In today’s economy, lots of people are looking for a side hustle to make ends meet. A multi-level marketing (MLM) opportunity might sound appealing, offering money for not a lot of work.
Glossy brochures recount success stories of people who have not only supplemented their income but built wealth. However, the Federal Trade Commission (FTC) staff has issued a report that focuses on those income claims made by 70 MLM companies.
In the report, the FTC staff found many issues with the income statements they reviewed, saying that most statements omit key information when calculating the earnings amounts they present.
Specifically, the report notes that most of the reviewed statements do not include participants with low or no earnings in their display of earnings amounts and also don’t account for the expenses faced by participants, which can outstrip the income they make. The report notes that these omissions are often not plainly disclosed in the income statements.
In an MLM operation, a member signs on to sell a product or service directly to consumers. They make a small profit on those sales.
However, they are also asked to recruit other consumers to also sell the product. The recruiter gets a small piece of whatever the other person sells. People who join in the early days of an MLM tend to make the most money.
How many people actually make money?
In addition, the staff report notes that most of the disclosure statements the staff reviewed present earnings information in a potentially confusing way, like giving average earnings amounts for groups that could have very different actual incomes, or using annual income figures that aren’t based on what an actual group of participants made for the year.
The FTC staff has concluded, based on data in the income disclosures, that many participants in those MLM networks received no payments from the MLMs, and the vast majority received $1,000 or less per year – less than $84 per month, on average.
Before joining an MLM network, experts say there are several questions you should ask. First and foremost, is the company product-focused? If it’s not – if it stresses recruiting other members – that could be a bad sign unless you happen to be really good at recruiting friends and acquaintances.
Second, do you have to build a team in order to make good money? If so, that side hustle starts to look more like a full-time job.
