The Truth about MLM Schemes – SendOut Cards
By: Dennis Yu
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.
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.