SOFREP readers, this is an anonymous guest post. This guest writer spent four years in the Marine Corps as a special operations capabilities specialist – communicator assigned to Marine Special Operations Command. He transitioned to civilian life in 2015 to work in the network security field. 

This article highlights how multi-level marketing scams are targeting our military and their families.

—Desiree, managing editor

It’s not a pyramid, it’s a reverse funnel

What if I told you that you could be your own boss? You can set your own hours, manage your own clients, and your salary is only limited by your charisma and drive. You don’t need a degree, you don’t have to cold-call clients, and the product is so great that it sells itself. Would you come with me on a journey that could provide you financial distress freedom and amazingly expensive travel opportunities? I hope for most of you, the answer would be, “Get out of my living room and take your complimentary air freshener with you.” Unfortunately for many young service members and military spouses, these predatory business models seem like a great avenue to produce additional income or make you feel like a financial contributor to your household.

Of course the model I am referring to is the multi-level marketing business. This industry pulls in over $150 billion [1] dollars a year in revenue. That is over five times the annual budget for the United States Marine Corps in FY 2014 [2]. Despite showing massive profits and steady industry growth, the percentage of sales representatives that lose money across the top 10 “network marketing” companies is a staggering 99.861 percent [3]. To give you the inverse, the number of distributors that turn a profit represent 0.137 percent of the MLM salesforce. Despite an unprecedented failure rate, these companies continue to boast high recruitment and retention rates. In order to wrap our heads around the prevalence of these volatile companies around our military bases, we need to review how these companies operate, what draws our service members and spouses to them, and just how varied the programs can be.

Buzzwords used in multi-level marketing

Multi-level marketing constitutes any marketing strategy that utilizes a compensation program for developing additional salespeople that, in turn, contribute to your sales volume. One of the key strategies for recruiting your prospective clients is to inundate them with vague terminology that sounds more like a board game than a business. We will now review some buzz words you may have heard before:

• Downline: Your sales recruits that provide you with a stream of additional compensation from their individual sales/recruits.
• Network marketing: A synonym of multi-level marketing that hasn’t acquired a negative connotation yet.
• Entry-level kit: A baseline, mandatory purchase that ensures a minimum profit from you as a client. Generally provides reading/advertising material to “jump start” your sales.
• Rebate/profit bonuses: A preferred customer program that typically offers kickbacks for higher sales volumes at your commercial business. They’ll offer discounts on the product with your higher storefront visibility. Industry specialists are targeted for these programs to add credibility to the product.
• Points: To detract from the idea of net profit/loss, MLM companies assign point values to sales and recruitment. Points are sometimes redeemable for gift cards, travel stipends for events, etc. Point accrual can also be integral to ranking up, which leads us to…
• Rankings: Network marketing companies employ a rank structure, which rewards increased sales and recruitment with higher stature and better return percentages on product purchases. This is a key empowerment tactic that provides a seemingly endless level of progression that asks you to sell and recruit more and more. The idea is if you could only reach that final rank, you would make the real money.
• Sales leads: The most readily available customer base is made up of your close friends and family. Most companies recommend you sell/train with your family and friends first to get your footing. After you’ve exhausted your relatives, you work on creating a network of referrals through word of mouth or social media.
• Binary/genealogy/enrollment tree: Clever ways to avoid referencing a certain structure. HINT: The ancient Egyptians built a lot of these.
• Luxury car program: One of the more dangerous programs MLMs offer. This “representative bonus” will encourage you to purchase a luxury vehicle with promises of monthly compensation for your car payments. They have strict model requirements and the fine print will fill you in on the many ways they will cease their stipend, such as lower sales volume, disciplinary actions, and loss of rank.
• Training seminars/retreats: These mandatory classes will be offered as a getaway where you will learn from the founders/executives how to increase your downline and maximize profit, which at this point is necessary for you to avoid losing everything. Most likely, you’ve been hemorrhaging any profit you make by barely breaking even on product purchases, and you’re under the impression that if you keep working hard and investing in the company, you will attain the next rank that will give you the net gains you need to really succeed.

Throughout the presentation you are given, the aforementioned key words will be mixed in with hyperbole concerning earning amounts and effectiveness of the product. After highlighting how easy it can be to sell products to your unsuspecting friends and family, your “sponsor” will show you ways to utilize social media to expand your customer base and encourage you to invite acquaintances over for parties. These get-togethers typically include sample products and a fun atmosphere that softens the idea of acquaintance-based sales. It’s easier to hawk goods to your friends when you can disguise it as a cocktail party.

So why are service members and dependents such a lucrative target for these companies? Due to constant change of stations, increased likelihood to have children at home, and a younger demographic compared to their civilian counterparts, unemployment was at 30 percent in 2012 for spouses age 18-24 [4]. As mentioned above, the primary marketing campaign for MLMs involves word-of-mouth advertising. With frequent moving, I believe military spouses tend to interact and congregate with each other more frequently than with their civilian associates. This perpetuates the dissemination of MLM material. Our high turnover rate actually feeds into the acquisition of customers by providing a stream of fresh revenue during high enlistment periods that inevitably dies out due to market saturation and eventual stagnation.

In the end, it is next to impossible to profit from these business models. While you may think that your only loss was the money you spent staying afloat, there is a cost to utilizing your friends and family as a financial prospect. The next time someone invites you over for dinner and a demo, I recommend politely declining and continuing to search the classifieds. Save yourself the financial heartbreak and the rear-window space, and avoid getting sucked into the pyramid reverse funnel.

References:

[1] http://www.dsa.org/benefits/research/factsheets

[2] http://www.statista.com/statistics/239290/budget-of-the-us-navy-and-the-us-marine-corps/

[3] http://mlm-thetruth.com/shocking-stats-2/

[4] http://vets.syr.edu/wp-content/uploads/2014/02/MilitarySpouseEmploymentReport_2013.pdf

Editorial cartoon from Robert Lang