MLMs work by geometric expansion, where you get ten to sponsor ten to sponsor ten, and so on. This is usually shown as an expanding matrix (just don’t say “pyramid”!) with corresponding kick-backs at various levels.
“It’s micro-entrepreneurship,” he says. “[Multi-level] marketing is just a form of direct selling. And it’s really about compensation. There’s single-level or multi-level, and that doesn’t mean anything other than how I get [paid]. People get all hung up on, ‘Well, it looks like a pyramid, so it must be a pyramid.’ But every company in the world looks like a pyramid!”
These are only a couple of examples of people who went from struggling with their finances to being financially secure, and continuing to make a fortune. There are hundreds of more examples of people who have literally gone from rags to riches through Network Marketing. However, it should be emphasized that these people did not just sit back and collect money, they had to put in the hard work and dedication necessary to grow their network of sales, as well as doing the work required to get the word out and represent their companies.
In April 2006, the FTC proposed a Business Opportunity Rule intended to require all sellers of business opportunities—including MLMs—to provide enough information to enable prospective buyers/participants to make an informed decision about acquiring/joining a business venture with information disclosed about the average likelihood of monetary profitability (and the extent of monetary profitability, if any) of acquiring/joining the business venture. In March 2008, however, the FTC removed “Network Marketing” (i.e. MLM) companies from the proposed Business Opportunity Rule, thus leaving MLM participants without the ability to make an informed choice of entring or not entering MLMs based on the disclosed likelihood of success and profitability:
While participants’ movement up the pyramid of an MLM can be accomplished in theory, and indeed this is one of the distinguishing factors between MLMs and traditional pyramid schemes (besides featuring actual sales of products or services), said upward movement is so extremely improbable as to render it practically impossible, despite all efforts and investments of time and money by a participant.
Choose the right mentor. In most MLM models, the person who recruited you becomes your mentor. That mentor will coach you through the early stages of your work. Typically, the more successful you are, the more money your mentor makes, so it is in his best interest to be there for you. In a mentor, you’d want:
The legal distinction between MLMs and traditional pyramid schemes has been characterized by many authorities as a legal fiction. Jurisdictions that retain a legal distinction between MLM pyramid businesses versus illegal pyramid schemes retain said distinction on two key distinguishing features: 1) that MLMs always encompass the sale of actual products/services, while traditional illegal pyramid schemes ordinarily do not (though sometimes they do), and 2) that climbing an MLM pyramid is overwhelmingly statistically improbable (especially to its highest participant levels) but not theoretically impossible, whereas climbing a traditional illegal pyramid scheme is both statistically and theoretically impossible.
Multi-level marketing is a legitimate business strategy, though it is controversial. One problem is pyramid schemes, which use money from new recruits to pay the people at the top, often take advantage of people by pretending to be engaged in legitimate multi-level marketing. Pyramid schemes can sometimes be spotted by their greater focus on recruitment than on product sales.
Hassay isn’t wrong. Pyramid schemes require participants to recruit new members who have to pay to play, and they use income from those new members to compensate older recruits. Often, there are no sales of actual product; it’s all about reeling in rookie sellers, often with the promise of amazing sales incentives: cars, trips, six-figure salaries. Incentives play a role in MLM, too — Arbonne consultants can earn a monthly cash bonus towards the lease or purchase of their own white Mercedes-Benz, while Rodan + Fields sends top sellers on trips to pretty amazing destinations, such as Maui or California’s wine country. But sales are key, says Hassay, so while there is recruitment, it’s not the primary focus of the business. In that way, successful “uplines” resemble mini-CEOs, driving strategy while someone else does the hands-on selling.
If you are a materialist, you only have to get over the cheekiness of the presentation. But if you do not wish to promote such ideas, if you consider them sinful, then this puts you at the focal point of a moral dilemma. Do you wish to be a salesperson for materialism?
Christina Hinks, an aspiring journalist and the former moderator of the Facebook group, attempted to draw attention to LuLaRoe practices she found problematic. She has been collecting and documenting LuLaRoe issues at her blog, Mommygyver, which went from product reviews to educating readers on the risks of MLMs and inventory loading, revealing fat shaming by consultants, sharing stories of women who claim to have been victimized by LuLaRoe, and posting screenshots and stories of shenanigans by consultants and leaders at the top.
Or, you create opportunities to sell. For example, by starting a buggy fitness group for mums in your area and selling to/recruiting them while their guards are down (a strategy we’ve seen Herbalife reps use).
Health insurance premiums never seem to stop going up. The 2015 Employer Health Benefits Survey conducted by the Kaiser Family Foundation found that annual premiums for employer-sponsored family health insurance increased by 4% over the last year, … Read more
Revenue and total profit of the MLM company is thus largely generated from the pockets of participants within the MLM pyramid who are simultaneously both salespersons and consumers at once. Only an insignificantly small proportion of revenue and total profit is derived from non-participant retail consumers who are outside of the MLM participant pyramid. Many MLM companies will not disclose what percentage of its consumers are simultaneously their own participants. Other MLMs do not keep said figures because they do not differentiate between participant consumerism versus non-participant retail consumerism.
The most cult-like thing about MLM is that it manipulates members’ existing beliefs and desires, and tricks them into believing they are exercising free will. MLMs are able to coerce people into willful and compliant self-destruction on a staggering scale: we’re talking quitting or getting fired from a six-figure full-time job due to an MLM, alienating everyone you know due to your constant sales pitches, investing your own or someone else’s life’s savings into an MLM, ruining your credit or losing collateral by borrowing heavily to fund an MLM, and even theft to support an MLM habit. Suicides related to MLM have been reported.
Set yourself up at a booth at a job fair and sell your network marketing business to potential job seekers! They have all the time in the world to dedicate to promoting their company, so they’re perfect for the type of career you’re promoting. Ask for their resume and have an interview with them right there, then contact the people you believe will be the best choices for the position.
A few noteworthy points on this list… The only companies considered for this list are U.S.A. based; and if you click on each and every company linked above, what you will not find should be as interesting to you (and as revealing) as what you will find. There are no travel companies, only two technology companies (ACN and 5LINX), just one service company (Legal Shield), and 22 health and wellness companies. Even Amway, whose core product line still includes soap, really got started by way of the wellness revolution! Read this book by Paul Zane Pilzer and you’ll understand why nutrition, weight management, and skincare products continue to drive the trends in the network marketing industry to this day.
It may help to read books successful businessmen for ideas an inspiration. Do remember, however, that just because something worked for one person doesn’t mean it will work for you. Read these books for ideas, but take advice with a grain of salt.
You see, there are lots of other people who need to sell the same products as you to make money too. And quite possibly living in the same area, with the same pool of potential customers as you. So if you have the misfortune to sign up to an MLM that’s already popular in your area or social circle, you’ll probably find it hard to recruit customers.
Interestingly, the issue of supply and demand is what brought the USSR to its knees. By design, the Soviet government tried to macro-manage supply, where bureaucrats would decide how many potatoes were needed, how much toilet paper, etc. Assuming these bureaucrats did the best they could, unfortunately their efforts to deliberately manipulate the control “knob” of supply and demand was not good enough. Notwithstanding their good intentions, they were usually wrong, which created huge shortages and surpluses, and led to a massive economic collapse.
Another common practice is “channel stuffing” – requiring distributors to buy large minimums of company product, ostensibly for retail sale or for “personal use,” which serves to inflate sales numbers to give the appearance that an MLM is more sales-driven than it really is. However, the only support materials usually provided by their recruiter(s) are ones that promote the signing on of more new distributors. As a result, many a person out there has a closet full of Mary Kay cosmetics that they don’t need, and can’t sell. Type the name of any well-known MLM into eBay or Craigslist and you’ll see evidence of what becomes of that “investment” of “just a few hundred dollars” made in order to achieve new wealth and prosperity in ten hours a week from home.
Despite their popularity, this type of company doesn’t exactly have the best rep. Though pyramid schemes are illegal in Canada, the perception that all MLM companies have pyramid-like qualities is a lasting one, aided in part by rumours of sketchy business practices and bad press about the industry. For example, LuLaRoe, which reportedly requires new consultants to purchase $5,000 worth of inventory when they join, was hit with a $1 billion class action lawsuit last October that says, according to the Chicago Tribune, “the [California] firm encouraged women who wanted to sell its leggings, skirts and other clothing to take out loans, run up credit cards and even sell their breast milk, then left some in financial ruin with unsold goods… As many as 80,000 people paid thousands up front for inventory.”
It’s no wonder being able to make money without having to work a traditional 9 to 5 is super appealing. Full-time permanent employment is increasingly hard to find, and research confirms it. According to two 2015 studies, one by the Organization for Economic Co-operation and Development (OECD) and the other by the United Way of Toronto, the economy is increasingly dependent on precarious employment — which disproportionately affects young people aged 15 to 24, particularly women and people of colour.
There is some stigma attached to networking marketing, especially with regard to multi-tier and multilevel structures, which attract pyramid schemes. Still, the appeal of network marketing is that an individual with little skill but a lot of energy can create a profitable business for themselves with little monetary investment. A good rule of thumb, according to the Federal Trade Commission, is that single-tier network marketing operations tend to be more reputable, but multi-tier schemes in which people make money based on the number of distributors they recruit — rather than self-generated sales — can be problematic. Some reputable examples of single-tier network marketing operations are Avon, Mary Kay and Excel Communications.
With the company’s rules shifting and no small-business training offered to consultants, it’s easy to let enthusiasm blindside reality—and if you’re drowning, you’re fighting against a riptide of consultants to save yourself.
Whichever oils company you decide on, one of the best decisions I made was to take oils with me wherever (almost) I go. This carrying case is the perfect size to take while on the go or traveling so you always have your oils with you should the need arise.
“As of the end of first quarter 2017, approximately 90% of all retailers who started an independent fashion retailer business since the time LuLaRoe was founded still maintain their businesses today,” says a LuLaRoe spokesperson. “We are very proud of this figure.” In part due to this high retention rate, the market is becoming saturated, both online and off. Multiple retailers now often live within a few blocks of each other—and how many pairs of leggings does one neighbor really need? “They’ve flooded the market with so many consultants, nobody is making money, and everyone is so stressed out,” Sophie says. “Now it’s like, ‘Oh, there’s another consultant down the street.’”
So now, I’m making $500/month without doing anything. That’s only half my previous income, so I still need to sell widgets to maintain the same income as before. But I no longer have my old leads, since I just created my own competitor. Let’s make another EXTREMELY generous assumption that my new distributor has found some new customers and increased sales by 10%. Total sales are now $12,000, but the money is now split between two people, so each of us sells $6,000 in widgets and pockets $600, and the upline (me) pockets an additional $300 as commission (5%). So I now make $900 per month.
MLM salespeople are not employees of the MLM company. Participants do not derive a salary/wage, nor do participants receive remuneration from the MLM company for their invested labor and expenses in their MLM “independent business”. The income of participants, if any income is made at all, is derived only from commissions on their personal sales or their share of the commissions on the personal sales of their downlines (the MLM compensation structure).
On the seller side of things, it’s also somewhat demeaning to imply that women who join MLM companies are doing so blindly. Jamie Clarkson, a 28-year-old Arbonne executive regional vice president from Winnipeg who joined the company as a 22-year-old university student, says she didn’t sign anything until she’d done her research. “It was really important to me to do my due diligence on the business and the industry before starting this opportunity,” she says. “What really drew me to Arbonne was the fact that they are a member of the DSA, which has a strong code of ethics and high standards for business practices.”
The minimum order is 30 pieces at a time, and LuLaRoe requires sellers to buy a minimum of 33 pieces a month ($346 in wholesale leggings, for example) to maintain active status. This means that if a retailer sold 30 pairs of leggings a week, it would take them just under three months to make back their initial $5,000. As they also need to use their revenue to restock an additional 33 pieces a month ($1,038 worth of leggings over 11.5 weeks), it would therefore take another month or so of selling 30 pairs of leggings a week to start turning a small profit. (There is a more detailed mathematical breakdown of different business models here.) “Just like anyone starting a new business, there is risk involved and not everyone is guaranteed success,” LuLaRoe CMO Lyon says.
Before joining with a particular network marketing program, make sure you fully understand their process for compensating you. Preference should be higher returns that offer multiple income streams and residual income. Also, your first sales usually go to your sponsor. They are helpful sources, and you can gain some leverage.
Water.org is an international nonprofit organization that has positively transformed millions of lives around the world through access to safe water and sanitation. Founded by Gary White and Matt Damon, Water.org pioneers innovative, market-driven solutions to the global water crisis — breaking down barriers to give families hope, health and the opportunity to break the cycle of poverty.
Even in the digital age, the brick-and-mortar retail experience is preferable to MLM: it’s more convenient and does not open people up to accusations of conning their friends with substandard products or high prices. Internet and catalog shopping and reliable shipping services have long since obviated the need for a tightly-knit distributor network serving remote areas; in urban areas, where retail shopping has always been fairly available, MLMs were never important to begin with.
Metabolife was an MLM founded by convicted meth cooks that sold primarily supplements containing ephedra, which can cause serious adverse cardiac effects. Ephedra was banned in 2004 after several high-profile deaths, and the company folded; its founder was later found guilty of tax evasion and lying to the public and the FDA regarding ephedra’s safety.
MLMs often teach their participants to recruit their best customers. What kind of normal business turns one of its best assets into a liability? Imagine if the local Starbucks started encouraging all its best customers to open up their own Starbucks, where all the customers would, in turn, be encouraged to open up their own Starbucks. How long before there are too many Starbucks and no paying customers left? Which brings us to point #2…
Whole New Mom, LLC is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.
Thus, a parallel or “shadow” pyramid of motivational tapes, seminars, and videos emerges. These are a “must for success,” and recruits are strong-armed into attending, buying, buying, and buying all the more. This motivational “shadow pyramid” further exploits the flagging recruits as they spiral inexorably into oversaturation and failure. The more they fail, the more “help” they need from those who are “successful” above them.
After a slew of complaints, LuLaRoe rolled out a Happiness Policy in April 2017, which states that customers can get a credit, cash refund, or replacement pair (but not the same pattern) for defective leggings purchased between January 2016 and April 2017. However, many are saying their refund checks have still not been issued, even though they were told they’d arrive several weeks ago.
The Direct Selling Association (DSA), a lobbying group for the MLM industry, reported that in 1990 only 25% of DSA members used the MLM business model. By 1999, this had grown to 77.3%. By 2009, 94.2% of DSA members were using MLM, accounting for 99.6% of sellers, and 97.1% of sales. Companies such as Avon, Electrolux, Tupperware, and Kirby were all originally single-level marketing companies, using that traditional and uncontroversial direct selling business model (distinct from MLM) to sell their goods. However, they later introduced multi-level compensation plans, becoming MLMs. The DSA has approximately 200 members while it is estimated there are over 1,000 firms using multi-level marketing in the United States alone.
In the MLM business model, the commission derived from the MLM’s pyramid-shaped structure (i.e. from the sales of one’s recruits) is the most profitable revenue stream. This revenue stream, however, is also the least statistically probable source of remuneration to a salesperson. Conversely, the revenue stream from direct-sales of ones own personal sales is the least profitable. This revenue stream, however, is also statistically the most likely source of remuneration to salespeople. For the overwhelming majority of participants, however, neither one of these two revenue streams will be profitable after operating expenses are deducted.