Then it probably is. Welcome to another coffee chat! Today’s topic is about multilevel marketing and why it sucks.
Social media is riddled with scams. Most of them consist of sketchy personal messages trying to get you to hand over money. Most scams you will come across are actually illegal. However, multilevel marketing companies use loopholes in federal laws to avoid getting shut down.
What is multilevel marketing?
Direct sales and network marketing are other terms for multilevel marketing (MLM). This is a “business” model that relies on direct sales and recruiting. Most MLMs do not have storefronts, they rely on distributors to sell their products. The FTC considers an MLM company a pyramid scheme if it focuses more on recruitment than on sales. Historically, a pyramid scheme was a business that didn’t sell products, but only sold the idea of wealth if you reached the top (i.e. airplane game). Multilevel marketing brands and companies do have a pyramid shape, but not all of them are technically illegal. Honestly, I just call them all pyramid schemes because I don’t think there is an ethical form of network marketing.
The majority of MLMs have the same basic structure and it does resemble a triangle. The bottom of the pyramid consists of a non-salaried sales force, usually referred to as “distributors”. This is where the majority of money is made and often circulated. When a distributor recruits more people or hits a certain number of sales, they move up and a “downline” is created. The titles for each MLM vary, but there are positions called, “regional vice president”. Do not be fooled, they are not vice presidents of a company. These are people that have created a large downline. You might be thinking that this doesn’t sound too different from a legitimate business structure. All companies have a few people at the top and a large number of workers at the bottom. However, a pyramid structure is not long-lasting and money is often circulated within the pyramid making it a closed system (I’ll come back to this later). Moreover, none of the workers are granted a wage and they are expected to buy start-up kits, training materials, websites, and their own inventory. Please do not join a company that expects you to buy inventory and training materials. At my job, I am reimbursed for expenses and I am paid my normal wage while I’m attending any type of training. I have never worked at a company that forced me to buy and restock an inventory.
Why you should care…
MLM companies are embedded in our culture. Most of our parents have probably been to Tupperware parties. We all have that one acquaintance from high school that messages us about a new business opportunity. I was always aware of these companies, but it wasn’t until recently that I realized how disturbing MLMs are.
Some common MLMs are Herbalife, Arbonne, Amway, Young Living, Rodan + Fields, and the list goes on. There is a CBD MLM, a wine MLM, and even a sex toy MLM. You cannot make this stuff up! From my perspective, there are two major negative themes with MLMs. One is the financial aspect and the other centers around deception.
You might not feel strongly about these schemes, but you should know the financial ramifications. It was hard for me to find exact numbers because most of these companies do not publicize their income disclosure or they report misleading figures. However, the FTC and other organizations report that 99% of MLM distributors don’t make a profit and most even lose money. In business, uncertainty is always present. Being involved in multilevel marketing isn’t owning your own business, you are held to sales quotas and expected to inventory load. Some MLM owners imply that the individuals that lost money were not hard working. I’m not convinced that 99% of people in a given company are simply not trying. In traditional businesses, hard work can make a difference. But in MLMs, it’s about market saturation and timing. Most modern MLM products are low-quality (i.e. LuLaroe) and already hard to sell. The market becomes extremely saturated when more and more distributors are recruited. A company will have 1000+ workers trying to sell ugly leggings in a market that prefers going to the mall or shopping online. Owners and shareholders of MLMs do not make money from sales (even if they claim to), they make money from distributors. The only distributors that might make a small profit are distributors that start early. Even then, only 1% will make a sustainable income. That income comes directly from all of the others losing money in the MLM (primarily from the start-up fees). I mentioned earlier about a closed system. A closed system in financial terms is when the majority of business happenings and sales occur within the company and not with the outside market. This can happen to many MLMs because distributors are not successful in selling to consumers, but they still have excess inventory or sales goals. Other members will buy that product or sell it to new recruits. At this point, it’s nearly impossible for anyone (excluding the top of the upline) to make a profit.
Aside from financial issues, MLMs often use deceptive tactics to sell products or recruit distributors. Many of these companies are involved in lawsuits and are being investigated by the FTC. Some of the direct selling companies involved in legal issues are LuLaRoe, Herbalife, HempWorx, Rodan + Fields, Monat, and Young Living. AdvoCare was recently shut down for being a pyramid scheme. You can find more information about the lawsuits here. Basically, I noticed two themes within the lawsuits. 1) These MLMs made false claims about their products. 2) These MLMs used deceptive and manipulative tactics to recruit new distributors. Marketing can be deceptive to an extent, but some of these companies promise distributors thousands of dollars (if they buy a $100 starter kit). They will also say anything to peddle products. Young Living is often criticized because distributors claim that the oils can cure autism, schizophrenia, diabetes, etc. LuLaRoe portrays the leggings as high-quality and “buttery” soft. But, people reported that their leggings were torn and smelly. Monat’s shampoos have caused consumers’ hair to fall out! I don’t want to fall down the rabbit hole with this subject, but there is a strong connection between cults and MLMs. The same psychological manipulation is used and some cult leaders have started MLMs. To me, it just doesn’t make sense to support direct selling. The products are not quality, the companies are often unethical and in legal troubles, MLMs are disempowering, and I’m not obligated to pay my acquittances’ bills. In the vegan community, we talk about supporting ethical brands. Then, I see some vegans peddling vegan MLM products and it’s frustrating to see that disconnect. Ethics goes beyond animal consumption. I truly don’t believe there is a fair MLM company; especially considering that 99% of independent distributors will lose money and if they are lucky, distributors will break even.
What to watch out for…
You’ve probably encountered an MLM distributor before. On social media, they are called hunbots because they call people hun and act overly friendly. I’m not making any allegations, but I have noticed they attempt to recruit women, single moms, army wives, immigrants, and other people going through hardships. If you see or hear “girl boss” just run away because MLMs financially abuse consumers and distributors. Because I have a website and am on social media frequently, I get asked to buy products or sell products too often. I am including a message I have received below.
Red flags right off the bat. This person was a stranger. They had messaged me before and I ignored it because I thought it was spam. The first red flag for me was the generic compliment in the beginning. They use the word vibe, but don’t mention anything specific to my account. Secondly, they never mention the company’s name. My favorite part is when they say, “this is no scam, I can promise you that”. A legitimate business would not need to explain that something isn’t a scam. When you walk into a store, a sales associate doesn’t assure you that “this is not a scam”. Toward the end, she nearly promises me financial abundance and good health. I know this is MLM related because she’s implying that I should become a distributor as opposed to just buying the products. This isn’t even the worst message I’ve received.
MLM brands are not the only scams on social media, but I think they are the most common. In general, if it sounds too good to be true, it probably is (untrue). I would suggest a healthy dose of skepticism when engaging with hunbots. It’s almost comical how these people try to sell their MLM products. I try not to laugh though because some individuals have lost thousands of dollars and friendships because they were involved in an MLM.
I think I covered all of the main points. I could talk about MLMs all day, so leave a comment if you want to continue the discussion. I’m leaving some helpful links below. I hope you liked this unique coffee chat! I will have a new recipe for you guys next week. Thanks for visiting my blog!
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*I am not claiming that all MLMs are inherently illegal. I am providing information and criticism based on facts and personal experiences. This is not intended to be slanderous.