Do you want to earn full-time pay for part-time work? Set your own hours, and do business from your phone? Make tons of new friends and earn fabulous perks?!
I’m not sure if it was years ago or months ago, but at some point in the past, I started seeing these kinds of messages just about everywhere online, from Facebook to YouTube to Instagram to Pornhub. OK, not that last one, but still – a lot of places. Ever-present was an overabundance of emojis, and ever-absent was any sort of information about what this marvelous position actually was. I, being the skeptical person who actually dedicates time to writing a series called “Filed Under Crap,” was certain that these postings referred to something too good to be true. I soon discovered that was indeed the case, but the whole truth turns out to be much more complicated.
These job ad-looking things aren’t job ads at all. Instead, they’re more like… invitations. This person is trying to get you involved with a multi-level marketing, or MLM, scheme. It’s a form of product marketing where a company distributes merchandise through independent “consultants,” who buy the goods at a discount and then sell them to the general public for commission. In addition, distributors can recruit other people to join in. The key feature of multi-level marketing is that those who recruit others can earn commission of their sales as well. The person who brought you into the scheme would be your “upline,” and would earn money off your sales, and anyone you got to join would become your “downline,” and you’d earn a small percentage of their sales. If your downline gets his or her own recruits, you’ll make a bit off their sales, too, and so on. Make sense?
It sounds deceptively simple. All you’ve got to do is sell some stuff and get a few acquaintances (or family members, or strangers, or whoever…) to sell under you. Then you’ll be rolling in the dough, right? That’s certainly what people who want to recruit you would like you to believe. They’ll be happy to provide you with examples of people who are making BUCKETS of cash from their participation in their respective MLM, and if this fabulous woman could replace her 9-to-5 job with this and make six figures, surely you could make a few extra bucks doing the same thing, right?
Not right. Dr. Jon Taylor, a consumer advocate, has been studying MLMs for years and wrote a book detailing his views on their practices. In one chapter, which was submitted to the Federal Trade Commission, Taylor found that 99% of people who are recruited into an MLM will lose money.
To understand why that is, we’ll need to dig a little deeper into the structure and tactics used by MLMs. There are quite a lot of them – far too many to list here – and no two are exactly alike. However, one of the hallmarks of MLMs is that they rely on complex “compensation plans.” Unlike a normal job, where you’re given specific dollar amounts to be told how much you’ll be paid, MLMs use verbose, misleading instructions about the amount of money you will earn and what’s required to get it.
See, you might be thinking this is like a retail job, where you’ll be selling products and earning a percentage of each sale. In MLM, it’s similar, except you have to buy the items yourself, and your uplines get their cut from the sale. MLM recruiters like to refer to this as “owning your own business” because you have to purchase your own inventory. The problem with that assertion is that when you join an MLM, you have to sign an agreement with the company that sells the goods to you, which governs every aspect of your business relationship with them. If another entity is setting the rules for your business and telling you what to do with it, then they’re the owner – not you.
As it turns out, irrespective of the intentionally-perplexing regulations that MLM companies create for their consultants, selling the products is a big enough challenge on its own. First, the merchandise itself isn’t particularly tempting. MLM consultants will often try to convince potential recruits that the products the company (and thus, they) sell are highly sought-after, but in reality, they tend to be goods that few people want, or could easily obtain elsewhere, like essential oils and protein shakes. MLM companies usually charge more for these than other sources – for example, conventional business Mountain Rose Herbs charges $5.75 for 15 mL of lavender oil, while MLM Young Living’s price is a hefty $31.91. By the way, Young Living only gives its consultants a 24% “wholesale” reduction, so they would still pay $24.25. Considering the minimal discount that consultants get and the difficulty in selling to the public, it is realistically impossible to make a living from it.
But then there’s the other aspect of MLM: recruitment. Remember what I said about making money off your downline’s sales? Turns out that’s an absolute necessity. Because you aren’t paying for that merchandise, it’s the only form of pure profit you can make. It’s not just sales, though! You can earn cash on any purchases your downline makes, and since nearly every MLM company requires all new members to buy a starter kit, think about how much money you could make if you just recruit as many people as you can!
Hmm… this is starting to sound like something else, isn’t it? Some other kind of program that promises a big payout and also demands regular recruitment… what’s that called, again? Oh, yeah. A pyramid scheme. MLMs are compared to (and even equated with) pyramid schemes all the time. Just how similar are they, really?
A proper definition of a pyramid scheme is in order here. It’s an operation that you pay a fee to join. Then you must recruit several people, who in return must recruit some more (all of whom are throwing their money in, as you did), and once the requisite number of individuals have joined, you receive all the entry fees they paid. There’s no product involved – the only way to make any money is by getting other people to buy into the scheme. The “pyramid” name refers to the way funds are funneled upward from within the organization to the one individual at the top, who then collects all the money.
The law agrees that the two are very much comparable, but there is a distinction: in MLMs, there are products included, meaning that consultants could, in theory, make money through sales rather than recruitment – though, as we’ve discussed, this cannot be accomplished in actuality. There are a few other differences, though. While pyramid schemes are typically presented as a one-time way to “get rich quick” (participants pay a single charge to join, and then receive a lump sum if they succeed), MLMs are often suggested as a source of continuing income – something that could supplement or even replace a day-to-day job. As a result, consultants are strongly encouraged or even required to make regular purchases. This explains why Taylor’s research found that even more people who join MLMs lose money than those in pyramid schemes – 99% versus 90%.
The other relevant comparison is between MLMs and a run-of-the-mill, wage-paying job. MLM recruiters will typically point out that in most jobs, you can’t set your own hours or work from anyplace you want to. Some of them even make the absurd assertion that jobs are more similar to pyramid schemes than MLMs because CEOs usually earn much higher paychecks than entry-level employees, whereas in an MLM, it’s possible to make more money than your upline.
To help clarify the differences among these three, I put together this chart:
The truth is that MLMs don’t deliver what those annoying posts all over social media promise. Yes, you can set your own hours and work from your phone, but it’s quite likely that the most you’ll be doing is making a few bucks for your upline – who’s probably losing money, too. The few shining examples of people making lots of money from MLMs (after all, someone does make up that 1%) inevitably turn out to be those who joined the scheme during its infancy, so anyone who signed up later on became their downlines, and they now make money off every new member tricked into parting with some cash to chase a dream.
If you see a job ad that looks too good to be true, there’s a chance it could be from an MLM recruiter. Find out the name of the company and test it on this website to see if it is indeed an MLM. If you’re a Reddit user, check out the robust Anti-MLM community, where people regularly post humorous and enlightening information.
Multi-level marketing is an elaborate scam that preys upon vulnerable people just to squeeze a dollar or two out of them. That’s why it should absolutely be Filed Under Crap.