Let me preface this post with the fact that there are some people who have made a good living out of direct sales/multi-level marketing (MLMs). But they’re typically the exception and not the rule.
This post is not a judgement of those who work as independent sales reps in direct sales. Instead, it’s a concern over the MLM companies’ questionable structure and unethical practices. It also serves as a warning to those who are in a vulnerable place financially and career-wise and therefore are considering joining an MLM before knowing the facts and risks involved. As a career coach I wouldn’t be doing my job if I didn’t provide the following words of caution.
What are MLMs?
Direct sales is also known as multi-level marketing (MLM). This is where people pay a buy-in fee and purchase inventory to sell a product directly to a customer, while also recruiting others to do the same, earning some money from sales, but mostly from their recruitment and their downline’s sales.
You’ve probably had a “friend” or acquaintance you haven’t heard from in ages hit you up on Facebook wanting to meet for coffee. You agree because you’re so curious as to why they want to meet with you after so long. When you do meet with them, you realize there’s more of an agenda than just coffee and catching up. They want to talk with you about “an amazing career opportunity” guaranteed to “change your life.”
This opportunity will let you be your own boss, work from home, make your own hours, and earn as much money as you’d like. Plus, they say, it provides independence, empowers you, and uplifts you.
This might sound great to some people. Especially those who are at a low point in their lives or careers and need lifting up. Or those who have just lost their jobs or want to spend more time at home with their children.
But are MLMs a viable career option? Can you really make money in an MLM? To answer this question, let’s first look at the statistics.
Consider the truth and understand the risks.
MLM companies are making a fortune, but the participants are NOT. From my research (see sources below), only one percent of people who join MLM companies earn money. The other 99% actually lose money. Some as much as five-figures.
Many MLMs require steep buy-ins, as much as up to $5,000 for some. And depending on the product and the structure of the MLM, these costs continue on a monthly basis due to monthly inventory purchase requirements to stay active and earn rewards. But typically, commissions on inventory sold are very small. Usually there is more emphasis instead on recruiting a downline.
This might sound a lot like a pyramid scheme. Because by definition, it is when the emphasis is on recruitment of a downline.
“One of the hallmarks of an illegal pyramid scheme is a promise that sellers will make money from recruiting others rather than selling the product,” says the Federal Trade Commission.
So if an MLM is pushing you to recruit more than they are pushing you to sell, BEWARE!
And, even if an MLM is legal by the above definition, it’s practices my still be unethical.
MLMs cannot turn you into an entrepreneur!
MLMs promise a “safe” way to become an entrepreneur. News flash: becoming an independent sales consultant for an MLM does not make you an entrepreneur! The only entrepreneur in this game is the one(s) who created the product and created the company itself.
And just because the opportunity lets you make your own hours this also does not make you entrepreneur. So don’t fall for this sales pitch.
There’s not much that’s financially safe about joining an MLM. As stated above, most people who join MLMs lose money. Those who do make a profit average only about a $1,500 profit per year.
You’re likely to be more successful by being a true entrepreneur and starting your own business. The amount of hard work required in MLMs just to stay afloat could be better used to build something more profitable and something you’re truly passionate about.
And you’re likely to be more successful. Statistics show about 39% of small businesses earn a profit over their lifetime versus 1% of MLM reps.
My guess is, there’s probably something you’re more passionate about than just being a glorified distributor for lipstick, leggings, or “nutritional” juices. Why not pursue those passions with the time, energy, and money you’d spend on something you’re not passionate about? At least you’d likely have more to show for it than a garage full of unsold inventory.
MLMs prey on women
Seventy-five percent of people currently signed with an MLM are women. This number is due not only to the type of products, but also to the increased cost of child care forcing women to stay home with their children. There’s no wonder MLMs prey on this predicament.
They use the appeal of working from home, making your own hours, becoming a “mommypreneur” and being a “girl boss” to lure women who are in this financial predicament.
However, instead of seeing their income grow, women who’ve been involved in MLMs have seen their debt grow.
“MLMs are the most despicable form of corporate feminism. They use their ‘you go girl’ branding to trap capable, ambitious women in a worsening cycle of debt. If MLM founders actually believed in empowering women they wouldn’t scam them out of their life savings,” says one journalist.
Ladies, don’t settle for being a “girl boss”. Aspire to be a “woman boss” and take control of your career! You shouldn’t have to pay for your job!
Viable career option, or risky gamble?
If you already have a proven track record as a leader, salesperson, and someone who can REALLY hustle, then joining an MLM could be a viable career option for you. But you need to understand the risks. One journalist has said, “The risk with MLMs is so high you’d be more successful at making money gambling than you would at joining an MLM.”
So before you sign up and pay your buy-in fee, do your research! This includes talking to former reps and participants, finding out why they left, and learning about the products outside of what the company says about the products.
Most of all, find out if the commission on your personal sales is higher than the commission on the sales of your downline. If it is, then it’s likely more reputable than most other MLMs.
I also suggest having another source of income when you first start, whether it’s a full-time or part-time job, and/or a spouse who’s also bringing in an income (with benefits).
Finally, be realistic about how much you can ultimately invest in the opportunity before you risk unmanageable debt. Make sure someone outside of the MLM (a friend or family member) holds you accountable to this amount. So many people get caught up in the recognition and awards that come from the amount of inventory purchased (NOT the amount sold!) they overspend just to reach those recognition goals.
If you already have too much personal debt, it’s not worth the risk at all. Besides, if you have to pay for a job or a paycheck, it’s probably only going to benefit the person receiving your buy-in money, not you!
Sources: http://abcn.ws/1PUpW8I, https://www.finance-guy.net/mlm-reviews, http://www.pinktruth.com/, https://bettingonzero.com/, https://youtu.be/lLBmElR0Luw, https://youtu.be/s6MwGeOm8iI, https://medium.com/@antionetterparker/why-creative-memories-just-couldnt-compete-review-4860f97dcf86