“I would love to talk to you about an exciting opportunity that could change your life.  Do you feel trapped in the corporate hamster wheel?  Did you know that you can make a six-figure income from home while only working a few hours per week?  Are you ready to take control of your destiny?  If so, click here, and start to change your life for the better today”

The start of today’s article brings us back to the summer of 2006.  I’d just finished another semester of school and was hoping to make some money.  Online job recruitment and Facebook (more on that later) barely existed, and the restaurant I’d worked at the previous summer was closed.  Feeling a bit desperate for prospects, I picked up the classified section of our local newspaper to see what was available.  One like this one caught my eye:

Ok, mystery job, you’ve got my attention: At a time when minimum wage was $5.25, the idea of flexible hours for triple the hour salary I was hoping for sounded like the perfect summer gig.  I called the number and reached a generic voicemail box saying “Hi, you’ve reached the affiliate recruitment office.  Please leave your name and number, and we’ll get back to you right away.” 

“Strange,” I said to myself.  “Affiliate recruitment office.  That’s an odd way to classify your human resources department.  Did I even called the right company?”

When I returned to my phone a few hours later, I had five missed calls and countless voicemails from two or three different numbers.  “Very strange,” I thought.

After a fleeting moment of excitement that they’d called me back, I came back to my senses and realized that something was a bit off.  ‘Barry’ sounded friendly enough but left very little information about himself or the job in his message.  Each voicemail sounded like he was more and more desperate to get in touch with me.  The final message mentioned something about maybe being from CutCo, but he still wouldn’t say anything other than how urgent it was that I call him back.  “Way too strange,” I concluded,

Yeah, this ‘opportunity’ was not normal, and I was not calling him back. 

An acquaintance of mine, who was also looking for a summer job, did interview with them.  Apparently, this ‘interview’ involved seven other people sitting in front of an overly friendly recruiter who eventually disclosed that the job was selling knives door-to-door to people you know.  There was no application, no background check, no employment agreement, and no weekly paychecks.  Rather, you, the salesperson, had to buy knives from the company and sell them to your network for profit.  The only piece of paper you had to fill out were the names, addresses, and phone numbers of every person you know.  If that weren’t enough, part of your commission compensation was based not only on your own sales figures, but also the sales figures of other people that you managed to recruit.  Whether through cold calling, social media, word of mouth, door-to-door sales, or ‘parties’ with your friends, the company wanted you to both sell outrageously priced knives and convince your network to join them.  They twisted the concept further by saying that you were ‘starting your own business’ and could be in ‘charge of your own earnings,’ though the actual compensation structure was confusing enough to make your head hurt.

In reality, however, the advertised hourly salary was just an average commission from people who had worked at the company for over a year and did not including their costs.  The base pay was nothing.  Instead, you were expected to buy your first few sets of knives for $500 per set and sell them for a profit to your friends and family.  You certainly did not own the business (they did), and in fact, you weren’t even an official employee, just an independent contractor with no salary, no benefits, and no protections.

In short, this company wanted you, the employee contractor, to pay for their products, hold onto the inventory at your home, and then become that person who tries to guilt their loved ones into buying the product to support your ‘business.’ 

Uh, no thanks!

The model being described here is called multi-level marking (or what I’ll call “MLM” for the remainder of this article), though it’s known or branded under a number of euphemisms including pyramid selling, affiliate marketing, home-based business franchising, network marketing, social retail, and referral marketing.” 

The basic premise is that the sales of products or services sold by the MLM is derived from a non-salaried workforce.  Each MLM has its own compensation structure, but it generally involves financial incentives to both sell (direct compensation) and recruit (indirect compensation – you may earn money when people whom you recruit make a sale).  The affiliates (you) are generally encouraged to buy products from the MLM, store them in your home, and sell them to your family and friends.  However, you are strong encouraged – even pressured – to sign up your loved one to be affiliates under you.  When they make a sale or recruit additional affiliates, you make a portion of everyone’s commission.

MLM model is alluring and not inherently unethical.  There is nothing wrong with incentivizing a workforce to sell or attempting to recruit others to sell on your behalf.

However, reality is that MLM’s almost never fulfill their promises and often lead to financial misery for those who join them.  There’s a fine line (or none at all) between an MLM’s and illegal pyramid scheme.  Let’s see why.

Problems with MLM’s Companies:

1) The model is unsustainable.

Anyone who has ever tried to start or participate in a chain letter knows that there are only so many times that an individual can connect to ten acquaintances before, well, the world runs out of acquaintances.  The MLM recruiter will try to convince you that it’s easy to be at the top and maintain a constant ‘downstream’ of people working under you, but the reality is that it’s nearly impossible to sustain that kind of network, especially in sales.  The market is not infinite, nor is it free from competition.  The only people getting rich are the executives are the very top, not you.

2) The failure rate is astronomical

The Federal Trade Commission in the U.S. found that approximately 99% of participants in the MLM’s they studied lost money.  That’s right; you will not only fail earn the ‘$17/hr’ that they promised, but also lose money 99 times out of 100.  The odds of achieving a sustainable living wage was approximate 1 in 3,900.  In one area, the average person lost $900 before giving up. There is evidence that gambling is a better financial bet than MLM’s. Starting a regular business is hard enough (39% success rate) but starting an “MLM business” is impossible (<1% success rate).  It’s not you; it’s them.

3) Their schemes target society’s most vulnerable. 

MLM’s advertising generally includes claims that appeal to those who are desperate for work, have a limited ability to leave the home, or are in severe financial hardship.  This is no accident.  These individuals are more likely to be drawn into the MLM’s cult-like claims of ‘becoming rich from your living room through our company’s exclusive offering,’ only to later realize that the MLM has taken their time, money, and pride in exchange for little to nothing.  The primary target?  Those where are underemployed, desperate, stay-at-home parents, financially uneducated, immigrants, or some combination of these characteristics.

4) They overpromise and underdeliver

The dream of ‘owning your own business,’ in the context of joining an MLM’s, is a hoax.  The claim of ‘a six figure income from your living room’ is a farce.  And the products themselves can be downright dangerous.  The only folks that come out on top are the executives and owners of the MLM organization itself, who tend to be very wealthy and politically powerful.  Ultimately, you ‘own’ nothing when you join an MLM, other than products bought with your own money.

5) They damage your social circle

We’ve all seen those cringy social media posts, received those awkward calls/texts, or answered those uncomfortable knocks on the door from people we know are trying to sell us something we don’t need.  MLM’s companies are behind each of these.  Rather than bringing people together, the MLM affiliates drive away family and friends who feel pressured to buy overpriced products that they don’t need or can’t afford.  I’ve personally seen friendships driven apart by these companies.  It’s devastating.

6) Their product benefits are best on testimonials, not science

In most parts of the world, medicine is required to go through rigorous scientific testing and government.  In return, medicine can be marketed in ways that discuss their medical benefits.  However, supplements (like those often sold by MLM’s) are not required to go through any testing, and they therefore cannot make medical claims.  Nonetheless, supplements can (to an extent) include so-called “testimonials” from customers that are supposed speak to that one customer’s experience.  Unsurprisingly, MLM’s often take advantage of this loophole and use testimonials to imply that their products have benefits, when in reality, their products likely have no benefits and may even harm you. 

7) Their compensation structure is confusing and deceptive

In a simple world, an affiliate would easily understand what he or she could expect in income – say, a 25% commission on each product sold.  In the real world of MLM’s, affiliates are faced with an overwhelming number of factors that affect their compensation: their amount and value of direct sales, what ‘rank’ they are, number of individuals they’ve recruiting, the amount and value of the sales of their recruits, number of consecutive months with certain sales goals, types of products sold, etc.  These factors are masked further using confusing company-specific language like base, front-end, mid-level, high-end, leadership, bonus, downstream, upstream, and pools.  Affiliates are told that they more they sell and recruit, they higher their level within the company will be (ex. bronze, silver, gold, platinum), but data shows almost nobody makes it past the lowest rank on the hierarchy.

8) Affiliates may be tricked into over buying low-quality products that are nearly impossible to return

In connection with #7, affiliates are told that if they don’t meet certain quotas each month, they risk being demoted a rank and earning smaller commissions.  The MLM’s encourages the affiliates to buy in bulk so they can ‘earn a higher markup’ and ‘keep your status,’ but as you now probably expect, most merchandise goes unsold.  Some products even have an expiration date. There are countless reports of products arriving damaged or too low quality to sell.  On the surface, the MLM may allow returns and refunds, but these refunds generally have strict terms like prohibitions on expired goods.  Also, returning product may cause the affiliate to lose commission or rank.  Out of fear, affiliates get caught in a vicious cycle or purchasing far more product than they can realistically sell.  The result? $1,000’s of unpurchased goods and crippling credit card debt.  Here’s just one of many stories like this.

9) They dodge regulatory oversight

MLM groups that are the worst offenders and have all the red flags of a pyramid scheme and all the signs of being a scam, rare is the day where the owners face any real consequences. Despite the billions of dollars that affiliates and consumers lose each year, only a handful or MLM’s have been fined or sanctioned. Those that do usually settle with the government without acknowledging they did anything wrong. Here in the U.S., several members of congress are former executives of these companies or have received campaign contributions from them. The MLM lobby is very real and very powerful. They also move their operations around the world at a faster pace than regulators can keep up with them to take advantage of less experienced consumers and politicians. Like I said, these organizations are run by extremely wealthy and powerful people!

So, who are the major MLM brands? 

Here’s a list of some of the largest ones in the world, with products and services such as skin care, healthy shakes, weight loss, candles, clothing, supplements, knives, life coaching, and even cannabis.

• AdvoCare
• Amway
• Arbonne
• Avon
• Beachbody
• Cutco
• Herbalife
• It Works!
• LuLaRoe
• Mary Kay
• MonaVie
• Nu Skin
• Rodan + Fields
• Shaklee
• Stella&Dot
• Telexfree
• Younique
• MANY MANY OTHERS

This article isn’t to say MLM organizations are evil.  Some aren’t.  Nor is it to say that a small percentage of participants won’t make money or be successful.  Some will.  Nor is it to say that you shouldn’t pursue an opportunity that genuinely brings you joy.  You should.

However, in trying times, a growing number of people are becoming increasingly desperate for stay-at-home work that pays the bills.  The MLM’s corporate executives are targeting vulnerable people stuck at home (due to the coronavirus or otherwise), and they are fervently recruiting, with promises to make all your problems go away.  Don’t fall into the trap.

Do you research, consider the products, understand the costs, analyze what it would truly take to become successful, and ask an independent source to give you an honest review.  It’s okay to accept that you’re probably going to be part of the 99% who earn less than $10 per week before costs. And sorry, but ‘your’ particular MLM organization is not different.  I wouldn’t roll those dice with my time or livelihood, and neither should you.

Are there side hustles that are more profitable and less soul-crushing than joining an MLM?  Why yes, there sure are.  Tune into the next article to find out all about them!

In the meantime, watch the John Oliver video at the beginning of the article. Who knows? It might actually change your life.