The truth about the downline

The downline and market saturation: the fatal flaw of MLM

by John Jackson © 2004

The downline: The collection of all people signed up underneath an individual on which the individual receives payment on their sales.

In MLM you are an independent distributor. You can sell the company's products for a commission payment. You can also sponsor other members into the scheme. They become independent distributors also. They are now classed as your "downline", and as you sponsored them into the business, you also make a commission on their sales. They are one level below you in the scheme; the first level in your downline.

If they subsequently sponsor new members, then those new members become the second level in your downline. The downline can go several layers deep, and you earn a commission from every member in your downline. This is where the potential for high earnings lies in MLM.

What is the problem?

In business demand creates supply. For example: if there is one car dealership in town that is struggling to meet the demand for cars, a second dealership may open up in competition, as there is enough demand. What if a third opened up, a fifth, a tenth?

It should be obvious that once the demand is met, the sellers' market is saturated; new dealerships would lose money, as there is no further demand for the product.

In MLM the equivalent of these new dealerships is realised in the form of new recruits to the scheme. Whatever the MLM product is, there will be a finite demand for it. There will be a precise number of distributors who can sell the products to this limited audience at a profit; further recruits to the scheme are buying into a saturated market.

This is the major flaw with MLM. New members are encouraged to recruit more new members who in turn are encouraged to recruit even more.

Who knows when the saturation point in the market has been reached? The answer is - nobody!

Whether it's promotional videos, websites, or seminars, the MLM company will spend time explaining the power of multiplication.

...You can make money selling the products, but imagine the money you could make if you sponsored ten people to do the same. Imagine if they in turn did the same...

It's explained that your downline has the potential to grow to an enormous size and you could be earning a fantastic income from those you have sponsored directly or indirectly below you.

Example of a 10 sponsoring 10 downline:

Number in downline
Starting point Originator
Level 1 10
Level 2 100
Level 3 1,000
Level 4 10,000
Level 5 100,000
Level 6 1,000,000
Level 7 10,000,000
Level 8 100,000,000
Level 9 1,000,000,000
Level 10 10,000,000,000

In just ten levels the number of potential people in the downline, is greater than the number of people on Earth!

Reality check - the saturation point

In the USA it is estimated that only 1% of all products sold are done so via MLM (source: mlmwatch). The figure for the UK, although there are no reliable figures, is likely to be less than this due to the fact that the world's largest MLM companies are in the USA.

We will assume that the figure of 1% holds true for the UK for simplicity.

Imagine an average sized UK city with 250,000 inhabitants. If 1% of these will buy products via MLM distributors that leaves a target audience of 2,500.

If an average distributor sells to 10 clients, that means 250 distributors would be required to meet the demand. If distributors have an average of 20 clients then only 125 of them are required.

The saturation point would be reached on level 3.

If you are one of the lucky ones who gets in early on level 1 then, you and the other 9 members will on average create a downline of 24 members each. There's a chance you might break even. If you join on level 2 or below you are doomed to failure.

It may be argued that with more distributors selling and promoting goods, that market penetration would increase making the prospect viable. This is a big mistake that the MLM model has built into it. It breaks the "1st law of business": demand creates supply; not the other way around.

Even this idealised example, where the levels fill up sequentially and completely, shows how the dream of developing a huge downline of thousands, and creaming in a huge income from them is a myth.

The reality is is even worse than that as it is unlikely that many people will be able to sponsor another 10 into the scheme.

The difficulties of sponsoring new members:

  1. Most people will be wary

    People are naturally suspicious of money making schemes especially when it requires them to pay into it as an investment up front.

    Most potential recruits will not be interested in the scheme and rejection may be both stressful and hurtful.

  2. How many people do you know?

    To get 10 people to join you will probably have to proposition 50-100 people. That means work on them with the promotional videos, literature, and seminars. That's a lot of work.

    To get 50 to 100 people interested enough for that, you will need to approach many more. Most people don't know, or have access to, that many other people.

  3. You are selling an opportunity that you don't really understand

    Most people have little idea of how to sell a product or opportunity to someone else. The MLM company will supply you, at your expense, with promotional material that will do a lot of the job for you. However, it is up to you to really convince your prospect that the opportunity is worth buying into. If you can't do that, you will not sponsor many new members.

  4. Ethical issues

    Your first "prospects" are likely to be your friends and family. Are you inviting them into the scheme for their welfare or yours?

    MLM are schemes where the exploited become, usually unwittingly, the exploiters; they are both a victim and a perpetrator of the deception.

    Whether or not you intentionally set out to deceive those around you, the repercussions may be unpleasant if you are the cause of other people's losses.

  5. Those you do sponsor need to be active

    Most people who join MLM schemes quickly realise that they are not making money and drop out. Even if you have pulled out all the stops and managed to sponsor 10 people as required by the scheme, it is highly likely that 8 or 9 will have dropped out or become inactive within a few months.

    The reality is that a downline going 6 layers deep, with an average of 1½ active members per layer, will consist of 31 active members. Somewhat less than the potential 1,111,111 members of the ideal scenario.

The concept of the downline is the real deception in an MLM scheme, mirroring its direct counterpart in pyramid schemes on which it is based. It is what the "promise of wealth" and the "appeal to greed" are based on.

Due to the reality of market saturation, anyone joining an MLM who has an upline more than two or three levels high in all likelihood has joined too late. They are destined, by design, to be one of the losers.

Those who join imagining that they will develop a huge downline that will make them a fortune soon realise that it isn't going to happen.

Most people are not interested in joining, 80-90% of those who do join will quickly drop out, and the rest will spend time, money, effort, and countless hours chasing a hopeless dream.