The Hard Truth about MLM Schemes- an inside look at SendOutCards.com
A guest post by Dennis Yu, CEO of BlitzLocal, provider of local Internet advertising services.
The Federal Trade Commission requires that MLM companies provide an Income Disclosure document. If they don’t have one readily available or it sounds too good to be true, run in the opposite direction as fast as possible. Let’s do the math on SendOutCards, which is the latest MLM company to gain widespread attention, especially among stay-at-home parents. We’ll compare how it’s different than the affiliate model and local model.
Note: We’re not saying that ALL multi-level marketing models are a scam—just that you should read the facts before you put down your hard-earned money.
The value proposition of SendOutCards is strong—you just send out cards. Meet someone on the street, make a new friend at a conference, connect with friends at a church luncheon—just send a card. Make connections—and sending someone a physical card is so much more powerful than just an email. You can potentially make someone’s day, since getting something in the mail is usually unexpected.
But it’s not a Hallmark greeting card. Instead, you go to the web and enter in their name, a message, and choose a postcard style to send them. They compare the cost savings to buying a $3 card from Hallmark. At only a dollar, seems like a great deal.
But what is the cost of providing the service? We know that the cost of bulk printing cards is only a couple pennies. These aren’t cards with custom images, nor are they the super high quality cards that you’d find in a gift shop. These are laminated postcards run in batches of hundreds of thousands or more. SendOutCards is almost literally printing money when they get sales here.
Great business model, right? You sign up your friends, your friends sign up their friends, those friends sign up everyone they know, and BOOM—you are rich! You’ve got hundreds of thousands of people under you all sending cards to each other. All the while, Hallmark, American Greetings, and all those other card makers are out of business, right
You should plunk down money for their most expensive package now to secure your maximum downline.
What if five robbers were robbing for you and they each recruited five more robbers to rob for you?
But look at the Income Disclosure document. 69% of distributors didn’t earn a penny in 2008. In fact, the median distributor earned only $124.34 last year. Absolutely 0.00% of people made it to the Eagle level—the top tier. And for the next highest tier, called Senior Executive, only 0.02% of folks— that is 2 out of every 10,000 people—the median gross annual earnings was $33,741. And it took folks an average of 21 months to get there.
If only 2 out of 10,000 people make it to that level and then are grossing only $33k (that’s gross, not profit), then if you’re an average human being, the odds aren’t that good of you getting rich.
At the end of the day, a MLM company makes money not from end users buying products, but from people selling other people on why they should sell. The focus is on the selling of others, not the actual product itself.
In affiliate marketing, affiliates are paid a commission when they generate a sale—there is no downline. The cost of sales usually is in the 5-15% range.
In MLM, multiple downlines—5, 6, 7 levels deep—can cause cumulative commissions to be over 80% of the product’s selling cost. That’s not including profit that the MLM company must make, shipping/distribution costs, general marketing expense, and so forth. Just do the math and consider that if an item sells for $100 retail, then the actual product likely can’t cost more than $10. That’s why health supplements and software products are marketed through MLM channels.
Now consider the local affiliate model, where the analyst or representative gets between 10 and 25 percent of the revenue and 50-70% of the revenue is used to actually buy traffic. That means if you are a cosmetic surgeon spending $1,000 a month for Google advertising, then up to $700 of your money goes towards actually buying ads. The remaining $300 is for the analyst managing your account, paying for the systems used to manage your campaigns, and a portion to maintain your website (assuming you are getting that as part of the deal).
Apply the local model to MLM and you’ll see the math won’t work. Imagine that same cosmetic surgeon spending $1,000 a month. If only $100 of that actually went to buying traffic, you wouldn’t get many clicks. Clicks for “liposuction” and “scar removal” are about $3, so you’d be getting 33 clicks a month—or one per day.
If that same client went through a local advertising agency, they’d be getting up to 7 times as much traffic—so instead of one visit per day, 7 visits per day.
You do the math.
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Wow, I have to put on my thinking cap for your post. It must be around here somewhere.
Thanks Dennis, it never hurts to step out of our box and learn something new.
I always look at these things with a very sceptical eye. Like you said, if it’s too good to be true, it usually is. However, the lure of easy cash is always a strong one.
Scott´s last blog ..5 Parenting Hacks For Dads Of Toddlers
It’s a shame that people fall for these schemes. It isn’t unexpected because people really do need to make a living. Sometimes people just don’t have a few months to wait to make a legitimate business. For instance, building a successful blog takes months. Lot’s of people don’t have that kind of time. They grasp at straws and that’s how they fail. Of course, these MLM companies rely on that desperation and gear their marketing towards the most vulnerable among us. Thanks so much for the comment, Scott.
Hi Dennis/Scott/Keith/J.:
I actually use the SendOutCards system. I am an attorney, and I’d like to make sure that some of the issues in the above are addressed.
First of all, the cards are actually all printed one at a time – not on “stored cards.” In fact, if you would like to make your own cards using your own photos, logo, or the like, you can put them on the outside or inside of the card – for 31 cents (for as many photos as you want). You can make a postcard, sure – but that’s only 31 cents. You can make a regular greeting card (62 cents) or a trifold or “brochure” card (93 cents) – plus postage. They are not “laminated postcards made thousands at a time.”
The cards are recycled paper and soy ink – and of a higher quality than the standard “Hallmark card” that claims the same (because they are glossy, which Hallmark won’t pay to do on the soy ink/recycled paper cards). If you’d like to send a card on me, I’d be happy for you to do it – go to ww.blablablabla and have at it. If you want to put a photograph in or on a card, after Kody Bateman (the president of the company) walks you through sending a greeting card, click on “Picture Plus Demonstration” on the “Card Manager Main Menu” and once you watch it, you can make some Picture cards, too. Yes, I’m paying for you to do it. And the stamps.
The system will ask you for your address, phone number, and email. The company receives these ONLY to both CALL AND EMAIL YOU if you are sending a card that doesn’t look right (you used too low of a res photograph, for example). However, I don’t really care if you put 415-555-1234 and tryingitout@yahoo.com – because the point is, I think you should try the system and see what you think, and I don’t really care if you sign up. It needs your address because that becomes the return address on the envelope. And yes, the envelope has a real stamp, too. And no, no spam, you don’t become part of some conspiracy to steal your identity and move into your house. They don’t store this stuff. I will get a copy of your email and phone number, but so long as you put a bogus one, or make your email obvious that it came from reading this blog (e.g., dennisyuismygod@yahoo.com), I won’t contact you. I generally send an email out of courtesy to anyone who tries out the system, but so long as you put an obviously bogus email address, it will help me to not bother you.
Most people sign up to SendOutCards to use it in their actual businesses. I did this, as an attorney. The system allows me to send out one card to many folks, or cards one at a time. Each card is physically checked for imperfections in the ink or in the card (here is a movie of this I took at SOC corporate: iremovedthislink.stupid) and every card is checked after it’s in the envelope, to be sure the name on the envelope matches the name and address on the card (here is a video of this I took at SOC corporate: anotherdeletedplug.sellingsomething). This is a very high-touch system. It’s the best system I have ever found to truly market my business. Asking for folks to click through on a website is not the same as showing honest gratitude to someone – and often, being able to say things that I wouldn’t feel comfortable saying on the phone. Email marketing has gone the way of the dinosaur. How many emails and “Constant Contact” e-brochures have you deleted today? Dozens, I’m sure. I also like that the SendOutCards system notifies me when someone’s birthday or anniversary is coming up – so I can send them a greeting card, or a gift (there are a few 100 gifts that you can send through the system, too).
With SendOutCards, there is a one-time license that you pay to use the system. To become a Distributor, it’s only $100 over the perpetual license to be a Wholesale member and use the system. Since you get $120 if you sign someone up, most people (like me) sign up to be a Distributor just “on the off chance” that “some day” someone might be interested in the cards (because of a card they have perhaps received). If so, that $120 check pays for the $100 differential, plus $20. This is fairly typical of MLMs: Folks sign to be Distributors NOT because they want to work the business, but because they figure that if they do, and someone’s interested, they will get a little bump.That’s why the numbers suck on “Distributors that make $ at this.” Most Distributors are NOT doing it to “make $ at it.”
In fact, that’s why ~I~ signed as a Distributor instead of Wholesale. I thought – what the heck. The first time we used the system, my secretary and I sent out 50 cards as a campaign to clients that we hadn’t heard from for a while. Because there is a mail merge feature, I was able to make a personal card showing gratitude to these folks, and send one card that was then personalized to each person and mailed for me – in a real envelope, with a real stamp. Morever, as you can upload your own handwriting and signature, the cards came out in my own handwriting, with my own signature. A copy of each and every card is also saved on your online Contact file for that person.
3 of these clients called me to give me more law business – which is why I actually did it. But 5 of them called me to find out how I got my “ugly lawyer handwriting” into the great card. So I showed them (just like you can do, on the link above), and they signed up to use the system, themselves, buying the one-time Wholesale license and becoming Wholesale users. This means I got 5 x $120, which more than paid for my license and cards I would send for a few months. Since I knew I was going to use the license and system for my law business, that was great. Someone just paid for my “Marketing Dollar” – sweet! I also continue to make $ on the cards that they send out – and (had they signed as Distributors, which they did not), I would make $ too.
The focus in SOC is definitely not on “selling the system.” It’s on sending cards, and showing gratitude. And making a little passive business income if someone that you send a card to wants to see how you did it. Some folks make more, some less, but the deal is, that this is something you can use every day to better others’ lives.
I think comparing affiliate marketing and something like SOC is comparing apples to oranges. Obviously, Dennis, you’re ~selling~ affiliate marketing. But it’s best not to say that something like SendOutCards is a “scheme.” I’m interested in what Scott said, “…people just don’t have a few months to wait to make a legitimate business…” SendOutCards makes no “get rich quick” claims. In fact, it very specifically states that this is a Relationship Marketing Tool, in which you can make some downline income – basically a marketing tool that can certainly pay for itself. There isn’t actually any lure of “easy cash” – unlike many of the MLMs or Direct Marketing companies I have seen. And, if someone is going to “wait a few months to make $ in a legitimate business,” they could certainly sign up to be a SendOutCards Distributor, and if they’re using their energy to get folks interested in the system, they very specifically will know what they will earn. I walk every person (BEFORE they sign up) through it.
Also – the product is the service and the service is the product. If you are using SendOutCards to show gratitude in your actual business – or even to send Xmas cards or show gratitude to those around you – there’s no need to “sell” the system. If people like it, you can “show” it to them. This is how SOC differs from the vitamin companies, makeup companies, juice companies, “pay my mortgage” companies, and the like, where you are required to “sell” and get people to “stay on the product” to “see the benefit.”
So, if you’d like to try out the system, and send some cards on me, so you can see how nice the product is, and what a great system it is, please go ahead. Please put in bogus information, because I’m not interested in you becoming part of my “team.” I just think that before throwing aspersions on the product, it’s best to actually have experience with it. And, as a final word, do make sure (obviously) you put in your correct “snail mail” address, so that the return address on the envelope will be correct. If you want to yell back, or blow me off, or NOT try out the system – go ahead. Just thought that Dennis, Scott, Keith, and J, that you would all perhaps like to see how the system REALLY works and how the product REALLY looks, as opposed to just imagining it.
Have a great weekend.
Sandy, I appreciate that you have a different opinion about what this MLM business is. I removed the links that you added though because I don’t think they are relevant to your argument. You should also mention that you are up for an award for your selling efforts for sendoutcards. You make money when other people sign up — so you should mention that you have a vested interest in promoting sendoutcards. Again, I appreciate a lively debate — I really do. I just want everybody to know that you are making money on it while I am not.
Hey Keith! Again – I do make money when folks sign up – but that’s why I SPECIFICALLY wanted to be SURE that people gave me fake information to try the system.
I think the most important thing is for folks to try the system – so that they can see if they like it or not. Believing that they do NOT like it from misinformation above is just a shame. Throwing aspersions on the quality of the cards, etc. is really quite awful and gives the wrong idea.
If someone told me apples were poisonous, I would not eat one. If an apple seller said to me “Look, it is NOT poisonous and I want to be SURE you don’t tell me who you are, and I don’t really care if you ever come back, but apples are GREAT, so would you like to try some for free?” Now, you’re probably instead going to turn that around (I can hear it) to someone offering “crack.” But I think that’s disingenuous. Because if someone gets “addicted” to sending greeting cards, I think it’s more like apples than it is crack. It’s not bad for you, and in fact, it spreads joy throughout the world.
I did say I get $ for folks signing up – I said that very specifically. I paid off my license fee and a few months of cards by the folks who initially signed up. I wish I could give you someone ~else’s~ website to try it out – that’s fine.
I’m not quite sure why removing the links to the folks looking at every card by hand, etc. was necessary, but that’s up to you.
I understand you are “not making money on it” – of course you’re not – but this posting talked about the quality of the product and how the product is produced and it is ~not~ correct. Since seeing is believing (or “receiving” is believing), the ONLY way to correct this (versus my saying “no, it’s not, believe me”) is for people to send some cards.
Again, if people go to (wow! you tried to insert another link) and put in ~totally bogus information~ so that they can just ~send a few cards~ (incorrect email, but one I can be SURE to know comes from here so that I don’t call to see if the person was able to send the cards OK), then they can at least see for themselves.
Better yet – why don’t you do it? Sign in, I can see your name is “Keith” so make sure your email is obviously bogus, and try the system and send a few greeting cards. To yourself, why not? So that you can at LEAST see the quality of the cards, and that the system is useful whether or not it has an MLM component to it. I frankly don’t care if folks sign up under me. But I very much DO care if the product is maligned without someone taking the time to use the system, and of course go through the picture plus demonstration to see how the make their own greeting cards, too.
So, don’t post the link (again), but at ~least~ go there yourself. My difference of opinion isn’t really with what “this MLM business is” – it’s with the “apples are icky and poison” comment about the cards and specifically how the cards are produced (hence the Facebook links).
Have a good weekend.
Listen, Sandy. I told you not to link here, yet you tried to do it again. The reasons are basic, and you would know that if you were really the internet marketing expert that you claim to be (I googled you). This is very simple, and I’ll say this as clearly as possible. ALL MLM schemes are bad — every single one of them. By definition they support themselves by the accumulation of new member. I don’t really care what the product is to be honest, I care that pyramid schemes are dishonest business models that hurt people. They prey on people who think they can get rich on the efforts of others. They have been around forever, and they are ALL dishonest. Crack, Apples — doesn’t matter. I said it clearly in my last reply to you; I enjoy an honest discussion and debate. I do not however enjoy having to remove another one of your links when I told you once already not to do it. That says something about your desperation to get people to sign up with you.
Hi Keith!
Oh my gosh you gave me the best laugh of the day re that I know how the internet works! I’ve used it for 20 years (and do internet and licensing law) but that’s like saying because I drive a car and know the law of the road I know how the car works
So, I was still puzzled, and I called a girlfriend who does this sort of thing. I explained to her what was going on – that there were misstatements on a post, that said things about the cards that came from SendOutCards, and also said things about MLMs, which I didn’t really care that much about (you could totally be right – I haven’t done any research on it), but the misstatements about the cards themselves irked me. So I told her I had given a link so that anyone could just go and see the cards, send some themselves, and that I specifically said to put in a false phone number and email, so that I would know it wasn’t someone really interested, it was just someone who could see that the cards were not as listed in the original post.
She ’splained to me that because of the link, somehow the sites get “tied together” even though I said to put in false information – it has to do with pointing to the website. Who knew. That this could make my website come up before someone else’s website. Again, who knew.
So, I now totally get why you took the links out, because it has something to do with pushing my website or pulling it.
I hear that you say that you don’t care about the product – but you see, I ~do~. I think that you could make your exact same point (because you have the numbers) but still at least not have misstatements about the product itself.
The one thing that was not to do about the product (that most distributors don’t make money and why I think that might be possible) I said in the first post, so there’s no need to talk about it again. The only thing I’m trying to address is the misstatements about the product that you get.
I know that you have the website link (I bet you’ve memorized it, after my putting it in twice!). I really would like you to try the product. I’d like to say do NOT go to my website – go to one of the thousands of SendOutCards links – the only thing is, those people might actually think that you might want to sign up for a license, and I know that you don’t.
I’m still trying to address the “mass market postcard where you can’t put your own information/photos/etc.” portion, so that’s why the link. That I would never put in here. No no no, no NO no no. Bad link. Bad very bad. If that portion of the article was missing, describing the products in a way that is not even close to correct, then I wouldn’t even have written or put the link in.
Okay, time to get back and enjoy the weekend. Thanks so much for the laugh about being an “internet marketing expert” that’s going to keep me smiling all day.
Enjoy your weekend,
Sandy
Hi Keith,
Just read these posts and noticed that you got upset at Sandy for having her links here. I attached mine earlier after reading the other article (hadn’t read this one yet) Sorry about that!
Vanessa
It’s ok Vanessa. Honest mistake
Thanks for your addition to this debate. I wish you luck even though I doubt the validity of the premise.
Hello,
SendOutCards is not a MLM company. It is network maketing, which is entirely different. Money is earned right away. The people that actually WORK, make money, and those who don’t make little or nothing. As in any company, executives make more that those who are just starting. Sort of like farming, no plowing, no seeding, no harvest.
Lou Barba
thanks, Lou, for the comment. MLM is not defined by the ability to make money right away or not. MLM is defined by the structure of the organization. I disagree with you that Sendout Cards is “entirely different” than other MLM companies. I would say it’s entirely the same, with the exception that we’re dealing with greeting cards and not makeup, cookware, plastic containers and legal services. The argument is not necessarily about the product — it’s about the structure of the company.
what kind of attorney has a potentially raunchy picture attached to their email? Doth protest too much, Madam…
wow, what a heated discussion. I guess the bottom line is always check out the management of any new start up company and with google, that’s not a hard thing to do anymore. I stay away from the companys that try to pressure you into joining now, join now, be the first to get in. If it’s any good, you can always join later after the dust settles.
Dan´s last blog ..Pay-Per Click” Ad Campaign: Earn More By Spending Less
Dan, that’s a good way of looking at it. Most people get into trouble because they are impatient and desperate. Therefore they don’t think, and they get scammed.
Hey… check out Sandy here. Is it possible to commit defamation of character against yourself?
http://www.beabondgrrl.com/
That’s great, Steve. Thanks for the find
I think that while SendOutCards is definitely an MLM, most of us who use the product are not actually in it to make that much money out of it. To be honest – I see value in the product because I actually use it — I am horrific when it comes to sending out cards both personally and in my business, and what convinced me to buy into it was the fact that when given a gift account, I actually used it to send cards out to folks.
As a graphic designer, I have the added advantage of being able to customize the cards to my liking. I am actually using it as a marketing tool in my own business – I see it as a way to very quickly do a campaign to send to a particular vertical industry to try to sell my design services to.
That being said – a side benefit is that I have signed up 3 folks for the system as well, and made a handful of cash back. Am I going to retire on this, or am I likely make it up the “ladder” at all? Nope. Not really. And honestly, as long as I’ve made my money back, and I’m seeing value in my primary business as a result of using this service, then I’m a happy camper.
Just my two cents. And you’ll see that the link I’ve included initially is to my design business — not to my SendOutCards site.
LOL! Mona, I can respect that.
I’ve tried to say it a billion different ways to people and you seem to really get it. The idea of sending cards and is a good one. I’m not opposed to it as a useful service because some people find benefit in it. I have a problem with people trying to make a business out of it. MLM’s have the tendency to bring the worst salesmanship out of otherwise honest people. Thanks for the thoughtful and truthful comment!
Dennis it sounds like you’re against MLM, period.
SendOutCards isn’t any different to any other MLM program – with the exception of having an unique product. The reason why most people don’t make a decent income with any MLM (SendOutCards included) is that they do very little to make it work.
The business world the stats are similar… 80% of new businesses fail in the first 5 years. That’s traditional businesses like lunch bars, clothing stores, etc.
Making a decent income from any business requires risk, effort and hard work.
Mark: The standards of success for MLM’s and other businesses are not the same. For an MLM to be considered success you only need to make something. For other businesses the standard for success is whether they support your family and make you a real livable income. Thus the fail rate of MLM’s is more like 99%. Not the same thing at all.