What summer sales and MLM companies have in common and why I hate them both.
The Pitch:
It’s always the same: “My friend knows this guy who made a bazillion dollars. All you have to do is [fill in the blank]. You could make a bazillion dollars too! If things go just okay, you’ll still make loads. And worst case scenario, at least you won’t lose anything.”
It blows my mind that people sell a product/position/business without ever talking about the product. What is it? Is it something I can truly believe in? Does it excite me? Is it really worth the asking price? Is it a hoax? What is the competition like? Are there better alternatives?
Summer sales and MLM companies don’t have products or competitive advantages that set them apart from their competition. Summer sales and MLM companies use business models that over-compensate a few high performers in order to attract hoards of average and under-achieving people, most of whom are under-compensated.
A Typical Summer Sales Business Model:
Here is what a typical summer sales pay scale would like (I’m not including numbers–just focus on the general trend):
Now compare that to a typical distribution of sales reps (based on how many sales each rep makes in a summer):
Notice that the vast majority of sales reps end up somewhere along the “bell” part of the curve. Superimpose that on the pay scale and you see that the company pays very little to these average and below average reps. The high performing reps lie out in the “long tail”. They are few, so the company can afford to grossly over pay them. This prepares a class of recruiters for the next year and sets the standard for all of next year’s hopefuls.
From a business’s standpoint, it’s a good model–assuming they have a large supply of new recruits each year. For a new recruit though, you better be better than average, fully committed, and hopefully even believe in what you are selling.
MLMs are Different:
Yes, MLMs have completely different business models from summer sales, but it’s still true that a few over-paid superstars are used to attract hoards of average and below-average people. That’s not a bad thing. It’s just important to understand the reality–you have to perform better than average to make good money.
Sell the Product!!
I know I can’t perform above average with a product I don’t believe in (in fact, I’m a dud if I don’t believe). So please; friends, family, and anyone else who is thinking to “recruit” me; tell me why your product is the greatest. Tell me its competitive advantages. Don’t tell me about you friend’s friend who made a bazillion dollars.
Note To my friends and family who have already approached me with proposals. This little rant was not a personal attack on anyone. I hold you all in the same high regard that I did before any proposal. I’m simply using my blog as a platform where I can take a general stance and let all three of my readers know. :~)
August 25th, 2008 at 2:36 pm
Actually, Ben, I have three readers. You have more like 12
But who\’s counting?
August 25th, 2008 at 4:36 pm
I absolutely agree with you on everything. Way to wack it to them. I only have one thing to point out, you don’t only have to be “above average” to make good money in MLM and summer sales, but you have to be way above average. Average guys go home in debt, above average guys break even, and only the best make a lot of money.
In regular jobs, average guys make average money, above average make above average money, and the best make loads too.
August 26th, 2008 at 10:21 am
You got it right on. Think about it for a second. APX Alarm is supposed to sell 180,000 accounts this summer, they started with 3500 sales reps. That averages out to 51 sales per person that signs up. They get paid $275 per sale at that rate. That comes out to $14025 for the summer. A far cry from the $50k. That is before taxes, they are independent contractors so they “should” pay taxes, generally 15%. So they are now down to $11925. Now you have to figure in rent for the summer because they didn’t hit the sales goal. That is $400 per month for the 4 months. They are now down to $10325.
Now, normally any college student would jump at making $10k in one summer. That is the average person. That doesn’t take into account gas, food, living expenses. Unless they are amazingly disciplined, they are going to spend like there is no end in sight, because after all, they will make it up in sales tomorrow. They eat out everyday, and spend like the people who do make $200k per summer. I would say most “average” sales reps come home with about $4k-$5k in their bank account. Not exactly getting rich. But they need to prove they got rich so they can make tons of money next summer with the people they recruit. Debt adds up, money winds down.
Think survivor bias. When people think about the people who strike it rich doing summer sales, no one seems to take into account the number of people who tried and found out it didn’t work otu. Those people are the weaklings who are not strong enough to survive, right? It takes a concerted effort to make it happen, but as you say, it probably won’t happen for everyone, statistics show that.