The Misfortunes of Multi-Level Marketing: Scheme or Scam?

MLMSo you’ve been offered a “business opportunity” by a trusted colleague, friend, family member or total stranger who has a really nice smile.   It involves joining a “network” of sellers who will work with one another to help you sell products directly to consumers by means of relationship referrals and word of mouth marketingThey may call it “referral”, “affiliiate”, “home-based”  or “network” marketing, or perhaps they’ll just describe it as “direct selling”.   But no matter what they call it, they are talking about multi-level marketing sales scheme designed to exploit (or mine, as they might say) your network of friends and colleagues.    Some MLM schemes are legitimate, many more are scams that reward only a small fraction of its participants.   But once “MLM” enters the scene, red flashing lights and warning sirens should be going off in your head. 

Undoubtedly, you’ll hear lots of compelling reasons and anecdotal stories to support the notion that you can “take control” of your income by using the networks that you’ve spent years developing.  Trust us, it is persuasive stuff;  which is why MLM has been around for decades.  Some of the higher profile MLM sellers include Amway, Mary Kay, Princess House, Pampered Chef, Tupperware.  They are all legal, but do you really make money from them?    The tricky part is knowing which of these schemes are illegal and whether they will be the 1% of the businesses that will really provide any substantial “economic freedom” for you or your family.  And — this is a key part of it — you need to be absolutely sure that they are offering real value, they’ll likely damage your personal network — irreparably.   And that includes your family.   Before you begin investing yourself in a MLM sales scheme, ask yourself how many products you’ve used in your life to which you’d stake your good name and reputation.

The Federal Government’s Federal Trade Commission has been evaluating the legality of MLM networks for decades.  It found that:  “Not all multilevel marketing plans are legitimate. Some are pyramid schemes. It’s best not to get involved in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products”.  Even the long-operating Amway was found to be involved in illegal price fixing back in 1979.  According to the Federal Trade Commission multi-level marketing organizations with greater incentives for recruitment than product sales are to be viewed skeptically.

The real story about MLMs is not pretty.   They’ve been around since the 1960’s, as door-to-door selling became increasingly unfeasible.  In the largest of all MLMs, Amway, only 1/2 of one percent of all distributors make it to the basic level of “direct” distributor, and the average income of all Amway distributors is about $40 a month.  Contrary to claims that MLM distributors are entrepreneurs, in reality they are joiners in a complex hierarchical system over which they have little control.  Most MLM marketing materials contain messages that are fear-driven and based upon deception about income potential.   Moreover, most MLM customers quit buying the goods as soon as they quit seeking the “business opportunity.” There is no brand loyalty. MLMs’ real products are distributorships which are sold with misrepresentation and exaggerated promises of income.

Much has been written about multi-level marketing and we won’t recreate that spinning wheel in this blog.   Some knowledgeable analysts, including Dr. Jon Taylor, estimate that 99% of participants never make a net profit.   A particularly useful and detailed cautionary tale was written about a MLM company called ACN, which offered electricity and telephone plans in the 2000s.   The author has catalogued a number of problems that apply not just to ACN but to many MLM schemes.  Another one about Nerium Skin Care products also compelling reading.  

If you are considering participating in any MLM selling schemes,  we strongly recommend you take the MLM Truth 5-Step Evaluation before making any investment of time or money into an MLM.  It is well worth 10 minutes of your time.  We also provide below a list of other essential reading that you must review before making any decision about whether to invest your time, money, reputation and future in an MLM scheme.

FTC Consumer Information:  Multilevel Marketing

What’s Wrong with MLM?

Main Street Bubble

Why MLM is a Scam

Work At Home Blog

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