Socialism and Multi Level Marketing – Proposals involving socialism vs standard MLM result in no growth, no increasing company profits, and no incentives for builders

Many people do not enjoy the “ideal experience” with Multi-level Marketing during their first venture.  The bottom line is that many people fail the first time around, whether it’s related to unappreciated or overpriced products, poor training, greedy management, a personal lack of energy and motivation, or a combination of these elements. However, some individuals frustrated with previous Multi-level Marketing (MLM) experiences believe in creating a system designed to reward each team member equally.

I was reading a proposal the other day from a critic of the current popular MLM compensation plans and pay structures. His dream was to create a MLM system with competitive services that would not favor any star distributors or company leaders. Instead, the company would weigh the sales and commission volumes generated by the entire organization on a monthly basis and then distribute checks with an equal reward for all members. Referring to his proposal as a socialism system for MLM, he essentially argued: “Why hasn’t anyone attempted to combine socialism and MLM? It’s time for the average network marketer to share in the big pool profits!”

I’ve been around the MLM block and studied the industry for 5 years, and I have to admit this is the first time I’ve actually seen the concepts of socialism and MLM addressed in this fashion. I don’t really have any intentions to engage in a broad debate of the traditional economic systems, socialism vs capitalism; however, I would like to carefully examine the consequences from the proposal.

Good leaders and bad leaders

Without any intentions to offend the author of the “socialism and MLM” prosposal, I would highly question his understanding of the basic principles of MLM. Companies choose to adopt MLM distributor and compensation plans to encourage the membership growth and geographic expansion of their product lines and services without being forced to rely on expensive advertising and promotion. Essentially, the distributors in a MLM company attract customers and additional distributors, bringing sales to the company, and are then rewarded for their hard work.

With various MLM companies, training systems and “leadership” mentalities, it is true that some people “at the top” of certain companies can be rather reckless and take advantage of their entire team. It’s unfortunate, but it does happen. Therefore, I can understand why an individual who has fallen victim to leadership abuse within an MLM organization may think – “Why should the people with the largest teams make the most money? Why can’t the company share the profits of all distributors?”

The answer: Because responsible, ethical MLM company and team leaders have worked hard and diligently to achieve their position and compensation level within the company.

There are indeed some bad apples in the industry, and all prospects should be extremely careful to avoid such people and their systems. MLM is designed to reward responsible business builders; therefore, you don’t want to take part in a system that rewards acts of deception and greed practiced by leaders or “kingpins” at the top of the company.

This is a very important warning that seems to elude thousands of marketers! I continue to watch many people support leaders within teams and training systems that consistently use their entire organization to gain additional profits at the expense of team members. Some of these people will suck money from their team’s pockets any chance they get. It may sound dark and twisted, but it is very real. You don’t need to “spread the profits” to solve this problem; rather, you simply need to avoid these bad, greedy and/or irresponsible leaders.

If we all “share,” then eventually we could all lose

Let’s take a closer look at the “socialism and MLM” proposal and assume we’re dealing with a strong MLM company, led by a professional, responsible leadership team. Under a typical MLM system, let’s say Person A has served as a dedicated builder within the team and regularly spends 12-15 hours a week building his business. Person A has built a team of 100 people and offered them free training materials month by month, week by week. He earns $3,000 a month.

Person B spends 5-6 hours per week developing his business. He has a small team and earns about $500 per month as a result. Person C doesn’t really take the business very seriously. He may spend 3 hours building his business one week, but then completely forget about it the next. He has no consistency and has only been able to recruit a couple people, earning him a measly commission well under $100 per month.

Now we’ll throw in the so-called socialism vs standard MLM rewards twist! Let’s say Person A, B, and C continue to put in the same amount of work, but the company releases a notice saying: “As of this month, all company builders will receive an equal proportion of the company’s total commission volume generated.” What happens?

Since most MLM companies tend to have more “Person C” type members over A and B types, the “average commission” will be significantly reduced. Let’s say the next month comes around, and the commissions are divided up evenly. Person C receives a check for $220 and says- “Wow! This new system tripled my previous check!” Person B receives a check for $220, sighs to himself and says- “I worked hard for my passive income levels and now my check has been cut in half.” To his amazement, Person A also receives a check for $220 and stammers- “I can’t believe this! I spent 70 hours this month building articles and content, training 8 new members, and doing 3-ways to help my team members build their personal organization all for a loss of $2,780?!”

Why do Person C types, including lazy builders and tire kickers, deserve the same amount of compensation as Person A types, who spend hours each week 1.) bringing additional sales to the MLM company and 2.) helping their team build their personal businesses? The answer is they DON’T! The very key principle of standard MLM systems rewards each individual for personal hard work and results. It allows each individual to build his business at a comfortable pace, while encouraging productivity at the same time. After all, the harder you work and spend time building your business right, the higher your compensation will be.

Within the “socialism and MLM” plan, there is no incentive for Person A type builders to continue working hard to develop their business and encourage company growth. If they are going to earn $220 or so each month whether they work 20 hours a week or 1-3 hours a week like the Person C’s, which option do you think they will choose? Say goodbye to all those dedicated hours spent on training and marketing.

Eventually all Person A’s and B’s are going to say- “There’s no point in putting all this time toward bringing new customers and distributors to the company if I’m going to earn the same as all the people sitting on their butts doing little to nothing month after month.” Every member will start to function as a Person C type member, and, soon enough, the company’s rate of monthly growth will dwindle down to zero – zip – nada – nothing! At this point of no growth, there is no longer any sensible reason for the company to continue using any MLM reward structure. Multi-level marketing has been rendered useless.

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The original proposal by the former critic concluded with “Oh, what socialism could do for the MLM industry,” but I’m hoping that people yearning for such a twisted system realize what socialism would destroy within basic MLM structures. No, the current MLM systems probably aren’t perfect. Yes, people will always have to look out for the charlatans and scammers of the industry that hurt their members in order to line their own pockets.

However, an MLM based system involving the equal share of profits between tire kickers and power builders is only a recipe for disaster. Companies must experience positive rates of growth and the distributors must be rewarded for individual hard work for MLM to be a worthwhile proposition. Some organizations and teams have tried “equal sharing” related plans in MLM and suffered the consequences.

Discover what happened within these organizations and their specific payplans in Part II.

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- Mr. Ryz

RyzEiro@yahoo.com

www.MrRyzMarketing.com