By Colin Ward, USDR Contributor
About a month ago, an exterminator came to my apartment and did the annual spray for bugs. While we were chatting and telling jokes in the kitchen, he told me about this new business opportunity that one of his friends had offered him. It involved selling electricity from some company I had never heard of. It was a great opportunity because he would get the residuals from each account he sold and only had to put up $300 for the sales training program. As he told me more, it sounded a lot like a job I once had… in Multi-Level Marketing.
In the summer of 2002, I had just graduated with a Philosophy degree and was having a tough time finding a job. The internet bubble had just burst, and my programming skills were irrelevant at that point. Among the various want ads I found one that promised fantastic pay, flexibility, and the opportunity to be my own boss. Sounds great, right? I called and set up an appointment for an interview.
The next day, I arrived at a sketchy strip mall and located the office above a pawnshop. When I walked in, I immediately noticed how many of the workers had wooden plaques claiming they were the salesman of the week. This should have been a red flag, because that is what companies give people instead of raises or bonuses. The secretary ushered me into a large conference room, where I waited until the boss arrived.
After about five minutes, in walked a man that looked like a Mafia pimp. Ridiculous Italian suit, pinky ring, spray tan, and a silver mane that refused to move in even the strongest of winds. He introduced himself as Mike and proceeded to tell me about what a lucky man I was.
“This is the opportunity of a lifetime! You’re getting in on the ground floor of a dynamic business that is taking off! I only started working here a year ago, and look out the window!”
As I peered through the cheap venetian blinds, I saw a brand new Porsche 911 that winked at me when he clicked a button on his keychain.
“If you really want it, I bet you can do better than me because I don’t even leave the office anymore!”
Despite the loud ringing of the BS detector going off in my head, I decided that I should hear this man out. He spent the next hour telling me about the history of the company, the great work environment, and the fabulous benefits… but he never got around to what they actually did until the very end.
“We offer our clients special discounts on services they use every day. The promotions we sell change over time, but the value is always a steal! This week we are pushing a sheet from (restaurant) with over $400 of savings on their menu items. All of this value for only $20!”
He handed me a giant coupon sheet that proclaimed the same thing he had just said across the top in bold red letters. He then explained the basics of the business model and how I would benefit. Essentially, for every sheet I sold, I got $10. My boss would get $5, his boss would get $2.50, and so on up the ladder. If I signed up some friends and got them to work for me, I would be getting the $5 from their sales in addition to what I made on my own. I would also get a $100 bonus for hiring each of them, because there was a $200 sales training course when they started.
“Wait, $200 to learn how to make phone calls?”
“Phone calls? No, those guys are managing their own teams in the field.”
“Out in the field?”
“Yes, we bring the offers to the clients!”
As fishy as this sounded, it just got a whole lot worse. When he offered to send me out with a team to see what it was like, I agreed out of pure morbid curiosity. Door-to-door sales in HOUSTON? In the SUMMER? In a SUIT? I had to see this. Ten minutes later I was in the kind of white-panel van that you imagine abductions are carried out in with the four sweatiest and perkiest people I have ever met.
We split off in pairs and worked both sides of the street in some random neighborhood while our driver waited at the end of the subdivision. I stayed quiet for the first few houses while they delivered “The Pitch”.
“Hello Sir/Madam, do you have a moment? We are conducting a quick survey and would like to know your opinions about local restaurants. For your participation, you may purchase this sheet of $400 in rewards for only $20!”
About half of the people would try to say no or shut the door, but my partner would stand so close that they would have to slam it in his face… which one guy did. Most people just stood there with a look of “let’s get this over with” while the rest of the pitch, including a bogus survey, washed over them.
By the time we got back to the van, our success rate was only one in twenty, for which my partner received multiple high-fives from the others. The driver got a call from the central office with our next location, and we drove off. As we pulled up to a gated community with a clear “No Soliciting” sign, I sat in awe as the driver asked where the model houses were and just drove in. I refused to leave the van, because I was sure this was illegal. The others said they did it all the time and to stop being a wuss. By the time they got to their third house, security came and escorted us off the premises. I asked to be taken back to the office, and then drove home in my dripping wet suit.
That night, the boss’s Porche started to bother me. There was no possible way I could understand that he was making enough money to cover that. He was the third level up, meaning he got $2.50 for each sheet sold. Assuming that the five guys in the office each had a team of five people, that meant he had maybe 25 earners in the field selling (at best) one sheet an hour. Quick math, and he’s getting about $100k a year pre-tax. It would take him two years to buy that car even if he didn’t eat. It must be leased.
I did some more digging because I was sure it was a scam, and found some very interesting documents on their website. It showed the breakdown of the rewards and the percentages of employees earning them. The vast majority of people quit after a month, and never even made ten sales. Some more math and I discovered that the total sales rewards paid out roughly equaled the total revenue generated from the joining fees. Whoever was running this organization had essentially discovered how to distribute the coupons with a free sales force, and keep all the real revenue.
Back in the present, I told this story to the exterminator, and explained that this “opportunity” was a very bad idea. The product might have changed, but the gimmick was the same. He insisted that his friend wouldn’t bring him in on something like that and he was still going to try it out. With this in mind, I gave him some advice on how to actually make money so he might at least break even:
- 1. Figure out what you are actually being incentivized to do.
If the reward system favors recruiting instead of sales, focus on that.
- 2. Don’t pay for any of the “extras” the company offers you.
I don’t care what they tell you, it does not cost $30 a month to advertise on the internet. You can do it yourself for far less.
- 3. Read the fine print and look for loopholes.
Those “residuals” stop as soon as you leave the company or your sales drop below a certain amount. You cannot retire on them.
- 4. Be careful whom you bring into the organization.
Do NOT bring in friends and family. They will not like you afterwards. Look for strangers that are bad at math and have $300 they won’t miss.
- 5. Hire people that won’t do steps 1-4.
The longer they work for you under the impression that they are going to make it rich, and the more people they bring in, the better.
I would prefer if these firms didn’t exist, and that people wouldn’t join them. If you insist on giving it a go then I wish you well, but don’t say I didn’t warn you.
Colin Ward has a philosophy degree from Tulane, an electrical engineering degree from the University of Houston, and an MBA from the University of Texas. Learn more about him atMonetizingColin.com.