An Objective Review of MLM Automatic Downline Builders

As far back as the 90s, and maybe even before that, some wise guy devised an MLM compensation plan based on a straightline downline. The gimmick here is that everyone who joins after you is supposedly in your downline. This MLM system is now often called an automatic downline builder. All it takes is simple math, common sense, and history to see that these are mathematically unsustainable.

Now, before I prove this with simple math, be aware of how online MLM schemes hook you into their system with these automatic downline plans. I will not name specific companies, but you can protect yourself by knowing one common characteristic of these operations. And that characteristic is that you will sign up for a free tour or whatever they want to call it, only to be quickly inundated with emails saying that "XXX" just joined and is in your downline. And this occurs even before you do any promotion or advertising at all. In fact, the hook of many of these companies is something like this:

Build a Massive MLM Income

No Recruiting Required

Yep, they want you to believe that you can be successful without doing any recruiting at all. So the common hook is to claim you don't have to do any recruiting and actually send out emails of people who joined after you to make it look like you could be rolling in the dough if you just pay up and join.

Note, also, that a new trick is to have some type of money pool which guarantees that everyone who pays up and joins the MLM will share in the pool. I have my own cash pool system at EasyCashPool.com, but it is based on actual work done. But what you want to watch out for is the promise that you can make money without doing any work. Any rational person should know that such a system is more of a lottery scheme than a business opportunity. But for those who can't figure it out, simple math will provide the answer.

Let's say you have a program that is $10 per month, and 3 people are in the program. Now, let's see what it will take for all 3 of those people to get their money back by the end of the month. Assume also that, like all of these companies I have seen, commissions are paid for recruiting new members.

Those first 3 people will each need to make $10 by the end of the month to get their money back, which is a total of $30. Assume that 3 new people join, and they are all referred by the company. For the system to work, all 6 need to get their money back somehow. The only way this is theoretically possible is for no one to recruit and for the company to simply redistribute all the monthly payments back to the members. This is obviously absurd for many reasons, not the least of which is that by the force of nature some members will refer new members.

First of all, the people who do recruit are going to have to be paid a commission. Otherwise, why would they recruit? There's no sense in recruiting when you aren't going to get paid for it. Otherwise, any amount of money you spend is going to be a loss since you would only be getting back your exact monthly payment even if you did refer new members. There are workarounds for this, but the truth is that these companies love to do things like sell MLM leads and business opportunity leads or ad co-ops. So they have to promise a commission on referrals when they do this. However, if a company were to ever require recruitment by all members and then pay a points-based bonus on backend sales, then theoretically this could work. My next article will lay out how this can be done.

But the problem with my theory is that companies don't follow this model. They promise a commission for recruiting. And as soon as the referring members are compensated, the company can't just redistribute all the monthly payments because part of the money is already gone in the form of commissions for referring new members.

Example:

13 people pay their $10 that month (a total of $130).

The company pays $2 commissions on personal referrals.

Person A referred 3 of the people, and the others were referred by the company.

So Person A is owed $6. That $6 comes out of the $130.

So guess what? In this very conservative example, this MLM automatic downline has aleady failed to pay everyone back. There is a shortfall of $6.

Now, the only way to make this right is to screw Person A out of his commissions and then simply redistribute the funds OR for the Company to pay for the shortfall out of its own pocket. It might be able to pay out of its own pocket by making backend sales to the MLM members, but that is a pure gamble, and no system could exist to guarantee such a thing.

Why is there no such guarantee that the excess recruiting fees can be paid out of the company's own pocket? Because so many things can happen for the company to not realize its backend profits. For example, they could make backend sales but get screwed over themselves by a cheating company who fails to pay them.

This doesn't even mention the company's own operating costs and commission distribution fees. There is basically no way to pay thousands of people for free except possible electronic funds transfer. That is not going to be available to an MLM company. They are either going to have postage fees or merchant-account fees like PayPal fees or something else.

The bottom line here is that a company cannot guarantee that everyone will get their money back, much less turn a profit, if they are paying referral commissions. It is mathematically impossible, and if you don't understand this and still think it's possible, then I invite you to call any math professor in the world. They will tell you that it's not possible unless they have gone insane like that Unabomber guy.

There is a theoretical way for an automatic downline builder to work even in a pay program, but it must exclude referral commissions while still providing some kind of incentive for recruiting others into the MLM organization. I will discuss this in my next article. Feel free to join my Fan Club here at Hubpages and wait for my next article. I have never seen the solution that I have, and it should be the wave of the future if the MLM world wants to grow up and stop the needless scams.