk, you have to have the right product.
- Limitation by Compensation Plan - As mentioned above many distributors are just looking for the best opportunity to make money. That means choosing a company based on what they perceive is a good compensation plan. If you are trying to recruit someone into your MLM and there's another MLM with a better perceived compensation plan, you are likely to lose that recruit.
- Limitation by Past Experience - Many people have been approached to join an MLM before. These people may not be part of the Total Addressable Market because they've already made the decision that MLM is not right for them. Perhaps they have a friend who has been approached to join an MLM in the past and they didn't make money. That will be a difficult person to recruit. The person with the rare friend who made money in MLM is most likely to join with that friend and not with you.
When you add up all the factors, including some that I probably didn't think of to mention, the Total Addressable Market is quite small and the industry can be seen as saturated in many, many places.
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