Multi-level marketing, or MLM, is a controversial topic. One side says that it’s a great income source with lots of flexibility, and the other says it’s just a pyramid scheme and the deck is stacked against the ones lowest in ranking. There have been many success stories with MLM, but also many horror stories. So what is MLM: profit-making machine, or pyramid scheme?
The truth is that things are rarely that binary, with only one of two extremes as the available options. MLM is not all good nor is it all bad. It is a tricky industry to navigate, so it is not for everyone.
Let’s consider a few things about how it operates and if it’s something you should look into.
What Is MLM and How Does It Work?
Multi-level marketing involves individuals selling a particular product and recruiting others to sell that product, too. Often these companies offer compensation from both sales of their goods and from the sales of people who you have recruited.
These “teams” of independent sellers purportedly build each other up and help increase their sales skills to earn that extra money.
Over time, as more people join the MLM, the structure eventually has a triangular shape. The top-level executives and sellers are fairly few, while the lower-level sellers with far fewer sales greatly outnumber them. This structure is part of why critics call MLMs a pyramid scheme.
The Opportunity in MLM
One can, hypothetically, make far more money from the commissions made off of recruits than by selling products. For those who get into these companies early on, they can make incredible amounts of money through their sales, and through the sales from several layers of recruits.
MLM work is highly flexible in its structure. You get to determine your hours and how much you want to devote to the business. This type of structure can reward those who have lots of self-discipline and are willing to make a schedule.
It can also be very rewarding to connect people with products that make their lives better. I know that for me, as a financial coach, it is incredibly rewarding to see what I do make a difference in people’s lives.
With MLM products, many of them are centered on health and beauty. If those products make your customers happy and add value to their lives, there is also a reward in that.
But it’s not all rainbows and unicorns in MLM-land.
The Danger in MLM
One of the biggest MLM scandals in recent memory comes from LuLaRoe. It was so bad that there is even a documentary mini-series on Amazon Prime about it. I watched it a few weeks ago and all I can say is WOW.
This company started in the mid-2010s and exploded in popularity over just a couple of years. The company made comfortable women’s clothing with unique patterns that attracted millions of people.
One of the primary advertising points the company had to bring in consultants was that it would allow for more family time. With an audience primarily of working moms, this sounded spectacular. Who wouldn’t want to make the income of a full-time job while working part-time hours?
If only it worked out that way. For many, they lost everything, including their homes and even their families.
The MLM company grew so rapidly that it became unstable. Quality suffered. Consultants burned out. Family finances suffered. One of the biggest problems was the manner in which consultants had to acquire inventory.
The startup cost was around $5,000, sometimes more. Consultants had to purchase their inventory upfront and then host their own selling parties. After they went through most of their inventory, they would have to repurchase a large quantity all at once.
Thousands of families took out loans to start selling the product. Some made a lot of money with it. But others ended up losing thousands or tens of thousands of dollars. The products began to have quality problems with ripping and mold. It was so bad that the State of Washington sued the company for unethical business practices.
The company still exists today, a shell of its former self. But thousands of families lost a lot of money by getting sucked into the appeal of what was really a get-rich-quick scheme.
Is MLM Right for Me?
Not all MLM companies are like LuLaRoe, and not all of them are scams. But it is still important to have discretion in determining if using this business model is right for you. Here are a few things to consider.
Am I fully sold on the product line? If there’s anything I’ve learned as an entrepreneur, it’s that you have to fully believe in the product or service you are selling in order to sell it effectively. Prospective customers can sense if one doesn’t believe in the product, and they will not buy when that’s so.
You have to really believe in what you’re selling. You have to be passionate about the difference it has made in your life and can make in others’ lives. If you’re not, you won’t succeed with it.
Is there a large startup cost? If the company requires you to do a massive purchase of product upfront, I say that’s a red flag. That’s a tremendous risk you are taking for yourself and your family. Especially if you are trying to get out of debt, taking on that big expense would slow down your journey to debt freedom.
If the company allows you to have samples along with a product guide, that’s less of an issue. You can order from the company as you get orders from customers, instead of having the pressure of thousands of dollars of inventory on hand. If you’re not sure, ask questions. If you can’t get straight answers, run!
Can I sell this product line without ruining relationships? One thing I have seen with those in the MLM business is that they tend to start selling to their immediate circle. That means family and friends. But these people aren’t necessarily your most likely customer base.
It is tempting to push boundaries to make a sale. In the process, the tradeoff is the relationship itself, as the other person no longer feels respected. As strongly as I encourage my clients to make extra money to help them reach financial goals, it’s not worth sacrificing those relationships.
In the end, what is MLM? It’s one way to earn money that’s simply not for everyone. Some people thrive in that environment and can make a good living while keeping up with their family responsibilities, too. But it’s a hard way to do business, and some companies have wreaked havoc on their consultants’ lives.
I’ve had this conversation with some of my clients. MLM is not for everyone. And that’s okay. It’s okay that you don’t want to sell this product line just because a friend is trying to recruit you. You get to decide what you will and will not do.
There are plenty of other ways to make money, and I’ll gladly discuss what your options are. Book your free Discovery Session today to find those extra income sources and fuel your journey to financial freedom!