Alright, I know this post is something a bit different and a teensy tiny bit controversial. I actually sat and pondered writing this post for some time, debating if it were worth the ensuing arguments I’m sure will follow. I know that, with posting this, I must be open to discussion and debate (most likely from current MLM-ers). However, as I’ve followed multi-level marketing (or MLM) more closely, and have been doing my own research on it, it’s harder to stay quiet about it. I should mention that I don’t think all MLM is bad, and I know that MLM is not synonymous with pyramid schemes, as many direct sellers are quick to emphasize. Of course, because pyramid schemes are actually illegal. There are, however, a ton of overlapping qualities of MLMs and pyramid schemes, and I want to take the opportunity to address those today.
This post exists to educate and inform, not to condemn. Some of my friends are even part of these MLMs, and I don’t think they are bad people by any means. I just want you to consider, before going into an MLM, all of the different aspects of it ahead of time. Educate yourself on the investment and the commitment, the company and the mission, and (perhaps most importantly) the news or possible law suits associated with the brand before tying your name to the company. Again, I repeat, this post does not exist to condemn, but instead to educate.
Wait… What is Multi-Level Marketing?
Multi-level marketing, or MLM, is sometimes referred to as network marketing or referral marketing. MLM is a form of direct selling. It’s a marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce selling the company’s products and services.
Each MLM is different in how it gives its financial compensation to its workers, but for the most part, each and every one has two revenue streams: one from commissions and the second from the commissions based on the wholesale purchases made by other “distributors” below the participant who recruited them into the organization (thus creating the highly recognized ‘pyramid’ shape). A person’s “downline” is the network of their recruits, as well as their recruits, and their recruits, and so on.
So, in short, MLMs are companies based on a marketing technique that instructs their distributors to focus on not only selling the products or services of the company, but also recruiting NEW distributors to sell the products and services as well. This is described as the fundamental flaw according to the Federal Trade Commission.
“The fundamental flaw in MLM is the endless chain of recruitment of participants as primary customers. MLM pay plans assume infinite markets and virgin markets — neither of which exists in the real world,” (“The Case (for and) against Multi-level Marketing“).
Many distributors rely heavily on social media marketing or word of mouth; it’s becoming increasingly popular on platforms such as Instagram and Facebook where distributors can easily connect to potential recruits and emphasize their lifestyles while “working from WiFi.”
Let’s Face the Facts
Let’s face it, AARP found that 74% of participants in network marketing either don’t make money at all or lose money in general. “Among the 20 million Americans who participate or have participated in multi-level marketing (MLM) organizations, 90 percent said they got involved to make money. However, nearly half (47 percent) lose money and a quarter (27 percent) make no money” (AARP).
Jon M. Taylor, MBA, Ph.D. of the Consumer Awareness Institute and the Federal Trade Commission published a report that specifically detailed MLMs “abysmal numbers.” Taylor thinks as many as 99 percent lose money. Taylor reported that, during the recruitment of new members to one’s ‘downline,’ it is fairly common for others to mislead potential recruits about the rate of failure and the reality of loss that is accurate for those entering.
“MLM promoters often claim that the failure rate of small businesses is in the range of 90- 95%. They say this to excuse the widely recognized failure rate in MLMs. What they fail to do is quote statistics from reliable organizations not affiliated in any way with MLM,” the report reads.
Because you must invest in order to become a part of these MLMs, it is quite often that women (I say women because those in MLMs are overwhelmingly female), lose their investment and do not ever gain profit from the products sold (if any at all). “Often, they’re enticed with promises of flexible work hours, unlimited earning potential and the opportunity to be their own bosses. But these expectations rarely match up to reality, and almost everyone ends up losing money — and sometimes friends — in the end,” (HuffPost).
MLM Horror Stories
Perhaps one of the most famous cases of MLM horror stories at the moment (replacing the infamous Herbalife controversy) is LuLaRoe. LuLaRoe is a lycra-legging company known for its funky patterns and bright colors. The company required a hefty investment of $5,000 to even join as a distributor and begin selling in general. Many women join with the intention of making money through a side hustle at home, working on their own time from the comfort of their own spaces. These MLM options are particularly attractive to stay-at-home mothers, who see this as an amazing opportunity to contribute to your household income while still staying at home with your children. Yes, I agree, it sounds amazing — but with the actual numbers behind it, it’s quite scary.
For starters, here are some of the news articles detailing the law suits facing LuLaRoe currently:
- Former LuLaRoe Consultants Suing for “Billions” in New Lawsuit
- Popular MLM LuLaRoe is being sued by its main clothing provider
- LuLaRoe supplier files new demand for immediate seizure of $34 million and alleges the company is quietly liquidating goods
VICE did an incredible — and I mean incredible — documentary on the livelihoods and realities of women with LuLaRoe that lost substantial amounts of money because of their association with the company. This really opened my eyes to the dangers of MLM companies, LuLaRoe in particular. I highly recommend you check it out. Specifically, the documentary discusses the awful business practices of LuLaRoe.
In addition, I would highly suggest watching Betting on Zero, which is a documentary all about Herbalife. While some are critics of the actual funding behind the documentary, the facts stand true that Herbalife was forced to restructure its business model and was fined heavily by the FTC. I’d give it a watch just for good measure.
What’s Hot on IG (MLM-wise)
There are quite a few MLMs that I get pitched for more often than others in my inbox. I think, because of my beauty and fashion posts, it makes me a good candidate for Monat and Arbonne. Both of these brands are direct selling, multi-level marketing companies.
Aaaand, I hate to tell ‘ya, but their products just are not making headlines in good ways:
- FDA inspection finds ‘insanitary conditions’ at Monat manufacturing facility
- Complaints, class action lawsuits pile up against hair company Monat
- People say this hair-care product causes balding and scalp sores
- Monat Hair Care faces fourth class-action lawsuit over defective products
- Inside Arbonne, the multi level marketing scheme taking over your Facebook feed
- How MLMs – multi-level marketing schemes – are hurting female friendships
- ‘They have you in a cultish grip:’ the women losing thousands to online beauty schemes
- Arbonne MLM Scam… Consultants Make Crazy False Health Claims
- Sidenote: I included this one just because I absolutely love Kylie’s take on MLMs. I feel that she really does have a lot of meaningful information to add to the conversation about these marketing strategies — I highly recommend checking out her channel!
I’m thinking of possibly doing deep dives into each individual company as I go — how interested would you all be in that? I love researching and finding out new things, especially about this topic in particular, so I’d love to share my findings.
The Facade of it All
I’ll be the first to tell you that social media truly is a highlight reel of others’ lives. OF COURSE we broadcast the very best moments of our lives to our audiences. That’s just human nature and quality content, folks. However, I think there is a radical distinction between hitting publish on your best content and blatantly lying to your followers about the life they “could have” should they choose to invest in an MLM business. This part — and oh, it irks me — is the part that I think is perhaps the most damaging. Many people lie about their income statements and their true profit in order to recruit more people to get them out of their financial mess.
“Members are encouraged to influence others by inflating their success on social media,” The Guardian says here. These people add captions that detail their love of working from home while being able to spend time with their children, all the while struggling to stay afloat financially and in debt because of these MLMs.
So, before joining…
My tips, of course, align similarly to what the FTC suggests before diving head first an MLM. I would highly suggest doing a simple Google search of the company in which you’re interested in joining. Please don’t rely solely on the gal looking to recruit you, because what she may be providing as “facts” may not be accurate “facts” at all. Remember to keep in mind that, first and foremost, this is a business to these ladies. While they seem supportive and sweet, they ultimately will be making money off of your recruitment regardless. That doesn’t mean they’re not genuine, but it does mean that you should take their sales pitches as exactly that… sales pitches.
Well-Informed, Happy and Confident
I should emphasize, again, that not all MLMs are bad. In fact, I truly don’t have a problem with the marketing structure IF the product is good and safe and worth the money. I do, however, have a problem with the deceit, the lies and the endorsement of harmful products. Ideally, I just want you to be cognizant of the arguments going on within the industry. I want you to enter well-informed, happy and confident about your investment. Because, as we’ve seen, this isn’t just about the money — it’s about your social investment as well, as well as your credibility and how you attach your name to a product.
I will be doing more in depth posts about different aspects of MLMs in the future — so be sure to stay tuned for those.