26-year-old Meredith Adams was living in New York and running a food-tasting tour business when she was approached by a stranger on the train about a business opportunity to make extra income. It sounded interesting, so she gave him her card. Little did she know this would begin her seven-year involvement with what she described as a “cult-like” multi-level marketing (MLM) company.
In an interview with The Ways To Wealth, Adams described how the MLM sucked away her time and her money.
“We were required to go to weekly meetings, which we had to pay to attend,” she said. “Plus, we had to go to conferences that took up a minimum of eight weekends a year. The annual cost was nearly $1,000, not including food or travel expenses. You’re there all the time. They were always making up events to attend, and it wasn’t socially acceptable not to go.”
When Adams finally decided to leave because she wasn’t making the money she wanted (and because she was tired of the heavy time commitment), her former mentors shunned her.
“I knew it would be the end of the relationship with all of those people,” she said. “I knew they wouldn’t want me to call them or waste their time going to lunch to talk about it, so I sent them a text. I said I wanted to keep in touch and still celebrate their sales milestones with them. They replied that there was no need to celebrate with us if you’re not part of the system. It was never a real friendship.”
Adams’ story is not unique. Chances are you’ve also been approached by a friend, coworker or complete stranger with an irresistible business opportunity. But earning money by selling for multi-level marketing companies — sometimes called direct sales or network marketing companies — isn’t usually as lucrative, as easy or as ethical as it seems.
In fact, you can easily end up losing money rather than making it. Even worse, research shows that MLMs can negatively impact your relationships with your friends and family.
In this article, we’ll explore how MLMs work, the truth about the earnings of those who participate, the problems with the MLM model, and a few alternatives worth considering.
Key Findings
- MLMs tend to target women, stay-at-home moms, and young people who want to earn money and need a flexible schedule.
- Most MLM participants either break even or lose money, and most of those who do profit make meager earnings.
- Even for companies that do not heavily push recruitment, there are problems with the MLM model, such as saturation, lack of sales training, and negative social impacts.
What Is an MLM?
MLM participants (often called distributors) earn commission from the products they sell. Participants are also encouraged to recruit other people to join their team of salespeople, called their “downline,” and they may receive a bonus for recruiting new participants, commissions from the sales made by the people they’ve recruited, or both.
New MLM companies are forming all the time, but you’ve probably heard of a few that have been around for decades. Notable examples include Mary Kay, Avon, Herbalife and Tupperware.
Like a traditional business, there is usually an initial cash investment that covers things like training, infrastructure (such as a website) and/or inventory. However, those who work for MLMs are considered independent contractors, and much of the recruiting language touts that those who sign up can “run their own business” or “be their own boss.”
While this might be technically true, in reality, MLM distributors have no control over the products they can sell or the prices they can charge. And often, distributors are required to follow strict rules about anything from how products are marketed to what they can (and cannot) post on social media. Failure to comply with a program’s rules can result in penalties or getting kicked out of the program altogether.
Targeted Demographics for MLMs
MLMs often tout their flexibility, offering the opportunity to earn a decent income on a flexible, part-time basis from home. Because of this, specific groups of people tend to gravitate to MLMs and make up a disproportionately large percentage of their ranks.
Women
The Direct Selling Association estimates that 74% of MLM participants are women. Many MLM companies also supply products to a feminine market, such as cosmetics, women’s clothing, candles and jewelry.
Stay-at-Home Moms
These women are unwilling or unable to leave the home to work traditional jobs, so MLMs (which profess to allow distributors to work from home and set their own hours) look particularly attractive. Stay-at-home moms make up 16% of the ranks of MLM distributors versus 2.4% of the general population.
Young adults
Of MLM participants surveyed, 60% of MLM participants were age 29 or under when they joined, and 12% were students. This tracks with the experience of Jason Burke, who started selling juice products with an MLM in 2003.
In an interview with The Ways To Wealth, Burke said he signed up at age 19 expecting to make easy money.
“Well, it wasn’t. In three months, I didn’t get any signups. I also only sold four bottles. I wasted around $300 and only received a check for $18.”
MLMs and Earning Potential
While those who recruit new distributors for MLM companies praise the uncapped earning potential, the statistics tell a different story. The truth is that most people (between 73% and 99%, depending on the study) who join MLMs make $0 or lose money.
A study published by AARP reports that of those who profit from their MLM efforts, 53.4% made less than $5,000 and 23.7% made between $5,001 and $9,999. Only 7% made over the median full-time income (around $58,000). So claims of making full-time income on part-time efforts are misleading.
Typical Earnings vs. Average Earnings
To make proper sense of these earning statistics, we have to return to middle school math class and differentiate between median and average.
The average simply puts all the earnings (the extremely high to the extremely low) into a pot and divides it by the number of earners. In contrast, the median lines up all the data points and selects the one directly in the middle. For this reason, the median is a better indicator of where the true middle ground lies and is not as swayed by extreme highs and lows.
So even if an “average” MLM earner makes $1,000 or $2,000, the truth is that many more on the bottom tiers make far less, and that the average is pulled up by a few high earners at the top.
When you break these numbers down, it’s easier to see the discrepancies.
For instance, over a third of Neora’s distributors made $0 in commissions in 2020, but the average annual earnings were $1,054.
Similarly, the average annual income for Beauty Counter was $2,060, but the top 1% of consultants made $94,718, while the average earnings for base-level consultants (82% of the company’s ranks) was a mere $46 per month.
Meanwhile, Herbalife’s earnings disclosure notes that 50% of their distributors made more than $210 per month — which means that the other 50% earned less than that.
MLMs as a Side Hustle
Some people join MLMs not to make a full-time income but rather as a side hustle idea or alternative source of income. We spoke to MLM participant Anthony Kirlew, who said that he has had some moderate success with an MLM because he focused more on the product he was selling than on growing his downline.
“I [am] not focused on pushing the team,” Kirlew said. “I promote the service because I love it and believe in it, and I love that it pays a residual income. I don’t make a huge amount of money, but I still get paid for customers I signed up over a decade ago. I enroll new customers as I see that it can be a good fit for a friend or client.”
Problems With the MLM Model
Even if a company offers great products and a fair commission structure, there are a few issues inherent to the multi-level marketing model.
It Favors Early Adopters
The structure of MLMs tends to favor those who enter the organization early on. The greatest earning potential is often not from products sold but rather from commissions earned by downline team members. Those at the top of the pyramid (early adopters) have the greatest opportunity for downline income, as all the growth of the MLM happens in the lower tiers.
Dubious Marketing Claims
There is an inherent problem with the marketing message of MLMs. These companies often purport that your success is totally contingent upon your efforts and willingness to invest, market and sell. They highlight the success stories of those who have been in the organization for a long time, extolling their efforts and showcasing their high profits.
However, this outsized success chiefly comes not from hard work but rather from the fact that the successful distributor joined the organization early on or stuck with it long enough to amass a huge downline.
They didn’t rise to the top; the bottom grew beneath them.
Additionally, several MLMs have gotten into legal trouble for deceptive marketing claims about their products, return policies and more. These lawsuits are typically settled outside of court, but the FTC issued notices of penalty offenses to over 630 MLMs, warning of financial penalties for companies that knowingly make deceptive statements about income claims.
Saturation
Theoretically, anyone can grow their downline. But late adopters have a problem that early adopters do not: saturation.
To illustrate this problem, let’s take the following example.
If I decide to become a cosmetics distributor for an MLM, and I’m the first one in my town or neighborhood to do so, that might be a good business opportunity.
But if much of my success and income relies on recruiting other people to sell the same cosmetics in the same geographic area, I’m saturating my own market with the same products. I’m creating my own competition, thus diluting my chances of success.
By the time I’m the 10th or 100th distributor for the same MLM in my area, my odds of seeing the same profits as the first distributor in my area are low.
What’s more, eventually I will run out of people to recruit. Mathematically, if each new MLM recruit signs up just two additional distributors, the entire population of planet earth will be recruited by the 32nd level.
No Sales Training
Surprisingly, 75% of MLM participants had no sales experience prior to signing up. Some MLMs provide sales training, but many do not.
What’s more, some companies charge you for training, especially in the form of mentorship conferences. Meredith Adams says that in her experience, “the system was designed so that if you were able to make money selling products, all that money was put back into their mentorship program.”
Manipulative Psychological Tactics
Many MLMs are known to use manipulative tactics on both distributors and potential new recruits, such as “love bombing,” which is the practice of showering a new distributor with an abundance of initial welcome, attention and praise to get them to join and invest in the program.
Interested newbies are also often given a rags-to-riches tale from a higher-up in the organization, promising that with hard work and commitment, they too can achieve limitless success.
A common complaint of many former MLM distributors is that questions or problems are often turned back on the distributor; they’re never the fault of the product or company. So if your sales or recruitment are low, you’re just not working hard enough.
Social Impact of MLMs
Perhaps the most critical yet unmeasured cost of MLMs is a social one. Distributors profit from selling to and recruiting friends and family members, which can end up commoditizing (and subsequently damaging) relationships.
For example, many MLM distributors sell through parties or other get-togethers with friends. No one wants to be the party pooper who leaves the Mary Kay spa day or Pampered Chef party without having bought something to support the host.
So sales and recruits are generated not only from those who are genuinely interested in the product, but also those who begrudgingly comply out of perceived social obligation or friendship. In fact, 39% of those who left an MLM did so because it became awkward to pitch their products to friends and family.
In some extreme cases, MLMs encourage members to distance themselves from friends or family members who don’t support their business pursuits.
For example, Adams says that the messages she received from her upline regarding her relationships evolved over time.
“One year in, they’d say ‘Distance yourself from people who aren’t in the MLM or who don’t support your business decisions.’ But when I got five years in, they said ‘If your family really supported you, they’d do this with you’.”
Adams’ experience isn’t an anomaly. Of MLM participants surveyed, 11.9% have lost a friendship and 26% have fought with family or friends due to their involvement.
Why Are MLMs So Attractive?
With all the bad press, lawsuits and minimal earnings, it may make you scratch your head as to why people join MLMs in the first place.
An AARP study shows that 63% of participants join to make money selling products while 23% join to make money by recruiting others. And while many MLMs do provide disclosures about earning potential, the majority (54%) of recruits do not see these figures as very accurate. In other words, their experience with the MLM did not meet the their expectations based on the available disclosures.
Most people join MLMs because they’re recruited by someone they already know and trust — a friend, coworker, family member or someone else with a common connection, such as a religious or volunteer organization. So it’s easy to see why the MLM model is perpetuated.
What’s more, the MLM “business” you own comes in a package, often with the website, marketing materials and product literature created for you. If you were to start your own business from scratch, you’d have to generate all of this yourself, which can be intimidating and costly.
Are MLMs Worth Your Time?
Usually not. The median hourly earnings of surveyed MLM participants was just $0.67 per hour — and that’s before deducting expenses!
The median number of hours worked by participants was 33 hours per month. For that same amount of time, participants could have earned more working a minimum wage job at $7.25 per hour ($239.25 working for minimum wage versus $22.11 selling for an MLM).
What’s the Difference Between MLMs and Influencer Marketing or E-Commerce?
Many MLM distributors market their products and recruit new members with social media. While many of the posts and reels look like typical influencer content, there are key differences between them that may be opaque from the customer’s point of view.
For example, influencers can choose which brands, companies, and products to promote or partner with. Distributors for MLMs only sell the products carried by the company they represent. Both earn a commission from the sales of items they promote, but working for an MLM is far more restrictive.
E-commerce businesses are much more like traditional businesses than either influencers or MLM distributors. They choose and price their own products, then promote or sell them online. Independent Amazon stores or eBay sellers fall into this category, as do entrepreneurs who create their own products or curate an online store.
Most of the time, participants in MLMs are not permitted to sell products through traditional e-commerce platforms.
Are MLMs the Same Thing as Pyramid Schemes?
Not technically, though the distinction is murky. There is a lot of conceptual overlap between MLMs and pyramid schemes, but there is also an important difference between the two.
In a pyramid scheme, the main way participants profit is by recruiting others to join the organization. They pay a fee to join, which travels upline to those already in the pyramid. Little if any profit comes from the sale of products, or the products are only sold to those in the pyramid, not outside consumers.
An MLM has the same upline feature but skirts the designation of being a pyramid scheme because real products are sold to customers. Some MLMs cross that line by leaning too heavily on recruiting downline distributors.
Signs That an MLM Is a Pyramid Scheme
All MLMs are not created equal. Some encourage the sale of products over recruitment, while others lean heavily on getting others to join to make money. The latter is where companies can get into pyramid scheme territory.
The FTC has outlined a few ways to tell if an MLM is a thinly veiled pyramid scheme. Here are some things to look for:
- Promoters make promises of extravagant earning potential, or offer luxury prizes for reaching sales goals.
- Leaders pitch recruiting as the real way to make money within the organization.
- Promoters use high-pressure sales tactics or emotionally charged language to get you to commit right now, not wait to study out your options.
- Distributors buy more products than they can use or resell with the intent of qualifying for bonuses or rewards.
How Do You Vet an MLM?
If you’re set on joining an MLM, it’s critical to do your due diligence to ensure you have the greatest probability for success. Before you join, ask the following questions to vet the company and whether it would be a good idea.
- Can the product sell on its own? If the product was available in a brick-and-mortar store in its current form at its current price point, would it sell? If the answer is no, you’re better off finding something else to sell.
- Is there more emphasis on selling products or on creating a downline? Statistically, you are more likely to profit from playing roulette than you are to profit from working for a recruitment-driven MLM. Plan on making your money from selling products, not recruiting others.
- How many other sellers are marketing to your area? If your neighborhood is already saturated with sellers of the same products or people who have already signed up, you’ll have a difficult time making money.
- Is there a return policy? Many MLMs now offer a money-back guarantee on your investment or a return policy for unsold, unused products. Ensure that the company you’re considering joining offers a similar guarantee.
- If you’re just joining to get the discount, is it worth the initial investment? Many people (43% in the aforementioned AARP study) cite getting products they love at a discount as one of the reasons for joining an MLM. If you’re planning to do this, be sure any initial investments to join or minimum order numbers justify the amount of money you’ll be spending on products.
- What does a typical representative make? Many MLMs offer an earnings disclosure form on their website or as part of their sign-up literature. Read these with a critical eye as 40% of participants felt that the company gave misleading descriptions of their opportunities for success.
Alternatives to MLMs for Part-Time Income
For those who want an income stream that also provides flexible hours and the ability to work from home, there are a myriad of options available that aren’t MLMs. Here are a few of our favorite alternatives:
- Freelance writing. You can get started freelancing on sites like Upwork or Fiverr with very little investment or experience. Earning $20 per hour to start is a reasonable expectation, and that figure can be doubled or even tripled fairly quickly.
- Selling digital downloads. Selling printable artwork and designs on Etsy can be a lucrative side hustle and a source of passive income (because you can keep selling the same items over time).
- Virtual assisting. From customer support to project management, all sorts of businesses outsource specific tasks to virtual assistants. Helping with these can earn you a decent hourly wage from home, and usually with very flexible hours. Learn more about getting started as a virtual assistant.
You can also refer to our lists of legit online jobs and good jobs for stay-at-home moms, both of which highlight opportunities with good earning potential and a proven track record. Plus, the ideas in these lists can often be leveraged as businesses rather than jobs, if you’re looking for an entrepreneurial opportunity that offers both flexibility and the potential to scale up over time.
