7-21
MLM’s candlestick income distribu-
tion. When I first became interested in the
abysmal numbers associated with MLM
profit/loss rates, I was struck with a
phenomenon I had never seen in decades
of analysis of financial and entrepreneurial
business models. When I spoke at
conferences and workshops for law
enforcement personnel, I attempted to
display on a graph the distribution of income
across the entire spectrum of MLM
participants.
On the left of an income distribution
chart I would show a tiny few making huge
sums of money on the left of the horizontal
axis and the balance losing money on the
right side. The problem was that no display
media was wide enough to display the huge
disparity between winners and losers.
Those who made money would be less than
a half inch in width, while those who lost
money (after incentivized purchases and
expenses) would spread across the length
of the entire building in which we were
meeting – if not the whole block.
In the UK’s case against Amway
36
, this
extremely unfair income distribution was
aptly described as a “candle stick.” The
following description by the finder of fact is
very revealing. If you have the patience to
read it and the statistical background to
understand it, you will be rewarded with
some very useful insights in just how
incredibly unfair MLMs can be.
(Conversions from pounds to dollars will
vary, but you can still grasp the
comparisons from relative size of the
numbers.)
Having set out the structure I turn to
my findings of fact as to what, in truth, this
structure produces for individual IBOs. The
case for the Secretary of State is that the
reality of the Amway business is that the
nature and rewards of becoming an IBO
and participating in that business are such
that only a very small number of IBOs make
any significant money from their
participation. In fact, the substantial
majority of IBOs make no money and
indeed by reason of their payment of the
36
Approved Judgment: The Secretary of State for
Business Enterprise and Regulatory Reform v.
Amway (UK) Limited May 14, 2008. §42-43
registration fee and the annual renewal
fees, lose money from their participation.
In its Points of Defense Amway does
not assert that this is not so, nor does it run
any positive case. It merely puts the
Secretary of State to proof. The Secretary
of State proves the case by statistical
analysis. For the period from 2001 to 2006
(a) 95% of all bonus income was earned by
just 6% of the IBOs; and (b) 75% of all
bonus income was earned by less than
1.5% of IBOs. In 2005-2006 there were
39,316 IBOs who shared a bonus pot of
£3,427 million. But of this total, 27,906
IBOs (71%) earned no bonus at all, and
101 IBOs (0.25%) shared £1,954 million
between them. That leaves a group of
11,309 IBOs to share a bonus pot of £1,473
million. Within that category there was a
group of 7,492 IBOs (earning 3%
commission) who between them shared
£101,400. This gave them an average
annual bonus income of just over £13.50, a
sum less than the annual renewal fee of
£18.00.
(I do not, of course, overlook the "retail
margin" earned on product purchased. from
Amway and not self-consumed: but the 3%
commission is earned when the monthly
points value is 200 PV, so the total retail
margin, allowing for self consumption, and
even assuming full-price sales, will be low).
If one were to represent this bonus
distribution on a graph with, a central
vertical axis containing the commission
bands (with 0% at the base and 21% at the
top), and the horizontal axis calibrating the
number of people in the class, then the bar
graph would resemble not a pyramid but a
candle stick, with a large solid base of IBOs
who earned nothing or virtually nothing and
a thin column of lBOs arising out of it who
earned 6 to 2l% commission.
A feature of that graph would be that
the group at the top of the candle would be
those who had been IBOs longest. So,
Trevor and Jackie Lowe earned a total
bonus of £141,000 (having been IBOs
since 1979). Of that bonus only £1,788
related to commission on their personal
volume (which suggests that they had
personally purchased about £8500 worth of
product in a year for on-sale to their own
customers). £30,000 was attributable to
the differential bonus earned on sales
made by their down line, and the rest was
attributable to the higher awards scheme to
which I have referred. The Stranneys
earned a total bonus of £59,142. They too