Multi-level marketing companies, or MLMs, are everywhere these days. You probably know someone involved in one or are selling products yourself. Are these legit business opportunities or risky scams? If you are selling, you most likely don’t think it’s a scam, but do you know why people might think it is? In this article, we’ll give a rundown of how MLMs work, their benefits, and risks, and case studies for why they get a bad rap.
History of MLMs
In MLMs, products are sold directly to consumers by salespeople, who get the product right from the company. Instead of traditional marketing, MLMs rely on referrals and word-of-mouth. Salespeople make their income by moving product and recruiting new team members, but unlike illegal pyramid schemes, the goal is for everyone to get paid.
There is no clear origin of multi-level marketing companies, but it most likely started with Nutrilite, a supplement company. Two distributors with Nutrilite – Jay Van Andel and Richard DeVos – eventually moved on and used the same networking marketing with their new company: Amway. Amway would eventually buy Nutrilite and become one of the biggest MLMs ever. Other famous MLMs include Avon, Young Living Essential Oils, and Mary Kay.
Why would someone join an MLM? There are three main reasons:
Relatively low risk
Compared to starting a traditional business, which is very expensive and risky, joining an MLM is a safer bet. You are becoming part of an existing structure and can start making money right away. The startup cost is significantly lower.
No limit on income
With MLMs, you can sell as much as you possibly can, without limits. How much you end up making depends entirely on you and the amount of work you’re willing to put into finding customers.
Freedom and flexibility
The vast majority of people in MLMs are women, and a lot of those women are stay-at-home moms. A traditional job wouldn’t work for them, but MLMs allow for freedom and flexibility. You set your own hours, and can sell as much or as little as you want.
As more and more MLMs appear every day, and it seems like everyone and their uncle is selling something, the risks become more apparent. According to stats from the AARP Foundation, nearly half of the 20 million Americans participating in MLMs lost money, while a quarter didn’t make any. It’s very easy to hit a wall when you’re selling to people you know. Unless you have a huge network of friends and family willing to buy what you’re selling, your customer base dries up very quickly. Distributors get tired of rejection, while the people in their lives get tired of sales pitches.
MLMs face near constant critique and questions about whether they’re actually pyramid schemes. Sometimes, that criticism goes to court, like in the cases of Herbalife in 2016 and Young Living in April 2019. Monat, one of the more recently-popular MLMs, also faces accusations about being “cult-like” and marketing harmful products. Class action suits keep piling up against MLMs, raising questions about when an MLM becomes a pyramid scheme.
Are multi-level marketing companies legit or a scam?
So, are MLMs legit? The answer: it depends. How well a person succeeds selling the product is truly up to them. To avoid disappointment, you want to understand the risks, set realistic expectations, and do your research. MLMs that push recruitment really hard are more likely to get branded with the pyramid scheme label, and you are more likely to annoy your friends and family when that’s a really important part of your business. You should also be sure that the company isn’t making extreme claims about their products. MLMs aren’t inherently scams, but they aren’t golden tickets, either. There are also pyramid schemes hiding as MLMs, so be cautious.
MLMs aren’t the only companies guilty of possibly misleading customers. In the case of Monsanto, cover-ups could possibly be leading to cancer.