Multi-Level Marketing (or “I’ll never need math in real life”)

In my life I’ve run across a few multi-level marketing schemes organizations. I’ve never become heavily invested in one, mostly because there’s a little voice in my head that always screams “somethin’ ain’t right here” every time I look into one. Since the cult, I’ve noticed that some of the ones I’ve been approached by (Yeah, I’m talking about you, Primerica) exhibit some traits that reminded me of the practices of cults. I’m not saying they’re cults, but they sure smelled like one.

One thing that never occurred to me until recently is to do the math. When you’re entertaining the thought of joining one of these groups, they spend a lot of time and money wooing you. You see people a few levels up who are simply rolling in cash. Giant conventions in Texas where stadiums of people are cheering a couple who “went diamond”.  A guy who just bought a $200,000 car. Your desire for success and wealth kick in and drive out any kind of rational or critical thought. I sort of figure that the voice in my head that’s kept me out of these all these years are those parts of my brain desperately trying to reassert themselves when I go all googly-eyed at the thought of wealth.

They all operate similarly, it doesn’t matter if they’re selling soap or supplemental life insurance. It goes something like this: you sell X amount of product, on which you make N commission (which isn’t usually very much), but the real way you make money is by bringing in people under you. You build your own “network”. You bring in something like 5 people under you, and on all of their sales you make Y commission, which is not much either. But then they each bring in 5 more people, and by the time you have 4 or 5 levels below you, you’re super mega rich and you don’t have to do a thing to earn it anymore! Woot!

Now, let’s run some actual numbers. At the top of the pyramid is one guy. We’ll call him N₀. The count of this tier (0) is 1. This can also be expressed as 5^0.

The next tier will have 5 people, because N₀ brought in 5 people. This can be expressed as 5¹.

The next tier will have 5² people.  Each member brought in 5 more, so this tier has 5+5+5+5+5 or 5x5 or 5² which is 25.

Tier 4 will have 5³ or 125. You should be able to see the pattern by now. Each tier will have 5^(N-1) people in it. It’s important to note at this point though, that the total number of people required by tier 4 is 156.  This is 125 + 25 + 5 + 1 or (If I remember my sigma notation correctly). Nobody is making any money yet though.

Let’s jump down to level 13. If you’re joining a MLM, you’re probably down the ladder a bit, right? This tier requires 305,175,781 member in the organization. 304,687,500 of these do not have enough people under them to make any money. They’re in the bottom 4 tiers. This leaves 488,281 of the members actually making money, or about 0.1%. As a side note, the U.S. population as of the last census was 311,933.344. Let’s go just one level deeper so that some of these people at the bottom can start making some money.

Tier 14 has 1,220,703,125 people, bringing the total number of people in the organization to 1,525,878,906. Wow. The number of people in the bottom 4 tiers is now 1,523,437,500, with 2,441,406 people actually making money now. Wow that’s a lot! It’s also 0.1%. Let’s go another level to get those numbers up, shall we?

At Tier 15, the number of people in the organization number 7,629,394,531. Roughly 854 million more people than actually exist, according to the estimate of world population. Whoops, I think we’ve passed a logic barrier here. Let’s ignore that and run the numbers again. 7,617,187,500 people constitute the bottom 4 tiers leaving a mere 12,207,031 in the range that makes money, or 0.1%. I’m detecting another pattern here.

If we roll this back to more reasonable levels, say 8, Then the organization requires 97,656 people. The bottom 4 tiers have 97,500 people with the remaining 156 actually making money. Only 156 people in an organization of around 100k actually making money sounds abysmal. It’s also about 0.1%.

Basically, no matter how you roll the numbers, 99.9% of all members of the organization lose money, while 0.1% of them actually do make money (in varying degrees).

By way of comparison, roulette contains 36 possible numbers, so the odds of winning by betting on a single number of roulette is just below 3%. You’re actually more likely to get rich by placing your entire life savings on a single number of roulette than you are by joining a MLM.

Thank you, little voice in the back of my head. And thank you Skeptoid.