Multi-level Marketing

Multi-level marketing, also referred to as network marketing or simply MLM for short, has been around for decades. Have you ever been contacted out of the blue by a friend who claimed that you would be perfect for an opportunity they have? If you have ever received a "cold message" like that, it most likely had to do with an MLM. MLMs are often compared to pyramid schemes, so in order to understand how MLMs work it would be best to understand what pyramid schemes are and the difference between them and MLMs.

Pyramid schemes vs MLMs

Pyramid schemes are based on recruitment. Members are told to recruit other members into the scheme. They are promised riches and a dream lifestyle. Members lure others into the scheme by promising these things. Members need to pay a fee in order to get into the scheme. The structure of the scheme is shaped like a pyramid. Those at the top get money from those they recruit underneath them. This means that those at the top make all the money and those at the bottom (who make up the majority of the people) get nothing. MLMs are structured the same way as pyramid schemes. They are also based on recruiting and there are often different levels or "ranks" that you can achieve based on how many people you have recruited. The difference between an MLM and a pyramid scheme is that an MLM also sells products, so in theory you can make money by not recruiting anyone and just focus on selling products. This is usually not the case though, and most MLMs focus heavily on recruiting.

The truth about MLMs

The truth is that MLMs are extremely similar to pyramid schemes. The only real difference is that there are products involved. What the product is doesn’t really matter. The products are usually related to beauty, wellness, and fitness but can be literally anything. They are usually something that people can keep buying. The products are also usually overpriced. MLM reps often say they are their own boss and that they have their own business. This is not the truth. Working for an MLM is basically being both a salesperson and a recruiter. It is a 1099 contracting position, so everyone who is recruited into an MLM is a contractor for that company. To get started in most MLMs you need to buy a starter kit, which is a replacement for the fee that you would pay to join a pyramid scheme. This cost of the starter kits can range anywhere to under a hundred of dollars to thousands of dollars. Usually when there are more than one kind of starter kits, those in MLMs will pressure new recruits into buying the most expensive one (this is because the recruiter gets more money if the new recruit buys a more expensive kit). Most MLMs also require you to purchase product every month in order to keep your rank. This leads many people to spend more money than they actually make. According to the FTC, 99% of those in MLMs lose money! Anyone who tells you that you can make millions easily in an MLM is lying to you, it is statistically unlikely that you will make any money, and if you do it will be very little money (much less than a minimum wage job would pay). Those who make money in MLMs are those who are at the very top. Everyone else is making a meager amount of money or is losing money.

Another thing that MLMs do is distance you from those you love. In order to make money you need to either sell products or recruit. Which means you will be flooding your social media about joining the "opportunity". People will get annoyed by this, and many will unfollow or block you. Lots of people who have been in MLMs have reported how they ruined their relationships with loved ones. MLMs have often been compared to cults. Those at the top brainwash those at the bottom. They tell them that they should distance themselves from those who are not supportive of the business. Soon the only friends someone has are those who are also in the MLM. However, a lot of these friends are fake friends. Often times they are only friends with people because those people are making them money. They also treat each other poorly. When someone isn’t doing well in the MLM they are told it is their fault for not working hard enough, even though it is the MLM that is failing that person, it is statistically not meant to work for everyone. When those people eventually leave the MLM they are often shunned or ridiculed. Their "friends" will block them on social media, leaving them with no one. MLMs are often advertised as letting you live a lavish lifestyle with barely needing to work, but the reality is that it will lead to frustration, stress, and depression.

What to look out for

Here are some "red flags" to look out for:

• A person talks about a "business opportunity". They will usually say it is easy and you only need to work a couple minutes a day from your phone. The truth is that you will never make a livable income from just working a few minutes a day.
• Someone mentions time freedom and that you will have more time than a regular 9 to 5 job. Most who work in MLMs work all the time, taking no breaks. Some will post about their MLM when they’re at a wedding or even at the birth of their own child. At a normal job you get time off, and when you’re not working you don’t have to worry about work. MLMs do not provide time freedom, they are time consuming.
• The company focuses on recruiting more than the products. If the company focuses much more heavily on recruiting than on selling products, then the products are most likely a façade for the company being a pyramid scheme.
• Someone mentions a lavish lifestyle and tells you that you can make millions a year. They will use words like "financial freedom", "residual income", or "passive income". Remember if it seems too good to be true, it probably is. You are much better off getting a more stable and less sketchy job.

If you see any of these red flags, it is best to just stay away.

What to do

If you come across a company that you believe is an MLM, try our MLM detector , it can tell you if a company is a known MLM or not. You can also report a suspected MLM or pyramid scheme to the FTC here. If someone messages you about an MLM or a business opportunity, the best thing to do is tell them you are not interested.

Learn more

The FTC has a great article about MLMs and Pyramid schemes that you can read here. This is a good video about pyramid schemes: How to spot a pyramid scheme - Stacie Bosley . This is a good video about MLMs and how they can be like cults: The Multilevel Marketing Cults: Lies, Pyramid Schemes, and the Pursuit of Financial Freedom.