I think people are often confused when they hear that MLMs are bad. I mean, after all:
- Multi-level marketing is not illegal
- MLM makes up a multi-billion dollar industry
- Some MLMs have been around for 10+ years
- MLM consultants always sound like they’re doing well
- MLM companies have legitimate products
But the numbers and research, as shown in this post, tell a different story. Here’s why the numbers and seemingly “fine” reality of MLM don’t add up.
Multi-level marketing is not illegal
Thanks to the ruling from FTC versus Amway in 1979, in which Amway was accused of unlawful practices but was not ruled a pyramid scheme, multi-level marketing companies have been allowed to thrive. Thanks a lot, FTC…
Despite that ruling, a slew of lawsuits has been brought against MLM companies for either their unlawful practices or problems with their products. Some were forced to pay large settlements and restructure their business model in order to avoid being shut down as a pyramid scheme, including Amway/Quixtar in 2010 and Herbalife in 2016.
The problem? MLM companies are so rich that a settlement cost to the little guy isn’t enough to stop them from recruiting and hurting more people. And lawsuits happen frequently, but unless they’re reported big in the media, people don’t know about them. I mean, you have to pay just to have access to lawsuits in the appellate courts. I can understand why people would rather spend that money on Netflix.
So MLMs are legal, but that doesn’t mean they’re not unethical and not causing real harm.
Multi-level marketing makes up a multi-billion dollar industry
MLM companies are TOP-heavy—this is key. There’s money to be made, but again, think of that pie and how recruits at the bottom are simply feeding the pie for the rich. The owners and CEOs of some of these companies are definitely millionaires. The same can’t be said for those even a few levels beneath them in the downline.
Do these companies have stock? Yes, and that doesn’t mean much in the way of downlines making a fortune. Investors only care about the money, and the money’s there at the top, so that’s where they watch and put their money too. They don’t care what’s happening to those on bottom as long as money keeps flowing.
Some MLM companies have been around for 10+ years
Avon. Amway/Quixtar. Cutco/Vector. Tupperware. Why do they still exist, if they’re so bad? Looking at them all at once, it’s a complicated answer. Avon, for one, did not adopt the MLM model until 2005. Others, like Amway, have endured multiple court fights against their legality, and have come out swinging.
The top of MLM pyramids are rich, and the rich have a powerful tool—they can pay to influence those who actually have enough power to curb unethical MLM money-milking machines. This article is just one source describing the influential power of the rich in multi-level marketing.
MLM consultants always sound like they’re doing well
Remember how recruiting is so important to MLM consultants? They are literally trained to “fake it ‘til you make it,” for obvious reasons. No one would join them if they straight-up said, “I’ve been working 20 hours a week for three months, and I’ve made $1,000!…in gross pay. My net income, well, isn’t so pretty.” (Hopefully they know the difference between gross and net profit.)
They’re taught that success will not come until they act like they’ve already succeeded. The whole “power of positivity” and all that. As a result of this “fake it” mindset, a vast majority of MLM consultants completely mislead those they recruit. Some straight-up lie. It’s marketing at its worst.
For example, you know those cars some “successful” sellers “get?” Those cars are leased to them actually, and the MLM covers their payments until they fail to meet the quota necessary to keep receiving them, and then they have to cover the lease cost themselves.
MLM companies have legitimate products
Products are an MLM’s ticket out of pyramid-scheme doom. However, they ARE real and tons of people genuinely like the products, from Scentsy wax warmers to Avon stuff to LuLaRoe leggings. So MLMs are fine in that sense, right?
The problem is their business model of uplines and downlines. I’m going to get real tired of writing that phrase, but that’s just the truth of it—that’s why MLMs suck. Their compensation, bonus, and incentive plans all reward recruitment and purchasing your own inventory. The result is you bring others into the scam while buying way more product than you’ll ever need or be able to sell yourself.
I mean, most MLMs push their products more onto their own consultants than they do onto external customers. So products benefit the top 1% in two ways: they make money from their downlines buying the product and don’t have to worry about selling it themselves, AND those products keep MLMs out of pyramid scheme territory.
As wonderful as capitalism is, there’s a lot of room for greedy people to take advantage of others. The system is affected too much by the corrupt in power. As much as government entities, like the FTC, try to protect us unsuspecting consumers, they simply can’t save us from everything. Sometimes we have to be the ones who step up and say enough is enough.
Multi-level marketing is one of those industries that is designed entirely to milk money from people while evading the laws meant to protect us. It’s just a genius system for transferring money from the middle and lower classes to the upper class.