UPDATE: On February 17, 2010, Medifast Inc. filed suit in US District Court, Southern District of California, alleging defamation, violation of California Corporations Code, and unfair business practices. On March 29, 2011, Judge Janis Sammartino dismissed all of Medifast’s claims against me in her ruling on my anti-SLAPP motion.

Yesterday I referenced a new report on Medifast and Take Shape For Life by multi-level marketing expert Robert Fitzpatrick.. Here is more from his report. I want to highlight these things because they’re the facts that many pushers of MLMs will never tell you.

Those recruiting for MLMs are quick to tell you about how much you can make if you sell their product (often glossing over the fact that you’ll have to recruit new people into the scheme in order to have any chance of making a living), but they will never tell you that it’s next to impossible. They forget all the reasons why people in these MLMs are selling so few products and making so little money from selling.

Fitzpatrick clues us in:

The income opportunity, based on the plan’s structure, rules, bonuses and commission schedule, primarily depends upon endless chain recruiting of more “coaches”, not on retail sales of its products. The cost of selling, competitive factors, and the paltry 15-20% commission offered on retail sales make that option a myth and facade to obscure the recruitment pyramid. The income scheme is a classic “endless chain.” The report also raised the question of the plan’s legality, its jeopardy under California’s statute against “endless chain” plans, and the risk of its being challenged by other regulators or by consumers in court as a fraud.

And here’s my problem with MLMs in general, in the words of Fitzpatrick:

The pay plan pays far more – per sale – to those who recruit other coaches than to those who actually sell products to consumers, and the greatest share of all commissions is transferred to those in the top positions of the pyramid.

That’s right… recruiting pays more than selling. The upline is making way more money off the sale of products than those actually doing the selling.

And here are some hard numbers:

• Top 1%  (1.28) of coaches receive 28% of all commissions
• Top 4% (4.25) of coaches receive 43% of all commission
• Top 10% (10.56) of coaches receive 67% of all commissions
• Bottom 50% (51.11) of coaches receive 6% of all commissions

Check that out. The bottom half of coaches only receive 6% of all the commissions the company pays. The above statistics are typical for MLMs…. unless you can get into that top tier of the pyramid (and almost no one does), you aren’t going to make any money.