Charlie Funk
Charlie Funk

This is for sure going to tell how old I really am. How many of you remember reading comic books as a kid that had offers for ordering some sort of product or other? The idea was that you would buy seeds or some sort of salve or something and sell whatever it was. Doing so earned points that could be accumulated to earn premiums of all kinds. I don't recall many of the things offered, but as a sign of how times have changed, I'm pretty sure I could have received a Winchester Model 94 lever-action rifle if I only had enough points. It was a certainty I would never be able to buy it on my own because the selling price was an astronomical $69.95.

The challenge with these schemes was that I had to get out and find people who wanted to buy the product. Assurances were great that if I only got out and went door to door, I would have that heart's desire reward in no time flat. Even then, I had enough innate marketing sense to realize the likelihood of success was slim and the only ones making out on this whole proposition were the companies luring youngsters in with their sometimes not-so-figurative promises of wealth and fame.

Over the years, various sales schemes have arisen, some having been around for 60 years or more. In the main, they seem to focus on selling products of one sort or another to friends and family. Some require minimum inventory purchases, have monthly fees, offer training assists, website provision and more. They have operating costs, sometimes hundreds of dollars a month, just like any other business.

It is not uncommon that the scheme involves a minimum buy-in that runs into thousands of dollars in inventory. It is then the entrepreneur's responsibility to sell the goods at a profit.

However, the big draw for many of these companies is the promise of even greater riches that come from recruiting others to sell whatever the products are in their "downline." The recruiter earns a part of the recruiting fee as well as a part of commissions on downline purchases. It is often the prospect of this tremendous income without having to do much more than recruit others to act as recruiters or actually sell the products that lure many into becoming part of what some have characterized as an almost cult-like community.

Such companies are generally characterized as multilevel marketers, or MLMs. Many consider the MLM the quickest path to financial independence; and if you happen to be one of the first few who buy in, the profit potential is huge. To give this perspective, if a person buys into an MLM and only recruits two others at level 2, who each in turn recruit two others at level 3, who each recruit two others at level 4, etc., the number of people in the pyramid at level 32 is 4.3 billion. 

Key bits of information that an astute person will gather about any MLM being considered are:

  • Retention rate: The Direct Selling Association estimates that the failure rate for MLM members is 97%. In fact, most MLMs are dependent on at least a 50% failure rate.
  • Income sources: Does the company make more from recruiting, training and ancillary services than it does actual product sales?
  • Profitability: Who actually earns a profit? Only about 1% of members of perhaps the largest seller of cleaning products, beauty aids and cleaning supplies in the U.S. actually make a profit. On average, 99% of all participants with the two largest product-based MLMs receive less than $10 a week in commissions -- before expenses.

Some weeks ago, National Public Radio had a segment on the tremendous moneymaking prospects offered by the types of home-based businesses I've been describing. The moderator, Tom Ashbrook, waxed ecstatic about the statistics of this industry. He excitedly intoned that this was a $35 billion annual business with 20 million participants offering exceptional wealth opportunity. Quick mental math made me aware that the average person in this lucrative business had annual sales of $1,750. Let that sink in. Half of those working from home sold less than $1,750. Even at a 50% profit margin, income before any expenses was $875. That hardly seems "lucrative."

So, it looks like the main Catch-22 in all this lies in having to buy inventory and then turn around and sell it. If only there were some industry that didn't involve having to buy inventory. It would have to be something anyone could do that didn't involve a lot of training or knowledge. Something that would let me announce my new job and sit back and let the money roll in (a friend calls it "mailbox money"). What could it possibly be?

Travel! I could be a travel agent! How hard could that be? All you have to do is have a website and people go to it and point and click and the money just rolls in!

And, I confess, good travel professionals indeed make it look just that easy. It's the old duck-on-the-pond example. The duck glides serenely by, all is calm, and all is well. Except the duck is paddling furiously below the surface to make all that happen.

Plus, you get to travel free! Just sign up with this company, paying several hundred, sometimes several thousands of dollars to do so. Attend the hyperactive meetings with all the success stories, flashy jewelry, expensive cars and more to underscore that fame, fortune and riches are yours for the picking. All you have to do is build your downline, and you'll be up on that stage in no time!

So, how rich are all these freshly minted "travel agents" getting? A recent study by Host Agency Reviews of several travel-related MLMs found that 75% to 80% of all members earned nothing. One such MLM, now defunct, at the time of its closing derived 85% of income from membership sales, paid an average of $44.29 a year in commissions to members and had 81% of all reps earn nothing while the top 4% of the upline was paid 96% of all commissions the company earned.

Commonly, many of these nonprofessional "instant travel agents" exploited travel-agent benefits for personal gain. I reasonably expect that most reading this column have encountered wannabees and their "Ask me how I travel free" T-shirts openly soliciting others to sign on in their downline or soliciting paying clients at the resort or on the ship to book their next trip with them.

It was egregious to the point that many travel vendors, most notably Royal Caribbean Cruises Ltd. (RCCL), severed ties with the YTB travel MLM before that company went out of business. This despite the fact that many MLMs are so large that even if all the member ever books is their own travel, it represents millions of dollars in sales annually.

A number of travel MLMs have gone out of business. Those at the helm are like leopards; they don't change their spots. It is common for key persons to disappear from one failed MLM only to show up at another. One need only Google the names of these new "revolutionary concept" travel-business leaders to see that it is a retread of the same old stuff.

The insidious part of all this is that far too many times these schemes prey on the people least able to afford it and most in need of supportive income. Travel suppliers that turn a blind eye to predatory travel MLMs enable this continuing exploitation.

It's like this: The travel industry has long been a leader in recognizing talent without regard to gender, race, sexual orientation and more; most recently, RCCL's Richard Fain rightly spoke out about the tragic events in Charlottesville, Va.

Travel MLMs that derive the bulk of their income from signing new agents victimize others as surely as does any scam artist, bigot or other scalawag. You don't need their business. Those who would book with these charlatans will book with a legitimate travel professional, given the opportunity. It is time for travel suppliers to step up and reject these companies, their ilk and all for which they stand.

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