MLMs have been around for a long time now, decades, in fact. Our mothers and grandmothers can probably recall at least one time when “Tupperware parties” were all the rage. Seasons change, technology advances, people grow up, and yet MLMs still haven’t lost their sparkle. Mary Kay, Herbalife, Amway, Younique, Lularoe– what is it about MLMs that suck people into joining despite the sometimes exorbitant amount of membership fees and sky-high selling expectations?
In today’s Work From Home Ideas, we’ll be talking about MLMs. What are they really and should you consider joining one?
What is MLM (Multi-Level Marketing)?
MLMs (also known as multi-level marketing, network marketing, consumer direct marketing, word-of-mouth marketing, the list goes on) are a form of direct marketing where the seller sells items straight to a consumer, without going through a store or shop.
The reason why it’s called multi-level is that MLM sellers or distributors usually work on a recruitment basis, or get bonuses for additional recruitments. Since the products sold through MLMs usually carry higher prices than regular products, oftentimes, an MLM seller has to resort to pushy or aggressive marketing in order to achieve sales. And since recruiting someone else gives MLM sellers bonuses, many of them tend to become rather forceful when recruiting others. Because of this, many MLM practices are often viewed as predatory and taking advantage.
Let’s see how the typical MLM scene usually plays out in real life.
Suppose Anna is a distributor of MLM products. She paid, let’s say, $100 for signing up and another $100 for her initial inventory. Her products are priced approximately 60% higher than a regular store brand, but she receives 20% of each successful sale that her recruits will get. Plus, she also gets a commission whenever she recruits someone new. And when that someone recruits someone else, Anna still gets a percentage. Which means that the bigger her ‘downline’ gets, the more she earns in passive income. To top it all off, she gets to be flexible with her time and even work from home. All she has to do is to sell enough of her inventory and recruit other interested sellers. Win-win, right?
Can you earn money from MLMs?
Wrong. If Anna is like 90% of all MLM sellers, she probably won’t be able to earn anything from selling her products. Most likely, she’ll never even be able to break even.
Did you know that according to a recent 2018 survey by MagnifyMoney, over 80% of all MLM sellers earn $0.70 per hour gross? That’s right, the average MLM seller can’t even make enough to cover their own expenses. Many have to get into debt just to be able to afford to continue their ‘business’.
Here are some alarming statistics gathered over a five-year period:
- 20% earned $0
- 37.2% earned more than $0 but less than $500
- 27.3% earned more than $500 but less than $5000
- The median hourly earnings are $0.67
- The median monthly earnings are $18.18
- Men earn a median of $35 in a month, women earn $14
And this survey spanned five years! Just imagine earning that much in 5 years. The horrible thing is, more and more people are joining MLMs, for reasons far beyond me. Many people, including popular finance and development bloggers, warn against joining MLMs for more reasons than one.
Why you should be wary of MLMs
MLMs can be rather dangerous. They prey mostly on single mothers, stay at home moms (SAHMs) and fresh graduates who are looking for a job. they also tend to target people who are already desperate to earn money, basically preying on the weak and vulnerable. After all, when you’re desperate to make ends meet, what can be more attractive than the words, “Do you want to earn $50 per hour?”
- MLMs can be deceitful. As mentioned above, they prey on those who are most vulnerable. Why? Because they need someone who’s vulnerable to their deceit and lies. MLM representatives are known to lie about anything and everything just to rope in unsuspecting people into their schemes. They might tell their targets, “This is a good opportunity for you!” or “I thought you might be perfect for this job!” but that’s not the truth. The truth is, they don’t have any concern for you. All they’re concerned about is lining their pockets with the money that they’ll be earning from you once they manage to trick you into joining.
- MLMs have high start-up and maintenance fees. Lularoe is especially guilty of this. Just to start in Lularoe, you need around $6000 worth of start-up costs and initial inventory costs. The Lularoe reps, called ‘consultants’, will assure you that you’ll get everything back in a few months (some are brazen enough to say a month) but it hardly happens. In fact, the average Lularoe consultant who actually sells something sells around $3,500 worth of products in a month. That sounds good, doesn’t it? But think about it. It costs $5,000 just to start up. And that’s still their gross. If you subtract all their expenses and inventory costs, the average Lularoe consultant doesn’t just not earn a profit, they actually take a loss.
- MLM representatives can be very predatory. It’s not unusual to hear MLM reps becoming pushy or aggressive when recruiting people into their ‘businesses’. They go to crowded areas like coffee shops and bookstores to try and convince people to join their teams. That’s because they want to expand their ‘downline’, as they call it, in order to earn the maximum amount of revenue. One example of an MLM that uses this tactic is Amway. People have become so wary of Amway representatives in coffee shops, some are even writing guides on how to spot and avoid them.
- MLMs can get you in debt. More importantly, MLMs can cause and have caused people to go into debt. According to MagnifyMoney, “the financial burden of success in multilevel marketing may encourage participants to rack up debt to attend conferences and training or pay for marketing materials and other expenses related to involvement”. If Anna was easily gullible, she could rack up potentially thousands of dollars worth of products in the hopes of earning just as much.
- MLMs can ruin relationships. Many MLM representatives are forced to lie or hide about their MLM involvements to their friends, families, and even partners. Some of the most notorious ones are Mary Kay Cosmetics and Lularoe. Mary Kay higher-ups are said to encourage their sales representatives to hide their credit cards receipts from their spouses while Lularoe consultants are said to help other consultants hide their purchases from their irate partners who have put them in “Lulajail”.
MLMs as a work from home idea: Yay or Nay?
Dave Ramsey, author of the best-selling books The Total Money Makeover and The Complete Guide To Money, once said that you can make a lot of money on MLMs if you have the personality for it. He received a lot of flak for it, though he maintains what he said to this day.
The jury is out on the subject of MLMs, and unfortunately for us, the decision isn’t unanimous. Some people still have faith in MLMs. Some consider them straight-up scams. Personally, if it’s not obvious yet in this article, MLMs are an easy NAY for me. There’s simply nothing wise about joining an MLM as a side hustle, and I’m all for wise money-making opportunities.
I don’t want to make hasty generalizations and say that everyone who has ever joined an MLM has only lost money on it, because that’s not the truth. Some people have earned some amount of money from MLMs. But whether or not it was worth all the time and effort they put into their ‘business’, I can’t say.
In general, though, the average MLM representative hardly makes pennies doing this kind of work, let alone a living wage. You’re much better off with a minimum-wage job than an MLM, most of the time. Or if you really need to stay at home, why not try doing some freelancing? Do home-based transcription work, participate in online surveys, become a virtual assistant– there’s a whole world of opportunities out there!
One thing I know for sure is this: if you’re really serious about earning money in your pajamas, MLMs are definitely NOT the way to do it.