Why Most MLM Business Models Collapse (It Comes Down to One Metric)
Multi-level marketing (MLM) is one of those topics that immediately creates controversy. Every time I talk about it, people message me, comment, and push back hard.
So instead of arguing emotionally, let’s talk about this like adults.
Let’s talk about business mechanics.
Because when you strip everything else away, there’s one metric that explains why this model fails for the overwhelming majority of people.
The Question I Always Ask Businesses
I’ve worked with companies doing under a million dollars a year and companies doing over thirty million dollars a year. And when I walk in, I always ask the same question:
How much does it cost you to acquire a new customer?
That metric is called CPA — Cost Per Acquisition.( Some companies and industries use CAC = Customer Acquisition Cost)
And almost without fail, I get terrible answers:
- “It depends.”
- “That’s complicated.”
- “We’ve never really calculated it.”
That tells me everything I need to know.
If you don’t know your CPA, you don’t actually know if your business works.
Why MLMs Never Want to Talk About CPA
The core pitch of MLMs usually sounds like this:
- “We don’t spend money on marketing.”
- “We pay you instead of paying advertisers.”
- “You just need to recruit five people.”
On the surface, that sounds efficient.
But mathematically, it collapses almost immediately.
If each person recruits five others, the growth looks impressive—until you do the math.
Five becomes twenty-five.
Twenty-five becomes one hundred twenty-five.
Then six hundred twenty-five.
Then three thousand.
Then fifteen thousand.
Within a dozen layers, you exceed the population of entire countries.
And that assumes:
- Everyone wants the product
- Everyone can afford it
- No one quits
- No competition exists
None of those assumptions hold in the real world.
The Cost Nobody Adds Up
Recruiting is not free.
Even when no money changes hands, there are very real costs:
- Time
- Energy
- Social capital
- Burned relationships
- Opportunity cost
When you actually map those costs honestly, MLM customer acquisition costs often land between $1,000 and $5,000 per customer.
That means you have to sell an enormous amount of product just to break even—before profit, before churn, before burnout.
Why the Compensation Structure Feels So Confusing
One reason MLMs are so hard to evaluate is intentional abstraction.
Money gets translated into:
- Points
- Levels
- Ranks
- Tokens
- Titles like “Silver,” “Gold,” or “Diamond”
This isn’t accidental.
It’s the same psychology used in arcades: tickets don’t feel like cash, even though they are. The more layers between effort and money, the harder it becomes to see what’s actually happening.
By the time you try to calculate profit, you’re already three or four translations removed from reality.
The Second Killer Metric: Churn
Even if someone joins, most people don’t stay.
They quit.
They stop buying.
They disengage quietly.
That’s churn.
High CPA combined with high churn is fatal to any business model. And MLMs suffer from both.
This is why the majority of participants:
- Make no money
- Or lose money
- Or walk away disillusioned after MUCH effort and time has been spent!
A Simple Test That Exposes the Truth
Anyone who truly believes an MLM model works can test it objectively.
Here’s how:
- Run paid ads to a cold audience
- Spend $10k–$15k over 3–6 months
- Track how many buyers convert
- Divide total spend by total conversions
That number is your real CPA.
Most people never run this test—because if they did, the illusion would collapse quickly.
Why a Small Minority Still Wins
Some people do make money.
That doesn’t validate the model.
Some people win the lottery too, but that doesn’t make lottery tickets a retirement strategy.
Those who succeed usually:
- Enter very early
- Have massive pre-existing lists
- Move from one MLM to another
- Monetize relationships, not products
That’s not a scalable business. That’s leverage asymmetry.
The Bottom Line
This isn’t about whether the products are “bad.”
Buy whatever you want.
But don’t confuse consumption with business ownership.
A real business:
- Knows its CPA
- Understands churn
- Can acquire customers without personal pressure
- Survives outside of exponential recruitment fantasies
Most MLMs fail that test.
FAQs
What does CPA mean in business terms?
CPA stands for Cost Per Acquisition. It measures how much money, time, and resources it takes to acquire one new customer.
Why is CPA so important in evaluating a business model?
If the cost to acquire a customer is higher than the profit that customer generates over time, the business is unsustainable.
Why do most MLMs avoid calculating CPA?
Because when calculated honestly—especially with cold audiences—the numbers often reveal that acquisition costs are far higher than the margins allow.
Are MLMs the same as illegal pyramid schemes?
Not legally, but many MLMs rely on recruitment-driven math that behaves like a pyramid when analyzed through growth and churn dynamics.
Can someone still make money in an MLM?
Yes, but success is concentrated among a very small percentage, typically those who enter early or already have large existing networks.
What is churn and why does it matter here?
Churn is the rate at which customers or participants quit. High churn combined with high CPA is lethal to any business model.
- If you’re tired of opaque business models and want clarity grounded in execution, contact me at [email protected].
This article is part of my ongoing work on systems thinking in business, where growth models are evaluated as systems—not stories or hype:
https://gabebautista.com/essays/systems/
