Shane Parrish

The consultant buys it from the manufacturer at $5, sells to the customer at $15, and keeps the $10 margin.

So there's no middleman.

There's no retail markup.

But the real money isn't in selling products.

The real money is in recruiting other people to sell products and earning a commission on their sales.

And this is multi-level marketing.

It can be either brilliant or predatory depending on how it's structured.

In the predatory version, consultants make almost no money on product sales.

They're pushed to recruit other consultants, and they have to buy large amounts of inventory themselves.

The company makes money by selling products to consultants, not products to end consumers.

Most consultants end up with a garage full of unsold inventory and downlines full of people who also have garages full of unsold inventory and can't sell.

It's a pyramid scheme with a thin veneer of legitimacy.

Mary Kay was building something different, though.

In her system, consultants can make good money just selling products.

50% margins on retail sales meant someone doing $2,000 a month earned $1,000 in profit.

That was life-changing income for women in the 1960s.

But if you recruited other consultants and trained them well, you could earn override commissions on their sales.

Typically, it was 10 to 15%.

So if you recruited five consultants who each sold, let's say, $2,000 a month, you'd earn roughly $1,500 in overrides, plus your own $1,000 in sales commission, and you'd be making $2,500 a month.

The key was that everyone in the chain needed to be selling actual products to actual customers for the math to work.