Here’s what we know for sure: Popularity is definitely one of the best ways to determine what’s going on in the marketplace. It plays a part in the movies we see, the music we download, and sometimes even where we invest our money.
Jump up ^ Richard Eisenberg (June 1, 1987). “The Mess Called Multi-Level Marketing With celebrities etting the bait, hundreds of pyramid-style sales companies are raking in millions, often taking in the gullible”. CNN. Archived from the original on August 31, 2012.
One of the arguments MLM reps make in defending their ‘business’ is that it’s just the same as any other small business. You need to invest to get started, you need to sell, and some people just aren’t cut out to make it in business, so will fail.
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.
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?
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:
For a portion of independent retailers, LuLaRoe is to economic opportunity as Goop is to wellness: It’s for ladies who already have it all. The ability to throw down $12,000 to start a LuLaRoe business and work 30 hours a week sometimes comes from a place of privilege, not desperation. Some mothers who are just looking for a hobby have husbands whose salaries are already high enough to support their families. “I felt like I was trying to keep up with the Joneses to stay in business against these other consultants who can afford to drop a $500 order every few days,” Ashley says.
“I did pretty well for myself,” says Stern, who split sales with her business partner. The work was part-time, and she pulled in anywhere from $5,000 to $10,000 a month in revenue. Every month, the head of her consultant group would post a leaderboard for the top inventory buyers and sellers, some of whom were bringing in up to $60,000 a month. Stern noticed that the amount of inventory bought correlated with higher income, so after attending one of LuLaRoe’s touring conferences, she was inspired to bulk up her inventory. She and her business partner went on a buying spree, posting pictures of all the unopened boxes on her Facebook page, which began to swell with excited customers.
Jump up ↑ News, A. B. C. (December 16, 2017). “Former NXIVM member says she was invited into a secret sorority, then branded”. http://abcnews.go.com/US/nxivm-member-invited-secret-sorority-branded/story?id=51617201. Retrieved February 10, 2018.
Then, in 2016, she had her daughter, Mia, and went on mat leave. Bored — and making only part of her usual salary — she asked her former patient to meet up. She became a consultant before they’d finished their coffee.
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.
Jump up ↑ Sepkowitz, Kent (December 5, 2014). “Honey Boo Boo, Snake Oil, and Ebola: The Weird World of Young Living Essential Oils”. Daily Beast. http://www.thedailybeast.com/articles/2014/12/05/honey-boo-boo-snake-oil-and-ebola-the-weird-world-of-young-living-essential-oils.html. Retrieved January 16, 2015.
The problem here is one of common sense. At a mere three levels deep this would be 1,000 people. There goes the neighborhood! At six levels deep, that would be 1,000,000 people believing they can make money selling. But to whom? There goes the city! And the MLM is just getting its steam going. Think of all the meetings! Think of all the “dreams” being sold! Think of the false hopes being generated. Think of the money being lost.
Ashley (name changed), a mom and wife who lives in the suburbs of Indianapolis, signed up to sell LuLaRoe in August 2016 after her husband lost his job and was only able to make half his salary at the next one he found. “Simply put, I signed up to make money,” she says. Ashley opened three credit cards to cover the initial set-up cost and generated $3,500 a month in revenue for the first two months. But on the advice of other retailers, she plowed it all back into buying more inventory instead of keeping any of it for herself, her family, or their mounting bills. “Often increased inventory can assist in increasing retail sales to consumers,” says Justin Lyon, LuLaRoe’s chief marketing officer.
And this is one of the reasons why most MLMs aren’t ethical – they sell the dream that anyone can be successful with their ‘opportunity’. They don’t make it clear that only a small percentage of people who join them will make a liveable income (or any income at all).
The upper echelons of LuLaRoe’s consultant community have a reputation for being vicious to their downline. “It’s like the policy police,” Ashley says. “‘We’re going to find you, stalk you, tell on you. How dare you guys say a single word bad. We’re going to shame you.’”
A February 10, 2011 article stated “It can be very difficult, if not impossible, for most individuals to make a lot of money through the direct sale of products to consumers. And big money is what recruiters often allude to in their pitches.”
As non-employees, participants are not protected by legal rights of employment law provisions. Instead, salespeople are typically presented by the MLM company as “independent contractors” or “independent business owners”. However, participants do not possess a business in the traditional legal sense, as the participants do not hold any tangible business assets or intangible business goodwill able to be sold or purchased in a sale or acquisition of a business. These are the property of the MLM company.
On the other hand, many people have gotten into Network Marketing and have made a fortune from it. People such as John Haremza, who signed up as a sales rep for a small water filter company, and is now worth millions. Alternatively, Sebastian Greenwood, who made an investment in Onecoin, and put in the hard work and time necessary. He is now considered an ambassador of the company, having made his fortune there, and spends much of his time helping others grow successful.
LuLaRoe also says it invests “considerable time, resources, and talent” to support its “independent retailers,” as it calls its consultants. If they experience financial or psychological hardship through operating their businesses, it says it’s not the company’s fault. “Retail is not for everyone,” says a LuLaRoe spokesperson. “Retailers own their own business and make their own decisions…The success of any business depends on its leader’s own respective and independent business goals, and the strategies they employ to achieve those goals.”
MLMs are also criticized for being unable to fulfill their promises for the majority of participants due to basic conflicts with Western cultural norms. There are even claims that the success rate for breaking even or even making money are far worse than other types of businesses: “The vast majority of MLMs are recruiting MLMs, in which participants must recruit aggressively to profit. Based on available data from the companies themselves, the loss rate for recruiting MLMs is approximately 99.9%; i.e., 99.9% of participants lose money after subtracting all expenses, including purchases from the company.” In part, this is because encouraging recruits to further “recruit people to compete with [them]” leads to “market saturation.” It has also been claimed “(b)y its very nature, MLM is completely devoid of any scientific foundations.”
It turned out to be a savvy choice. In her category, two major competitors have recently declared bankruptcy, while Costa’s company has seen astronomical growth. “There’s a retail disruption happening,” she says. “Traditional bricks-and-mortar is suffering big time.” Peekaboo Beans, on the other hand, is thriving — by 2015, it employed 700 consultants, had paid out $1.7 million in commissions and its revenue had grown by an average of 70 percent every year.
Look up CEO’s and other company leaders. Keep the same things in mind as when you investigated companies. Is the company leadership reputable and law-abiding? If company leaders have been accused of carrying out scams or have had legal trouble, you may want to avoid this company.
Dynamic Essentials was an MLM promoting “Royal Tongan Limu,” a seaweed extract. The company was dissolved by its parent after it was ordered to pay $2 million in fines and destroy almost $3 million in unsold inventory for falsely claiming the product could cure cancer, arthritis, and attention deficit disorder (ADD), among other ailments.
Although an MLM company holds out those few top individual participants as evidence of how participation in the MLM could lead to success, the reality is that the MLM business model depends on the failure of the overwhelming majority of all other participants, through the injecting of money from their own pockets, so that it can become the revenue and profit of the MLM company, of which the MLM company shares only a small proportion of it to a few individuals at the very top of the MLM participant pyramid. Participants, other than the few individuals at the top, provide nothing more than their own financial loss for the company’s own profit and the profit of the top few individual participants.
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.
**For purposes of comparing Internet search term interest using Google Trends (GT),all 25 companies were compared to the term, MLM. A score of 1.00 would indicate the same level of Internet search interest; anything above 1.00 more interest, anything below 1.00 less interest.
Jump up ^ Pratt, Michael G.; Rosa, José Antonio (2003). “Transforming work-family conflict into commitment in network marketing organizations”. The Academy of Management Journal. 46 (4): 395–418. doi:10.2307/30040635.
At issue in determining the legitimacy of a multi-level marketing company is whether its products are sold primarily to consumers or to its members who must recruit new members to buy their products. If it is the former, the company is deemed a legitimate multi-level marketer. If it is the latter, it could be operating a pyramid scheme, which is illegal. The Federal Trade Commission (FTC) has been investigating multi-level companies for several decades and has found many that blur the lines between the two. According to industry data, there are 90 million members worldwide, but relatively few earn meaningful income from their efforts. To some observers, that reflects the characteristics of a pyramid scheme.
Network marketing seems like a breeze on the surface. Many people jump in, thinking they just have to pull in a few people and then sit back and watch the money roll in. Those people do not last very long. Take some time and learn these tips and tricks for your new business.
And again, this example scenario makes all kinds of assumptions (the profitability of the product, the availability of new recruits and new customers) that are absurd and completely unrealistic, which leads us to point #3…
Arbonne and other multi-level marketing (MLM) companies, like Stella & Dot, Isagenix, doTERRA and Scentsy, are big business in Canada. For the uninitiated, these companies operate through a pyramid-shaped commission model. Sellers — self-employed “distributors” or “consultants” as they’re commonly known — are usually required to pay a start-up fee or purchase a start-up kit, which usually rings up at $100 to $200 and contains a complete product catalogue, business manual and training materials, then buy their merchandise at wholesale prices. They earn money either through commissions based on sales they’ve made, or commissions based on salespeople they have recruited (known as “downlines” in MLM parlance) have made.
More than professional success or flexibility, though, community might be one of MLM’s biggest draws. Like Donald, “a lot of women will join direct selling companies when they become a mom,” Hassay says. “They’re looking for something to do to get out of the house. That one party a week is a significant contributor to mental health, income, a sense that they’re contributing to the family.”
These sales go against company policy. While a LuLaRoe spokesperson says sellers are “free to set their own sales prices for the LuLaRoe products they sell,” they don’t allow you to actually advertise those prices: “Out of fairness to all retailers, they are not allowed to advertise prices below MAP (Minimum Advertised Prices). LuLaRoe encourages retailers not sell product below MAP as MAP ensure that the LuLaRoe brand maintains a consistent level of value and fairness that benefits all Retailers. Advertising prices below MAP violates the agreement between retailers and LuLaRoe.” If caught, sellers are ostracized by the consultant community for diminishing the LuLaRoe brand, and some have claimed to be locked out of their point-of-sale systems.
Thus, the only “control system” will be the inevitable losses and subsequent bad image the MLM company will gain after it does what it was designed to do: fail. And sooner or later we have got to stop blaming this particular MLM company or that, and admit that the MLM technique itself is fundamentally flawed.
“The fact that it was a low investment to join was very enticing for me,” she says. “And last September, I left my job as a full-time fitness coordinator to focus on my business. I still teach a few classes a week, but majority of my time is dedicated to Stella & Dot.”
Thus, MLM has evolved into a “niche”: it can be used to sell products that could not be sold any other way. An MLM is a way to get undue credibility by exploiting people’s personal friendships and relationships via “networking.” This is an intrinsic moral difficulty with MLMs that will be expanded in the last section.
You can definitely generate a hefty income through Network Marketing, but ONLY if you are willing to put in the effort to generate leads, train others, and make it your focus to get the word out. Network marketing is ultimately not a ‘get rich quick’ scheme, as it requires an ample amount of work and effort to make it work. However, if you are willing to put in the work, it could be the door to your financial success.
The main pitch of most MLMs is passive income – the promise of being able to sit back and relax while someone else does all the work. But if everybody wants to “let someone else sell the products,” who will actually do the selling?
The main issue with MLMs is in the way they usually work. Rather than your profit coming from the actual products you sell, it comes from recruiting people into the business as sellers under you (your ‘downline’) and making commissions on their sales (and their downlines).
Promoting products or pseudo-products of dubious or very low intrinsic worth (supplements, cosmetics, financial products, Bitcoin, videos/seminars, software, subscriptions, coupons/discounts) at very large markups, with low profit margins (often less than 1%) for the “distributor”