Especially in the US, where vacation and sick days are not always a given, the prospect of making a living on your own schedule is enticing.
We all have that old high school acquaintance that invites us to online parties or posts all about the wonders of her product, but should you trust her messages offering to let you “be your own boss”?
Plenty of entrepreneurs make a good living for themselves, but there is a big difference between founding your own company and getting sucked into a multilevel marketing (MLM) Scheme.
Learning the difference between the two and the dangers of an MLM may save you from much grief and debt.
What Are MLMs?
MLMs refer to companies that use multilevel marketing strategies to make a profit. Companies sell their products directly to distributors that they then encourage to sell to recruits—who they then take a commission from. The chain continues down where every new distributor collects a set commission from their recruits to pass up along their recruiter. The result is an initial distributor collecting commission from everyone down the chain.
Depending on the arrangement, recruits must purchase a minimum number of products and provide a certain amount of commission. They then may pocket the remaining money from their sales. However, when they don’t meet these minimum sales, they cannot simply give their stock back. Most are contractually obligated to continue meeting these commissions or end up in debt, which locks them into the cycle.
The products sold by an MLM vary significantly between companies, and often includes things like hair care products, makeup, dietary supplements, essential oils, cooking, and clothing. While some of the products themselves have a good enough reputation, many face criticism, and the controversy goes beyond the business model itself. For example, many complain about false advertising.
Are MLMs Legal?
You may notice that MLMs share some essential qualities with the illegal pyramid scheme. While they certainly have similar structures, they are not technically the same thing.
Although MLMs arguably have this pyramid shape, with many people struggling at the bottom to support their increasingly smaller chain of recruiters at the top, they are not illegal. While money comes from recruitments, MLMs do still have a product to sell—whether it be shampoo or essential oils.
On the other hand, pyramid schemes don’t have any items. They don’t disguise the fact that their sole source of profits is recruiting others and collecting membership fees. It does not mean that MLM profits are all about the product, though. The MLM structure encourages participants to recruit as many new sellers as they can.
These recruitments are where the real potentially “profitable” part comes in. Still, as long as they sell a tangible product, MLMs remain legal, although many consider this controversial.
Can People Make Money with MLMs?
While the Federal Trade Commission (FTC) determined that over 99% of MLM participants lost money, there is that top 1% that makes money (and may even get immensely wealthy from it).
The problem is that this top 1% is likely not making money just by selling the product itself, but instead by taking their chunk of commissions from the recruits below them (and their chain of recruits). Even if you do end up in the top-of-the-pyramid promotors (TOPPs), you need to live with the fact that every time you profit or promote yourself, you have countless others losing themselves in debt over the same system.
These people who land themselves in the TOPPs usually are participants with the MLM for a very long time. There comes the point where somewhere down the line, you don’t have a sufficient enough pool of non-participants to recruit from (or sell to) anymore. The more people that join, the fewer people there are to recruit from. It doesn’t take long for someone to reach the limits with their friends, family, and colleagues that everyone around them is either has a bunch of products is a member or seriously wants no part of it.
That only applies if someone is comfortable recruiting people they are close to into a program that made them lose a lot of money. It is the reason why many promoters try to recruit people they hardly know through social media messages, or in the comments section of posts. The chances of successfully convincing strangers to join you is next to nothing.
Are MLMs a Scam?
While MLMs are technically legal, many elements of them lead people to call them a scam. The main problem comes from the misleading claims made by desperate promotors trying to find recruits to stay out of debt.
The MLM life often advertises the freedom to earn a lot of money and set your schedule as your boss while simultaneously downplaying the high risks. With 99% of participants losing money, statistics are against you, and recruiters know this when they convince you to join.
There is also something to be said about the types of individuals MLMs target. Many people targeted by recruiters are stay-at-home moms, military spouses, and recent graduates. MLMs advertise the perfect way to become a #girlboss while notoriously taking advantage of vulnerable people desperate to make their own money.
Top MLMs to Watch Out For
There are countless MLMs you should keep an eye out for to keep you and your loved ones safe. Some of the largest MLM companies include:
- Mary Kay
These are just a handful of the endless examples you’ll find online. Before participating in any scheme, it’s important to caluclate the risks before doing so.
Should I Join an MLM?
No. MLMs are a scheme that relies on you taking advantage of people too friendly to say no, or too naïve to understand what trouble they might get themselves into.
Despite what promotors may claim, being part of an MLM does not make you your own boss and will not give you the perfect life you desire overnight.
There are plenty of ways to make money from home that are worth exploring. While “easy money” is something difficult to come by, hard work is worth avoiding debt.
Looking for a new side hustle? Learn how you can earn some extra cash with your website.
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