Multi-Level Marketing: Dream Job or Nightmare Scam?
Do you want a job that will change your life? You can earn thousands of pounds a month, all from the comfort of your own home and fit the job around your lifestyle!
Sounds too good to be true, doesn’t it?
That’s probably because it is.
You’ve undoubtedly seen posts all over social media, or even received messages from strangers offering you the opportunity to become an ‘influencer’ and obtain that ‘perfect’ lifestyle that is broadcast all over our timelines. But the actual job that you are being offered seems very mysterious.
It’s likely that these messages or posts are coming from members of Multi-Level Marketing (MLM) companies, or Network Marketers, who, rather than selling products through shops, sell them through individual distributors. The idea is that distributors of these products don’t earn a salary but make commission from the products that they sell. The products are usually health and wellbeing goods such as shakes, or beauty products.
We watched ‘Secrets Of The Multi-Level Millionaires: Ellie Undercover’ – a BBC documentary, to find out a little more about MLM, and we were shocked by what we found out.
According to the programme, presented by Ellie Flynn, around 400,000 people are signed up to ‘work’ for these companies around the UK. One of the biggest companies is Younique, a cosmetics company, who have around 1.2 million people signed up around the world. Another, Nu Skin, worth $4 billion, had over 90,000 people signed up in 2017 in Europe, Africa and the Middle East. So, what is clear is that these companies have a huge reach.
Does anyone make money?
According to the documentary, of all of the people signed up to Nu Skin, 89% of people made no commission at all. Only 1% made more than £870 a month, which, if working full time, is less than the UK minimum wage. This is a trend amongst many companies – it only takes a quick Google to find plenty of horror stories. So, if the huge majority of people are not making any money through working for these companies, why and how are they expanding?
How are these companies growing?
MLM companies are not all bad. Some are serious about selling their products and helping distributors to earn an income from them.
But others are pyramid schemes disguised as MLM companies. Pyramid schemes are illegal scams. On the surface, they may appear to be cosmetics companies, with distributors earning a commission from selling their products. But dig a little deeper and it becomes clear that these companies are more focused on recruitment. Distributors are strongly encouraged to build their own ‘team’, otherwise known as their ‘downline’, by contacting others, including their own friends and family. In theory, you earn a commission from products that they buy or sell, in the same way that the person who recruited you does.
So far the job seems quite easy, right? You spend a bit of time posting about some products and contacting a few people asking them if they want to join. You can work from anywhere and even earn money whilst you sleep if you have team members around the world!
What are pyramid schemes?
Pyramid schemes are high risk businesses that promise you will ‘get-rich-quick’ but are more likely to end up costing you money!
Members are required to pay joining fees or make large upfront investments e.g. in a sales starter kit or product samples. The only way to recoup your money is to persuade other people to join and pay up. People at the top of the pyramid make their money from payments made by those who join under them; but people at the bottom may not manage to recoup the money they shelled out.
The system relies on an endless supply of new members joining the scheme, but in reality, new recruits (and their money) soon become scarce.
Some pyramid schemes conceal their true purpose by selling products/services (often inferior quality and overpriced), but their main objective is to make money from recruitment.
How are people targeted & recruited?
This is where it gets darker. Distributors are encouraged to prey on people’s vulnerabilities – these may include disabled people that are not able to get out for work, stay at home mums who need to make a bit of extra money (especially around Christmas) or even new graduates or students who may just be looking for a job that offers a quick fix to financial worries.
You are sold a lifestyle: ‘If you do what we do, you will be successful’. You’ll be able to afford new houses, cars and holidays. It is evident, though, that this is not the case. There seems to be a mantra that, if you are not selling, then you are not working hard enough. And if you want to leave because you are not making any money, then you are a quitter. So, the distributors then spend more and more hours trying to sell products or recruit new people. It is a vicious cycle where desperate people recruit vulnerable people. Some interviewed in the documentary spoke of feeling as though they were brainwashed and part of a cult and felt like a failure for not being ‘successful’. They were even told that anyone that didn’t support them, including their own family, should be distanced from them as they don’t need the negativity. Many end up in debt or losing close friends and family.
How to spot rogue companies & pyramid schemes?
There are a few warning signs to watch out for:
Are they using profound promises to entice you in?
Many of these companies will try and sell you a lifestyle to get you to sign up. They promise ‘opportunities’ and tempting returns, often using misleading figures to lure you in. They may tell you that you’d be running your own business – which is not the case because you have no control over the company whatsoever.
Do you have to invest money up-front?
When you sign up, some companies suggest you purchase a product starter kit to present to your clients. They also suggest that you replace all of your own products with theirs. In the documentary, it was revealed that for some companies, this could cost up to £500. They also offer monthly product subscriptions that can cost over £400. So, are you the seller, or are you really the customer? If you wondered how these companies make their money when many distributors seem to be struggling to sell, there’s your answer.
Is the real focus on recruitment?
This is one of the main ways to spot a pyramid scheme. If there are constant references to building your ‘team,’ or you are told you will make the most money from recruiting new members, then this is probably a company to avoid. They make money out of you and the people you recruit. And if you fail to find new recruits, you won’t recover the money you have already paid out.
Do they suggest you use high-pressure tactics to sell or recruit?
They may tell you to keep contacting people until they sign up, including your friends and family. They may suggest that you post fake photos online of orders that you have received. Or they may give out no sales advice but solely focus on how to recruit.
Is there an emphasis on ongoing training?
The company might encourage you to attend regular training sessions in order to boost sales, particularly if you are not selling. But you have to pay for these training sessions. And they can cost a lot! Is the training focus still on recruitment as opposed to selling?
Do you have an unsettling feeling that something isn’t right?
Trust your gut – if you feel that something is wrong, then it most likely is.
What can you do?
If you are thinking about joining an MLM, or already have, there are a few things you can do to save yourself time, money and heartbreak.
- Look for an Income Disclosure Statement or Distributor Compensation Summary from the companies. This could give you a rough estimate of what you may expect to earn or show you how many people don’t earn anything. Here is an example for Herbalife (2016).
- Check the company’s compensation plan e.g. if you bought a starter pack, check whether you can be refunded for any unused or unsold products.
- Warn others about these companies. Share your knowledge or experiences with others so that they may think twice before believing the dream that they are being sold.
- Know that it is not your fault that you are not making any money from an MLM. There are fundamental flaws in the way the companies work, and they are designed for those at the top to make all of the money.
- Never let anyone pressure you into making decisions about money. Always get independent financial advice from a professional or someone you trust.
There are some individual success stories, and the MLM companies claim that they do not force the distributors to purchase any products and that they can leave at any time. But the reality is, the majority of people that sign up to these companies spend many hours working hard for the brand without making any money at all; in the end, they feel deflated and like a failure, maybe even losing some friends along the way. What once seemed like a dream job, turned out to be a nightmare.
The moral of the story is to do your research, whether that’s into employers, job opportunities, products, influencers, etc. within your work life or home life. Working from home and flexible hours has become a huge trend, but the job itself is more important than the environment or the perks or promises.
Thank you to Mark Rice for suggesting we watch the documentary.