Multi-level marketing: pyramid scheme or perfect college job?

From door-to-door salesmen who sold knives, vacuum cleaners and Tupperware to the famous Avon women who held makeup demonstrations in people’s homes, multi-level marketing has changed with the times. Now, users can sell products and advertise their “entrepreneurial” lifestyle on social media. But for buyers and sellers alike, sorting through the scams can be difficult.

Multi-level marketing companies, like all businesses, have varying degrees of reputation, ethical practices and product quality. Companies like Mary Kay and CutCo boast a national following and a reputation for selling good-quality products. However, other companies are infamous for being so-called “pyramid schemes” offering products that are not proven to work, and they are run by distributors who lose hundreds of dollars desperately trying to work their way up the corporate ladder. 

Bryan Hochstein, a marketing professor at The University of Alabama, has done case studies on multi-level marketing companies. He emphasized that not all multi-level marketing companies are scams, and some can be good ways to earn money if sellers are driven and up for the challenge.

“Multi-level marketing is typically when companies use direct sellers who sell a product and who may or may not also try to recruit other people to also sell the product,” Hochstein said. “In all of them, there is an aspect of direct selling. What makes it multi-level is that you start selling the product but then you also recruit people to sometimes work for you or at least within your network. You become the person who shows others how to do it.”

Multi-level marketing companies have garnered bad reputations for years. From horror stories about losing thousands of dollars in inventory to questionable marketing practices, some companies have been dubbed “pyramid schemes” as a warning to steer clear at all costs.

However, Hochstein said not all multi-level marketing companies are pyramid schemes. Pyramid schemes are simply the multi-level marketing companies that operate under scams and questionable activity. 

“In multi-level marketing, or the good ones, they’re much less focused on recruiting and more focused on the product that they sell,” Hochstein said. “If you’re selling more product than you are recruiting people, if the goal of the people you recruit is to mainly sell stuff, if there’s not a very big upfront investment for the people who come in to start selling it, then those are typically your more legit companies… If the company is the opposite of that, and they don’t really care if you sell much of their product because they really want you to recruit people and there’s a fairly substantial amount of money needed to become a seller, then that’s going to be a company that’s less desirable.”

According to the Federal Trade Commission, pyramid schemes are illegal because they rely on money given to them by new recruits, which is not sustainable in the long term. In 2019, the Federal Trade Commission sued the multi-level marketing company Neora for possibly working as an illegal pyramid scheme and promising new recruiters that they would make a lot of money in their first year, which was far from the truth. The FTC also alleged that Neora’s supplements claiming to treat concussions, Alzheimer’s and brain trauma were falsely advertised.

Ethical multi-level marketing companies can be difficult to separate from the pyramid schemes. Most pyramid schemes tend to target individuals who do not necessarily have time for traditional jobs, like stay-at-home parents and college students. Their advertisements often focus on the members of the company who get paid the most, even though it can take new members years to make back the money that they originally invested in inventory and membership fees.

Brianna Duncan, a senior majoring in news media, started working with It Works! during her freshman year of college after seeing one of her friends on social media post about making money in their job with them. It Works! sells weight-loss products like keto coffee, fat-fighting supplements and detoxes. Duncan bought the It Works! starter kit but struggled to sell any of it. 

After meeting a friend who worked as a consultant for Mary Kay, Duncan decided to give it a shot as well. She’s had a little more success with the makeup brand than with the weight-loss company, but not as much as she would have liked. She said that working for multi-level marketing companies is not the best idea for most college students.

“Honestly, I would say don’t do it,” Duncan said. “Although I do like Mary Kay, I wasn’t forced to buy stocks or inventory, but I was convinced to. I took a big chunk out of my savings to get it and now it’s just sitting in my room because it’s way too expensive for a college student’s budget. Unless it’s a company that you personally like their products and you really think you can be successful, I wouldn’t do it.”

A trademark of multi-level marketing companies is their incessant social media advertising. Because products are sold through distributors instead of stores, many of these distributors use their personal social media pages to promote their products. 

“I would recommend reading reviews online,” Duncan said. “I honestly wish I had done that before I started Mary Kay.” 

Duncan said when she inquired about the job, the director “was kind of pushy” and promised her benefits if she signed up quickly.

“So I think they get you with the impulse of it,” Duncan said. “But if you actually sit down and do your research, you’ll find what companies don’t have great products and which ones do. I know there has been a huge problem with LuLaRoe because people are getting holes in their leggings. There was a hair-care company where people’s hair started falling out because of the product. Younique had a mascara that dried out in a month so people would have to buy more. So I think you really just have to do your research and make sure you aren’t just reading reviews from people who sell it.”

While some multi-level marketing companies appear to operate under the “pyramid scheme” model of manipulative advertising and botched products, there are still plenty of companies that have a reputation for selling good products through helpful distributors that make buying much simpler.

Sydney Noordsy, a senior majoring in English, chose to start working for Mary Kay around two years ago after she went to a sample show with her mom and loved the products. In fact, Noordsy’s makeup routine is now almost entirely Mary Kay makeup.

“The key is to not be afraid to constantly be networking and putting your name out there,” Noordsy said. “If you believe in the product, then there’s no reason to be scared of talking about it or advertising your business and the product to people.”

Noordsy said that it has taken some time to perfect her job with Mary Kay, like learning how much inventory to buy and how to network properly. Noordsy now has several returning customers and even sometimes gets new customers through the Mary Kay website.

“You do have to have a decently open schedule,” Noordsy said. “I wouldn’t recommend it to someone taking 22 hours each semester. You can pretty much just work off of your phone and once you build up connections with different people, they talk to their friends about it and you can pretty much just work from home.”

While Noordsy enjoys her job with Mary Kay, she emphasized the importance of researching companies before you start to work for them.

“I have known people who have worked for other multi-level marketing companies that were 100% pyramid schemes,” Noordsy said. “You should take a look at how long a company has been around and its success … I think you really just have to do your research before you just jump into something that promises to pay you for not working.”

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