At least 12 million Americans that had been classified and counted as “direct sellers,” aka MLM, officially disappeared from the rolls. They stopped pursuing or even holding out hope for the legendary “unlimited” income. Legally, they are still contractors under restrictive MLM terms of non-compete, non-disparagement and rigid return rules. They still pay fees to be eligible to sell and to recruit. They have contractual purchase quotas. Yet, they are no longer “direct sellers”. According to the Direct Selling Association, now they are plain old “customers” that happen to buy MLM products “under contract.”
The transformation happened suddenly, between 2017 and 2018. Explaining the abrupt disappearance of millions of direct sellers and their reappearance as customers, the DSA announced in 2018, “We’ve refined data collection since last year to better separate direct sellers from customers.”
This drastic reduction in “direct sellers” is astonishing since the DSA used to boast of increasing numbers of “direct sellers” each year. It cited the growth as proof of the popularity of the person-to-person “model” and the value of MLM as an income source for more and more people. For example, in 2006, DSA reported over 13 million, and in 2017, 18 million “direct sellers.” All along, the DSA was clear that these millions of direct sellers engaged in selling and made money. When the FTC proposed disclosure rules for MLM solicitations, the DSA strenuously objected, stating in writing to the FTC, “Over 13.6 million individuals sold for direct selling companies as independent contractors with estimated retail sales of $29 billion in 2004… Fifty-nine percent of direct salespeople make less than $10,000 per year from direct selling.” (underline added. Also note, DSA claimed 41% earned more than $10,000 a year.)
In 2011, Inc Magazine quoted the DSA that “15.2 million people in the United States are involved in direct selling, with total sales at $29.6 billion in the US… the median income for a direct seller is $200 a month or $2,400 a year.” The DSA’s claim of total number of “direct sellers” and their “median income” was confirmed by the Chairman of the Federal Trade Commission who reminded the DSA, “In 2006… the DSA cited a 2002 National Salesforce Survey showing that the majority of direct sellers made less than $10,000 per year from direct selling, with a median annual gross income of about $2,400.”
A median average of $2400 a year (half make more and half less) may appear meager but, if true, it would be a valuable contribution to living costs for millions of people. In 2011 when Inc Magazine quoted the DSA’s “median average” it would mean that 7.6 million Americans were earning more than $2400 from “direct selling” and other 7.6 million earning something less than that. And the DSA study cited by the FTC claimed 41% (6.32 milllion) earned more than $10,000 a year.
Beyond providing income, according to the DSA, the popularity of Direct Selling, aka MLM, was because it is “recession-proof”, part of the new “gig economy” and is attracting more and more people seeking, “extra income” with “flexible hours.”
Suddenly, it turns out that 12 million people in the USA that the DSA had been counting among the growing ranks of “direct sellers” are not interested in making money and have nothing at all to do with “selling.” From 2017 to 2018, the numbers reported by the DSA that are seeking MLM’s “income opportunity” dropped 67%. This massive and sudden change, the DSA says, was due to “refined data collection.”
Six Million “Retailers”?
Who do these newly designated “contract customers”, that used to be counted as “direct sellers”, buy from? The answer, according to the DSA, is that in the entire United States, there are now only 6.2 million “direct sellers”, less than half the number DSA told the FTC “sold for direct selling companies” in 2006, and less than a third reported in 2017. Only 6.2 million MLMers “sell” and are seeking any income at all, the DSA now says. Everyone else under MLM contracts buys from them.
In total, DSA now claims there are 36.6 million “customers” who buy under contract terms, usually monthly, from these 6.2 million “direct sellers.” Each “direct seller”, therefore, has only six “customers”, on average! However, none of those 36.6 million “customers” pays “retail”. The DSA classifies them as either “discount buyers” or “preferred customers.” The direct sellers gain no retail profit on these “sales.” They buy wholesale under contract terms. The “discount buyers” are actually “distributors” who have not successfully recruited anyone. The “preferred customer” is a hybrid category that is hard to distinguish from “inactive” salespeople or future “distributors” or “conscripted” friends and family members who were signed up by “direct sellers” to meet monthly quotas. The new DSA data show only 4 “preferred customers” for each direct seller. DSA companies are touting “preferred customers” as evidence of actual buyers other than the “direct sellers” who “buy from themselves.”
DSA says the 6.2 million “direct sellers” averaged $5,702 in “retail” sales in 2018 based on $35.4 billion in “retail sales”. If there are 36.6 million wholesale “customers”, as the DSA claims, how much of the total revenue did the wholesale customers buy? $35.4 billion divided by 36.6 million “customers” is $81 a month per wholesale customer. If each “direct seller” sold just $81 a month to six wholesale customers each, that would account for the total annual revenue – but none of it would be retail! Also, how much of the total revenue did the 6.2 million “direct sellers” buy for themselves to “self-consume”? That figure would also have to be subtracted from the total revenue produced by retail sales.
Mythical and Misleading
Then, what about income? Strangely, DSA no longer provides any data on “median average” incomes of the 6.2 million “sellers” even though all DSA member companies report “millionaires” in their ranks and they all promise “unlimited income” potential to all recruits. DSA does report that one-million of the 6.2 million direct sellers are “full time” and another 5.2 million are part time. Is that even possible? If we establish $40,000 income as the minimum for “full time” status, then one-million full-time direct sellers multiplied by $40,000 would be $40 billion in income. But the DSA reports that the total annual retail sales are just $35.4 billion. Obviously, the full-timers can’t be earning more income than the entire industry’s revenue!
If the one-million full timers sold all $35.4 billion in “retail” they would have sold just $35,400 each per year, on average. Who could get a full time income from such a small annual volume of sales? But they couldn’t have sold all of it or even nearly all of it, because there’s the matter of another 5.2 million part-time direct sellers. Add in average part time average income, whatever it might be, let’s say $5,000 a year, and there’s another $26 billion in income to account for, making annual income almost twice the industry’s sales!
Which is all just to say, the DSA numbers make no sense. They are meaningless, misleading and mathematically impossible. What the DSA appears to be trying – badly – to conceal are the billions that MLM pays to the top 1% for recruiting recruiters, a red flag of illegality. They appear to be trying – absurdly – to show millions of “retail” customers, even though nobody in the categories of “direct seller, discount buyer, or preferred customer” pays retail!
The DSA numbers are trying – spuriously – to present a business based on “retail selling”. But, if the average sales volume per “direct seller” is only $5,702 a year, as the DSA reports, how could there be MLM Millionaires? The figures appear to look official but contradict common sense, math and business accounting.
In the most popular book ever written in the field of statistics, How To Lie with Statistics, author Darrell Huff explained how the deceptive use of statistics can add “a spurious air of scientific precision” to absurd claims or erroneous conclusions. He noted, “A well-wrapped statistic is better than Hitler’s ‘big lie.’ It misleads, yet it cannot be pinned on you.”
The DSA appears to have turned to statistics that have a “spurious air” and cannot be “pinned” on any one person or company. However, they are ridiculously “wrapped.” They were likely concocted in a mode of desperation and hurry to contend with recent revelations and threats affecting every company in the category of “multi-level marketing.” The fake data appear intended to repair and reconstruct MLM’s public image, which is being revealed not as “direct selling” but a pyramid scheme and a financial cult. It is calibrated to ward of the threats of lawsuits and prosecutions.
Two prominent DSA members, Herbalife and Advocare, were prosecuted by the FTC for operating deceptive recruiting scams that cheated millions of people out of billions of dollars over many years. Federal investigators found little or no retailing occurring, making the “direct seller” claim a Big Lie. With no retail income opportunity, the only way to actually make money was from recruiting.” That source of money is, by design, reserved only for a tiny few at the top of the recruiting chain, making the “income opportunity” also a Big Lie. As for “sales”, most of these companies’ revenue came from quota-purchasing by the “direct sellers” themselves under contract terms. These purchases were determined by regulators not to be “sales” at all but a form of payment by the participants tied to the deceptive income scheme.
When your leading members – Herbalife is represented on the DSA Board of Directors and Advocare is a recipient of DSA’s “Innovation” award and listed among its top 20 members in revenue last year – are found by the government to be running recruiting scams, every DSA member is in peril.
Regular media coverage of MLM has turned routinely ominous and negative, such as the recent Washington Post story, aptly entitled “Be careful. That multilevel marketing side hustle could be an illegal pyramid scheme.” Add to this an onslaught of negative attention including a Netflix documentary showing MLM exploiting vulnerable immigrants, a revealing series on Showtime, depicting MLM as both a pyramid scheme and a cult, and a popular podcast that has reached millions, exposing MLM’s history of influence-buying. Then there was comic John Oliver’s hilarious but devastating HBO take-down of MLM, now gaining over 20 million views on YouTube.
DSA’s amazing claim that “refined data collection” miraculously turned up millions of “customers” can’t change reality.