In multi-level marketing,
aka network marketing, aka affiliate marketing,
aka dual marketing, aka consumer direct marketing,
aka direct sales (which is its own thing, but every MLM is also direct sales)—
The tiny top recruits and recruits until there is a gigantic bottom.
How do MLMs work?
The sales and marketing force for MLMs work as independent contractors. They receive no health benefits, no paid vacation, no insurance against problems, and no guaranteed income.
The job of these contractors is to sell an MLM company’s products to their social networks either in person or online. (This is direct sales.) They make money from commission off of those sales. But, obviously, unless one is a social media star with a ton of followers, one’s social circle isn’t enough to provide a seller with thousands of dollars each year. It’s not even enough to keep up the “extra $500 a month” that MLM consultants are always advertising.
So the only way to keep making money is by marketing the opportunity and recruiting your downline. Once you recruit independent contractors beneath you, you become their upline and can make commission/bonuses off of their purchases of inventory, as well as their sales to their social circles. Your cut of those commissions grows as your downline grows.
Eventually, the idea is to make enough money from the sales of those beneath you that you can generate passive or residual income, which is everybody’s dream: to make money without working.
Thus, we have multi-level marketing:
- Multi-level = multiple levels of recruits and downlines
- Marketing = people trying to sell you stuff
- Stuff = products and the “opportunity”
Can you make money in multi-level marketing?
Without recruiting? Nope. Even the most amazing sellers can’t keep up a steady profit by their own sales alone—the MLM model is stacked against them. You must recruit to continually profit. And yet, even then, only the tiny top make a profit worth bragging about. Why is that?
It’s because the top 1% don’t make their 6-digit incomes by selling the products. People at the top have thousands of people in their downlines, so therefore, they are able to receive thousands in commissions and bonuses. But people at the bottom don’t have thousands in their downlines—and they never, ever will. They all contribute to the money pie, but most of that pie goes to the top 1%. Tough break.
Some of the most eye-opening stories are not those of consultants who failed to profit right from the start, but of those who actually did well and still realized how much their direct-selling MLM job wasn’t worth it: like one who quit Jamberry and one who quit Scentsy.
Are MLMs pyramid schemes?
A pyramid scheme is where I pay to invest in your business, and then I make money from all the investments of those I recruit (scam) beneath me. Pyramid schemes promise investors easy money fast. But, bummer for me, eventually there’s not enough people left to give me their money. Because there was never any real monetary value generated in all this, the pyramid scheme collapses and everyone loses—except the few early investors on top of the pyramid.
By the letter of the law, MLMs are not pyramid schemes because they have a product. So, in theory, that product allows consultants to make real money from sales. Actual monetary value should exist.
But the reality is different.
Let’s not forget the dismal numbers of 99% of participants losing money and 80% making less than 70 cents an hour, which are no better than the number of people losing in pyramid schemes. Aaaaaand, wait for it—the reasons for these numbers are largely due to the nature of uplines and downlines, just like pyramid schemes. How the…?
First, rewards like “promotions,” incentives, and higher commissions/bonuses all revolve around recruiting and how big your downline is. You make more money off of others selling your products than you do selling them yourself.
Second, downlines are treated as dollar $ign$. Uplines milk a LOT of money from their downlines in ways that no one tells you about when you first sign up. It’s not just the initial investment/purchase of a starter kit that will cost you. Many MLMs focus on marketing their products more to their own consultants than to their customers!
Wait, there’s more! MLMs will vary in how they do this, but here’s the gist of it:
- You must meet a quota in order to stay “active” as a selling consultant, which you can satisfy by buying the products yourself (aka, pouring money into the MLM before even making a profit)
- You must meet a quota in order to receive commissions, bonuses, or “incentives” like cruises and cars, which you can satisfy by buying the products yourself
- You’re trained that you must spend money in order to make money
- You’re told that you can’t successfully sell the product if you’re not buying it all the time and using it yourself
- You’re told that you MUST attend conventions/conferences/trainings that you pay for out-of-pocket
- You’ll have other expenses that your upline tells you to just shrug off
By the spirit of the law, MLMs are pyramid schemes—referred to by those who studied them most as “product-based pyramid schemes.” MLMs often use those products to extract so much money from sellers that all those sellers succeed at doing is feeding the pie for the rich at the top of the pyramid.
Aren’t ALL corporations shaped like a pyramid?
Ah, yes, aren’t MLMs the same as the rest of the corporate world where businesses are led by an evil rich CEO, his wicked henchmen, and all his underpaid minions? Well, no: because MLMs have uplines and downlines.
See, in the corporate world, money flows down from the rich on top to the lower-wage workers on bottom. The top’s money comes from the labor of their workers, and not the wallets of their workers. The bottom workers receive guaranteed income for their labor with no risk to their finances or bank accounts. There’s the possibility for more benefits as well.
But in an MLM, money flows up from the lower-wage workers on bottom to the rich on top. The top’s money comes from the wallets of their workers, and not the labor of their workers. You have to realize: once a downline purchases their inventory, the rich on top ALREADY MADE THEIR MONEY. They’ve shifted the risks of a direct-selling business off of themselves and onto their consultants. So the bottom workers in MLM receive no guaranteed income, only making money from commissions, with great risk to their finances and bank accounts. No benefits for them.
Multi-level marketing and the corporate world are not the same.
MLMs are not designed to make money for their downlines. Their downlines ARE the money.
And remember, multi-level marketers are marketing to you. In a job where you only get a raise by recruiting people, there’s no way on this crazy earth that they’re going to tell you the truth or the whole picture. Many MLM consultants might not even realize the truth themselves at the time they recruit you.
If you only research what your upline tells you, that’s not research. Go explore the vast wealth of info, both crappy and true, online. Listen to what people say about MLMs who aren’t caught in the MLM snare or trying to sell you a dream. And good luck.