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The Truth About Multi-Level Marketing

THIS POST MAY CONTAIN AFFILIATE LINKS. PLEASE READ MY DISCLOSURE FOR MORE INFO.

 

multi-level marketingA young lady (“Laura”) approached my wife the other day at a cafe.  My wife was eating a meal with our son, and Laura casually struck up a conversation with her.  My wife shared a few things about her life and my son and that she was expecting.  Laura shared a few details about herself as well.  It was a very amiable conversation.  

 

Before my wife left the restaurant, Laura asked my wife for her number so that they might be able to get together again since they really seemed to hit it off.  Laura seemed nice and trustworthy.  In fact, they had realized that they both attended the same church, so she gave Laura her number.  A few hours later, my wife received a follow-up text.  Laura expressed how she enjoyed their conversation.  She also shared that she had an interesting and exciting opportunity to connect my wife with her “mentors”, who retired early before 30, to open some sort of lucrative small business.  

 

My wife shared the text with me, and I immediately knew it was a multi-level marketing scheme.  When my wife wrote back and said that she just wasn’t interested, Laura became more intense and tried to convince my wife to fold.  My wife stood her ground.  Laura ended by saying that her mentors were really busy anyways and are very selective with whom they take time to meet.


Feeling deceived and slightly used, my wife decided to end the conversation at that point.  It really left a bad taste in her mouth.  Obviously, Laura had one thing on her agenda.

 

Side Hustles

Today, more than ever, we are inundated with the message that we need to have a side hustle in order to get ahead.  It’s not enough to graduate from a good school and obtain a steady job.  There is a pressure to use any free time to find a side hustle in order to bolster your income to reach your financial goals.  

 

multi-level marketingOver the past year, I have noticed my Facebook timeline become inundated with friends that are throwing house parties featuring DoTerra (essential oils), Rodan + Fields (skincare), and Plexus (nutrition and weight loss).  My friends tell me that I desperately need their life-changing products.

 

I really wish Facebook allowed a mute button that would filter out certain words like Twitter does.  Then, I wouldn’t have to mute so many friends who sell these types of items that I’m just not interested in.

 

Direct-Sales Participation

More and more people are joining these companies.  According to the Direct Selling Organization, 5.3 million Americans participated in these types of direct-sales companies in 2016.  

 

Why are so many people participating?  Well, It can be incredibly lucrative.  In 2016, sales were $35.54 billion, which is an increase of 18% from 2011.  It’s easy to see with figures like this why someone would want to jump in.

 

Most of the previously mentioned posts on my Facebook timeline were from my female friends.  To me, it was just an ad that I had no interest in reading.  It really started to bother me when my wife started getting invited to these parties and then felt pressure to buy items.  I’m happy for my wife to go out and have fun with her friends.  I’m also not against her spending money on items that she wants to buy.  However, I don’t like the thought of her buying items that she doesn’t really want or need.

 

These companies market themselves as direct sales models to customers.  Simply put, they are Multi-Level Marketing (MLM) businesses.  

 

Multi-Level Marketing (MLM)

MLMs only sell through an “approved” network of consultants, which usually is not available for the public to buy through traditional retail channels.  

 

In turn, there is an air of exclusivity that you can only buy certain products directly from these consultants.  This means that these consultants must buy inventory from their parent company, like a franchise would.  The consultants are able to keep the profits, less whatever they spend on the inventory.

 

This seems fairly straight forward, until you learn that the real money comes from generating a team of sellers.  This means that you must recruit new consultants and motivate them to buy more inventory.  When they reach sales targets, they earn bigger bonus checks.  Once they do, you also receive a higher bonus check.  The real money is making sure that you’re at the top of the recruiting ladder.

 

MLMs vs. Pyramid Scheme

multi-level marketingThe FTC defines a consultant as someone who makes money by selling a product without the requirement to recruit consultants.

 

“Not all multilevel marketing plans are legitimate,” the FTC states in its literature on MLMs. “If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s probably not. It could be a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.”

 

Famous People Involved with MLMs

Warren Buffett owns Pampered Chef.  President Donald Trump used to have a MLM called the Trump Network.  Finally, Secretary of Education Betsy DeVos is married to the son of the cofounder of Amway.

 

The barrier to entry of an MLM sounds appealing.  Buy a little bit of inventory, and you make a profit during your free time.  Who wouldn’t think that it’s a great way to earn some additional easy money?

 

Not As Lucrative As You May Think…

The only problem with this is according to a study done by the FTC, 99% of recruits who join a MLM end up losing money.  In fact, “the vast majority of commissions paid by MLM companies go to a tiny percentage of TOPPs (top-of-the-pyramid promoters).”

 

The author of that study, Jon Taylor, goes on to say, “The claim by MLM promoters that many participants work for part-time or seasonal income is a bogus argument because without full-time and long-sustained effort, MLM participants cannot build and maintain a large enough downline to meet expenses, and therefore do not profit.”

 

While I am all for people earning a side hustle doing something that they love, be careful.  If you sign up to become a consultant for an MLM, there is only a 1% chance that you will actually be successful.  

 

So readers, have you ever participated in an MLM?  What was your experience?  Share your thoughts below.

Comments

  1. Ugg, don’t get me started. It seems as if I am surrounded by MLM’s as it has just the nature of my career.

    My wife feels the pressure to buy these things from her friends, or acquaintances. She is not horrible with them, but it’s just stuff that is worthless when you take a step back from it all. Designer nail things, scents, shake powder, clothes. Oh, the clothes. She is doing LuLaRoe now.

    I tell her to make sure that the initial investment gets paid back and just use the profit she makes to buy more product. Sorta like taking your blackjack initial bet off the table and just playing with your winnings. At least selling the stuff keeps her going as she is a stay at home mom and needs an outlet of some sort.

    We’ll see where it all ends up though. I hear LuLaRoe buys back the inventory at cost if the consultant wants to get out.
    MrDoublingDollars recently posted…Side-Hustle Income Report For August 2017My Profile

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    • Thanks for sharing Mr. Doubling Down!!! I definitely agree if you go into it that it’d be nice if the MLM stands behind it and buys the product back if you get out. Seems like a win/win for both if that’s the case.

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  4. Rob, I’ve looked into so many businesses in the past decade including MLMs. Some seem legitimate, but the vast majority are just Ponzi schemes. My wife thought about doing Beachbody for a while, but she never really got into it.

    I’ve had people try to recruit me to join things, but I always feel like it’s a giant scam. It doesn’t feel like you’re a real entrepreneur. Rather, you’re just pushing crappy products onto people.

    I’d like to know what percentage of overall sales are “pressure sales” from women like our wives going to these “sales parties.” MLMs are “get rich quick” to the nth degree.

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    • Oh man, I would consider at least starting out that it’s 100%. I still don’t get if these are legit items why they aren’t in the stores like normal retail, especially if they sell themselves 🙂

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  6. Another example that is similar is Cutco knives. I have known people who are Cutco representatives and their first goal is to get pity sales through friends and family. Usually they give up selling after they hit up all these people. I know one who went on to become a Cutco manager where even more riches are promised and rarely delivered.
    Jeff @ Maximum Cents recently posted…How to Save on WeddingsMy Profile

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    • Oh man…a couple of years ago I was on vacation with my family and Cutco had all their top sellers at the place we were staying. They were loud and obnoxious while partying. After that I told myself I would not EVER deal with Cutco no matter how pity the sale would be.

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  7. I have been to a few of these presentations and almost joined one organization to sell financial products. Their sales pitch was almost perfect and the opportunity was almost too good to miss.

    Luckily for me, I knew that I was not good at pushing products and being aggressive. So I passed on those opportunities. I prefer to provide financial guidance when people ask for it not to push products into their face and try to convince them that it’s great for them.

    I also don’t want to personally sell products to people that I know and benefit of their purchases.
    Leo T. Ly @ isaved5k.com recently posted…Do You Want To Be Your Own Boss?My Profile

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    • Thanks for sharing Leo!!! They are definitely excellent salesman to be at the top. It’s unfortunate that they can’t use some of that salesmanship on other areas that truly need that type of skill 🙂

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  8. Believe it or not, my first job offer was with an MLM marketing company, and I still really embarrassed just typing this. I did not take that offer.

    MLM has such a bad rap, and it does for a reason. It still surprised me every day how many people fall into the MLM trap. Maybe I also do without even realizing it.

    I’m sorry to hear what happened to your wife. That Laura woman sounds so rude and predatory.
    Ms. Frugal Asian Finance recently posted…When Frugality Goes WrongMy Profile

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    • That’s a pretty cool story that your first job offer was with an MLM marketing company. At least you could recognize that it wasn’t a good fit before you started supporting that you would despise 🙂

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  9. I am so siiiiiiick of MLMs. I do find some MLMs amusing because they say, “Oh, this isn’t an MLM!” when it totally still is. They’re spammy, pushy, and generally don’t make great products anyway. Why not just have a great product that compels people to buy from you instead of being weird and aggressive? Another issue is that many people in MLMs don’t have experience with true sales, so they either fail miserably or become extremely aggressive.
    Mrs. Picky Pincher recently posted…What A Mega Frugal Weekend! September 4My Profile

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  10. Yes X100! One of our good friends recently got involved with a MLM company. She’s constantly promoting on Facebook and in fact, most of my feed is now filled with garbage from a few people doing these. So darn annoying. The weird part is that her husband is a pretty intelligent guy with business savvy. I think he is just going along with it to get her energized about something as she was a stay at home mom with a lot of time on her hands and kind of bored I think. (Their child is now in school and she is still at home).
    Mr Defined Sight recently posted…Want an Interview? Beef up the Resume!My Profile

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  11. I have never bought nor been pressured to buy something via an MLM scheme. Knowing myself, I would be terrible at the pressuring that is necessary to do well in such a business model.

    I suppose if one truly believes in and uses a product, one can honestly reach out and try to sell to others. But when you know deep down that you are just trying to make money, doesn’t it feel awful to push these types of products on family and friends?
    Dr. Curious recently posted…Traveling with Children: Fantasy and RealityMy Profile

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  12. My wife has bought lotions and creams in the past from a couple of her MLM friends. It was a rare thing and I don’t think they’re involved in it anymore. She just bought it mainly because it was reasonably priced – she’s pretty good at avoiding high pressure situations. 🙂
    I’m glad you’re wife did not fall prey to this.
    SMM recently posted…Why You Should INVEST – In Your HomeMy Profile

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  14. MLMs are pushy and many of them aren’t lucrative. The fact that they don’t have to provide potential consultants with disclosures about their profitability and failure rate of consultants is astounding. You would need to do it for any franchise business, you should have to do it for an MLM! Most of these women get into MLMs based on misleading data and under represented work loads for success.

    On the flip side, I don’t think they are as evil as people make them out to be. The failure rate has to be the same or higher on blogs, and how many people have “Start a Blog!” pages on their website promoting their income and affiliate links?

    Also, similar to blogs, not everyone gets into it for money. I was an MLM rep for 6 months – I had just gotten into scrapbooking and crafting and one of the top companies for good products was an MLM. They had no inventory or sales requirements, except for one you had to hit twice a year for ~$25 in sales, so I signed up to get the welcome kit at a huge discount. It built my supply stock, I never made any attempt to sell anything, and became an “MLM failure” 6 months later when I didn’t hit my sales target.

    When it comes to MLMs with my friends, I always try to explain to them the risks and that they don’t have a lot of control over their business practices. I share other options and paths where they can leverage their own skills directly. I also talk about the dangers of selling aggressively to friends and family. But then I let them make their own decisions. I’ve seen how it can be a great thing for people, and I’m wary of telling anyone it is a 100% bad idea.

    My mom went from being an MLM rep, to starting a life coaching business, to now running a corporate culture development and consulting business. While she didn’t make much money as an MLM rep, she got a few free vacations and learned a ton from other high performing reps in her company. It gave her the courage to go out on her own.
    Chelsea @ Mama Fish Saves recently posted…3 Rags-to-Riches Stories Everyone Should KnowMy Profile

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    • Thanks for sharing Chelsea!!! It’s awesome to hear some counter points to the narrative and you bring up some really interesting points. It’s definitely a great way to get discounted inventory if you believe in the product and are already using it. Great points!!!

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  15. Yes! I hate MLMs…. I frequently get friend requests from the marketers, and we might chat a bit, but then they start hitting me with the sales pitch. I say that I am not interested. They press. I stand my ground and rarely hear from them again. If it’s legit products, maybe…but when they feel they need to bad mouth other companies (Young Living and doTERRA for example) or bash anyone that dares have an other than awesome experience (Plexus is great for that) it really makes you wonder!

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  16. Sad that these still seem to thrive, but they definitely capitalize on psychological weaknesses we humans have. The good news is that since I’ve never had a real friendship instantly take off like a rocket, I always know when it seems headed that way, I’m talking to a MLM’er (“Dude, we both know I’m not THAT likable – what are you selling?”) 🙂
    Paul recently posted…Back In the SaddleMy Profile

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  17. I have had a great amount of success using direct sales/multi level marketing. It boils down to self growth and having the right skill sets. Most are low cost and offer the ability for anyone to own & control on their own terms. Like anything, it is not for everyone. Most people join with an air of excitement, only to realize it is not a job and they face some adversity and can not hack it. Working with others takes a skill set, honestly most that fail have lots of self doubt. Additionally, most people are afraid to just simply tell other people no. If you don’t want someones products then just tell them no. Not everyone can start a blog or become a successful business coach or find worthy mentorship. With most MLM you have free mentorship and the success of all parties is tied to one another. Like anything their are pros and cons:

    Pros: self growth, tax write offs (cell phone, internet, miles, office, meals, dry cleaning, accouting software), often puts people down a path of entrepreneurial thinking, ALLOWS STAY AT HOME MOMS TO STAY AT HOME AND STILL EARN, allows couples to work together instead of picking up second jobs and spending more time apart, forgiving, low risk, low capital. Oh and it led my wife and I to church, so I will forever owe that to the group we work with.

    Cons: Requires time, requires energy, requires capital investment, can be inconsistent, can be demanding, not for everyone, products can be pricey, you work with people (people are not easy), you have to deal with bloggers and internet opinions, most are not selective which allow people who should probably not practice business into the business world.

    In the end, its up to the person. For every “horror” story about dealing with a MLM person for about 5 minutes there are countless stories of people in financial or life destitute changing their lives

    My go to fine, you do not like MLM, but what are you doing to help others create a better life?

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    • Thanks for sharing some counterpoints Warren!!! I definitely appreciate hearing the otherside of the coin. There are definitely some successful people that are doing really well. I applaud for those people for finding a niche especially when 99% of people fail in the same niche. You clearly have figured out what works in order to sell!!!

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  19. Hahaha I have a character on my character list calley Mrs. MLM. That’s the biggest way to prove you’re not friends with someone: trying to recruit them on Amway.

    I’m glad you clarified the difference between mlm and pyramid – I was suprise to learn they’re not the same thing. There’s a lot than Amway out there too. I read there’s hundreds popping up everyday. I see people selling expensive saran wrap for weight loss on instagram…I’m like…-_-
    Lily He-Prudhomme recently posted…August 2017 – Family Income Report & Budget Breakdown (+92K Net Worth Hop)My Profile

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    • Ugh…definitely not a fan. I wish Facebook would allow certain words to get muted. That way it would never show up on my timeline again. Although it might cut my timeline to virtually nothing 🙂

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  20. I’ve sold for a couple of companies like this. I had moderate success in sales and classes, but it was a HUGE investment of time and effort for a minimal payoff. We were actually strongly encouraged not to purchase inventory as part of the Direct Sales organizations rules, so that part was ok, but there was tremendous social pressure from other reps to buy ALL the products for myself. Many of them felt inclined to purchase the entire line of products for their own use or to show to customers and that was my downfall. 5 years later, I still have a basement full of this stuff and it ate up all my profits and left me in debt as well. I’d love to see the breakdown of consultant/customers vs actual customers. I’m betting its about 60/40. That’s the real danger, I think.
    Adrian | Adrianscrazylife recently posted…Easy Hack to Create Pinterest Hashtags with TailwindMy Profile

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  21. I think the right people can certainly make a go of it, but the basic premise is a bit ludicrous:
    -“I have an 80 year old business opportunity that YOU can get into on the ground floor…”
    -“You can make lots of money without much direct selling because you’ll recruit the actual salesmen…” (what do you think the people you recruit will try to do? Recruit more people and not sell much.)
    -“It’s wildly successful!” (despite the fact you personally know zero people that have made substantial money doing it.)

    I’ve had to unfollow a couple friends (and relatives!) from Facebook due to their excessive MLM posts. I’ve never worked for them but have been approached on three separate occasions. I’m getting pretty good at sniffing it out up front 🙂 I don’t have a problem with the idea in general, but as someone who hates actively selling to the uninterested it’s a very uncomfortable idea.

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  23. What has bothered me with MLM is the way they hide their intentions. Same thing that happened to your wife happened to me. Sitting in a cafe, drinking coffee and killing time before a movie was showing, a woman approached me and struck up a conversation. I was younger then. This must have been 15 to 20 years ago. Same thing – at the end, she wants to discuss a great opportunity with me and introduce me to her mentor. They were selling time-share legal advice. I said I wasn’t interested and walked out. Lesson #1 – never ever give your phone number out to strangers. Lesson #2 – don’t talk to strangers. Of course, my mother taught me these things when I was 5 years old but it takes something like being approached by MLMers to reinforce the lessons.
    Worse than that are the social invitations from friends and family that become MLM pitch sessions. You are invited to a friend’s house (maybe even a family member) for brunch or some wine tasting. When you get there, you are pressured into buying a wine of the month club subscription or Amway products. My attorney doesn’t invite me over to her house under false pretenses to sell buy one, get one free legal retainers. My optometrist doesn’t invite me over to her house to sell eyeglass of the month subscriptions. The willingness of friends and family to trade their personal relationship for money is distasteful to me. I was taught that asking your friends and family for money is something you should be deeply embarrassed by.

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    • Great points Dan!!! Legit businesses shouldn’t have to go around acting sneaky in my opinion. Hanging out at churches to recruit people is not the time or place. Although I’m not sure exactly where would be 🙂

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  25. What hit me about the famous people involved with MLM is they either own or started started it. I’ve been approached by so many MLM recruiters that I can smell them a mile away now. I appreciate their grind and hustle though, but after so many tries, I now know it’s not for me.

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  26. I never joined to any MLM business but lost a few friends who did and aggressively wanted to get me in. The worst is when someone who you haven’t seen for a long time contacts you with some story about how nice would it be to catch up, and 5 minutes later the conversation is all about THE product which you could also sell and be super rich and successful.
    It’s ok to try once, that’s their job. But after I say no 2-3 times and they are still pushing, I start to get angry…
    Roadrunner recently posted…August 2017 Financial OverviewMy Profile

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  27. At my job, there is a no soliciting policy. My wife, however, tells me that many of her coworkers are involved with MLM. They sell protein shakes, women’s clothing, and cosmetics. They are always promoting it on social media. Some of it has a cult like feel to it. I am happy that she is not interested in participating.
    Dave recently posted…The Aldi ExperienceMy Profile

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  28. I totally agree. I hate that my facebook has become an advertising landing space for all of these companies. I never even get to actually hear from my friends anymore, just their scripted requirements as far as what their respective companies want them to promote. Once upon a time, I joined Pampered Chef, but I hated the parties. In the end, I mainly did it so I could get the discounted items for myself, but I was able to let it go and move forward. I don’t regret that choice.

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