Are MLMs truly a scam?
It goes by many names: multi-level marketing (MLM), network marketing, direct sales. The advertisements are simple and appealing: Be your own boss. You’re already on your phone so you might as well make money from it! Online, the ads show girls with free cars and vacations. Whether the product is smoothies, essential oils, leggings, or makeup, the goal is to sell products to family and friends, and to market the lifestyle that comes with being an independent retailer for the MLM.
These companies promise financial freedom, a supportive network of colleagues and mentors, and a fool-proof business plan. MLMs have been around since long before social media existed, and thanks to the ease of communication on the internet, they’re stronger than ever.
There are strong opinions surrounding MLMs. Some think it’s cult-like and a complete scam. Others think it’s an amazing, once-in-a-lifetime opportunity. Those who work for MLMs are sometimes referred to as hunbots for their tendency to add a cutesy spin – hun, babe, doll - to every message or social media post.
The most controversial aspect is that MLMs are designed to encourage constant recruitment.
Imagine a scenario in which Ben joins an MLM. The person who recruited Ben is his ‘upline’, and the people Ben recruits are his ‘downline’. He makes a percentage of the sale that his downline makes, and once his recruits hire their own recruits, he’ll also make commission off of their sales. The bigger the downline, the bigger the windfall.
This recruitment-focused business model is a big part of what breeds unethical practices in these companies. In any organization, some people will exploit the system, but it’s far easier to do so in a minimally-regulated MLM than in a regular company.
Lily*, 20, a seller for Younique, said, “You see some up-lines that just push recruitment, recruitment, recruitment. They don’t really try to sell the products at all. And that’s when you know it’s kind of shady.”
The difference between MLMs and pyramid schemes is that MLMs sell actual products, while pyramid schemes make money purely from recruitment.
Many MLMs sell highly marked-up products that make them hard to sell, so a lot of sales come from inside the company, from the recruits buying their starter kits and building up inventory. According to a report published on the Federal Trade Commission’s website that studied the business models of 350 MLMs, at least 99% of people who join MLM companies lose money.
MLMs can start to resemble a pyramid scheme, where only those at the top with huge downlines make significant profits, while those at the bottom struggle to break even. However, that’s not always the case. It really depends on the ethics of the individual seller, and if the products are actually sellable.
Monat Global currently has three class action lawsuits filed against it alleging that the hair products cause hair loss and scalp irritation. Whether the claims are true or not, it likely impacts a customer’s likelihood to buy the products. The carefree lifestyle of a Monat retailer is far easier to sell.
Lily originally got the starter kit for a discount on the makeup, but ended up liking it enough to become a seller. She makes 100 percent of her MLM income from sales. She has found the experience overall positive.
Lily added, “It really depends how you get into it. I only went into it after I had done a ton of research and had read almost every anti-MLM post out there. And I was realistic and didn’t go in thinking I’d become a millionaire. I only sell the products I love.”
* Name changed to protect the individual’s privacy.