Whether you are aware of it or not, multi-level marketing has invaded your social media timelines. From posts touting the miracle properties of essential oils, to messages asking if we’ve ever dreamed of being our own bosses, these direct selling companies and their distributors seem inescapable.
What is Multi-Level Marketing?
Multi-Level Marketing, or MLM, according to the Federal Trade Commission, is a business structure in which distributors “sell their products or services through person to person sales.” While this is a baseline definition, the sale of the respective product is only one of two ways to gain profit as a distributor.
The other, much more effective way, is to recruit other distributors; once they are recruited, or part of one’s “downline,” commission can be made by the recruiter on the downline’s sales. This chain continues, as the original recruiter then makes a commission from those recruited by the recruited, as so on, and so forth.
This emphasis on recruitment is perhaps one of the largest scandals associated with MLMs, and the reason that the term “pyramid scheme” often follows the mention of MLMs. The South Dakota Consumer Protection argues, “The difference between a pyramid scheme and a lawful MLM program is that there is no real product that is sold in a pyramid scheme.”
However, critics of MLMs assert that because MLMs emphasize recruitment as the main source of revenue, the product sold is meant only to serve as a legal buffer. These products, whether they are makeup, oils, workout plans, or life insurance, are meant to differentiate MLMs from illegal pyramid schemes. However, despite being legal, MLMs often bring the same negative consequences as those resulting from pyramid schemes.
MLMs can have disastrous effects on those involved. Most MLMs require a starting fee to begin one’s business, usually around $100 dollars. Some, however, have much higher costs. Lularoe is an MLM offering start-up kits for $5,000-6,000.
Though these companies and their distributors offer claims of “financial freedom,” the studied reality shows us differently. According to a 2017 AARP Foundation study, 47% of those involved lose money, never making back their initial investment. Furthermore, 27% make no money or break even. This means that 74% of those who sign up for an MLM will see no money from their work.
So, what about that lucky 26%? Well, the research shows of these remaining money makers, 53% make less than $5,000 a year- or around $400 a month, far less than any minimum wage job.
Evidently, MLMs are not a tool for financial freedom. If they are, they only bring financial freedom to the founders and those who entered the business early on. As more and more are recruited, the customer base for the product decreases. Eventually, this leads to market oversaturation, ensuring that new recruits will likely fail in their businesses.
For the MLM businesses, though, this is of little concern. Oftentimes, the consultants, meant to be those selling products, inadvertently become the company’s main customers, as many MLMs require their distributors to keep buying stock in order to stay “active.” Unfortunately, this can lead to debt, as those unable to sell their products will stockpile in hopes of keeping their dreams alive.
Who Is Targeted?
For those familiar with MLM distributors, you may know there is often a “type” associated with these businesses. According to the AARP Foundation, 60% of those involved with MLMs are women, many of whom are mothers. This is no coincidence.
There is a strong focus on stay-at-home motherhood in MLMs. This can be linked to the surprising origins of MLM companies. There are at least 100 MLM companies centered in the state of Utah. Many of these companies were founded by members of the Church of Jesus Christ of Latter-day Saints. The Mormon community, in particular, with its strong emphasis on motherhood and “family values,” is a hotbed for MLMs. Likewise, the strong connections within the community are conducive for person-to-person sales. Because of this, many MLMs place emphasis on one’s ability to “find financial freedom” while still staying home with children.
Though this is an exciting prospect for many parents, the outcomes simply don’t play out. While one can stay at home, the MLM business often quickly consumes them. They become focused on making sales and recruiting over Facebook Messenger.
Unfortunately, this emphasis on the importance of staying with one’s children reinforces patriarchal ideals of motherhood and reinforces the idea that full time, out of the home, work limits one’s abilities as a mother. It should be noted that this attitude is generally placed on women, with men are rarely expected to join MLMs for their children. Another key aspect of MLM participants is new immigrant communities. MLMs, along with selling people the dream of staying home with their children, will sell the “American Dream.”
New immigrant communities, often Latinx and Pinoy, are targets of these companies, who offer recent low-income migrants the fantasy of financial success through direct sales. Herbalife, an older MLM that has faced many legal battles, is particularly known for its targeting of Latinx communities. The 2016 documentary Betting on Zero highlights one case, in which a Latinx family lost their life savings to Herbalife. Unfortunately, Herbalife continues to advance its dangerous marketing, as it is now the main sponsor for various global soccer stars, including Christiano Ronaldo. Due to the popularity of soccer in Latinx and migrant communities, it can be said that this, too, is another ploy to bring in new distributors.
What Can We Do?
Multi-level marketing is dangerous. Oftentimes, these companies will target those who need extra income the most, as they have more at stake. But, in turn, these individuals often have the most to lose. We must stay hyper-vigilant, and use our voices to educate about the dangers of these predatory companies. Our input, though seemingly insignificant, could mean preventing potential financial disaster for those most vulnerable.