Multi-Level Marketing Businesses Aren't Making People Money...So Why Are They Still Popular?

Statistics show that the overwhelming majority of people who sell products through network marketing rarely make any profit. Yet despite this, more and more people--especially women--are desperate to get involved. Why?

If you found out that a friend of yours had just suffered a horrible tragedy—a sudden job loss, a divorce, even the loss of a family member—how would you comfort them? Perhaps you'd offer an ear to talk to or a shoulder to cry on. Maybe you'd bring them a home-cooked meal. Or you'd just offer a simple message to let them know they're loved and supported during this difficult time.

How about trying to sell them a product they really don't need (now or ever)? What about trying to get them in on an exciting new business opportunity?

It's Always Sunny In Philadelphia/FX

Those last ones might seem like pretty inappropriate gestures. But in the world of multi-level marketing, they're common tactics.

It’s hardly surprising that multi-level marketing’s negative reputation is gaining notoriety, and not just thanks to insensitive sales pitches. Statistics show that the overwhelming majority of people who sell products through network marketing rarely make any profit.

Yet despite this, more and more people—especially women—are desperate to get involved. So what’s the appeal?

Multi-Level What Now?

Multi-level marketing (MLM) is nothing new. Many of us have fond (or painful) childhood memories of our mothers hosting Tupperware parties at home, or poring through the latest Avon catalogue. (And who can forget Edward Scissorhands’ most endearing local Avon representative, Peg Boggs?) In fact, at 131 years old, Avon is one of the oldest direct-selling companies in the world.

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Nowadays, MLMs look a little different. They offer everything from Borzoi-printed leggings to weight-loss cling wrap. Wellness products rate particularly high.

What has remained the same over the years is the way these companies make money. The products are sold not through stores, but directly through salespeople (direct selling). A customer must place an order through a local representative, sometimes through home parties. The whole operation, however, is not so cut-and-dry as that.

The real money comes not from product sales, but from recruiting more sellers. MLMs offer large financial incentives for enlisting more representatives. This varies depending on the company, but it often involves a lump sum of cash and a regular cut of that person’s profits. It’s little wonder 20 million Americans are now sellers.

LulaRoe

Many proponents of MLMs (usually sellers) rave about the benefits of the products: “Herbalife’s shakes helped me to lose that baby weight! My Lularoe leggings are insanely soft! This Rodan + Fields serum is a game changer!”

Don’t forget the apparent perks of being a seller. Successful representatives are more than happy to boast the fruits of their labor, which more often than not appear to involve luxury sports cars and exotic cruises. And yet the public outcry against these companies is growing louder and louder.

Why (Almost) Everyone Loves to Hate MLMs

In 2016, Last Week Tonight with John Oliver ran a 30-minute segment exposing some disturbing flaws in the design of these companies. The episode, inspired by Ted Braun's 2016 documentary, Betting On Zero, focused on nutritional supplement company Herbalife.

Last Week Tonight/YouTube

The main accusation against multi-level marketing companies like Herbalife is simple: They’re pyramid schemes, which are illegal in many countries (including the United States). That means the business model operates by profiting mostly from the recruitment of more sellers rather than actual product sales.

Most MLM sellers are encouraged to recruit about five people, with the promise of more money as each of their “recruitees” sign up five more people. To start making serious dime—as in cruise ships and Lamborghinis—a seller must have many levels of sellers under them, referred to as a "downline." That doesn’t sound too terrible—until you really look at it:

And here lies the flaw. As Oliver, Betting On Zero, and yes, even The Office, demonstrate, there’s a limit to this system. After just 13 of these cycles, every single person on the planet would be a seller. It’s really not possible to keep recruiting people at the rate that these companies encourage.

The numbers just don’t add up, no matter how you spin it.

The trouble doesn’t end there. In 2013, The League of United Latin American Citizens campaigned against Herbalife. They claimed that the company took advantage of thousands of vulnerable Latino-Americans with the promise of a successful businesses model only to leave them in crippling debt. Herbalife have since paid out $200 million to disadvantaged sellers.

How did these sellers incur such massive debts? Many MLMs require sellers to pledge an initial investment into stock, with the promise that they’ll be able to quickly make that money back from sales. To join companies like LulaRoe and Herbalife, would-be sellers are shelling out thousands. It often doesn't get better from there: supply doesn’t always meet demand—especially if there are many sellers in the same locality. This can leave sellers with thousands of dollars in unsold stock.

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In the case of LulaRoe, it seems their shady business practices may be sparking a fall from grace. As we mentioned, joining an MLM is often astronomically expensive. To join LulaRoe, new "Independent Fashion Retailers" must purchase an "onboarding package" that contains 336 to 463 pieces of LulaRoe clothing; the packages range in price from $4,812 to $6,784. According to data acquired by Business Insider, by February 2017, over 77,000 individuals made that leap.

When the company was accused of improperly taxing their customers, many sellers, who had already coughed up thousands of dollars, stood by them. But things weren't looking so hot in the last half of 2017. Over several months, a private social media group devoted to LulaRoe products (with over 45,000 members) saw plenty of action: Consultants and customers alike have described their experiences with "LLR defective clothing, poor customer service, illegal shipping/sales" and more. As the number of claims of slipping quality increase, more and more people are voicing their criticism and looking for refunds.

Pinterest

While LulaRoe started refunding those who were unhappy with their products, any refund claims had to be made by July 31, 2017; they also had to be backed up with a proof of purchase with original receipt. In an April 2017 announcement, the company said that customers could get an exchange or refund directly from their consultants, which didn't bode well for any consultants without the assets to do so. Worse, LulaRoe no longer offers a full reimbursement policy for their representatives who have had to offer returns—out of their own pockets.

Needless to say, plenty of sellers are fed up. Many, unable to afford floating the customer refunds, have held going-out-of-business (GOOB) sales just to offload the hundreds or even thousands of dollars of extra stock they have lying around at low prices—because something is better than nothing. Eager customers hit up GOOB sales to take advantage of the ability to pay less than retail price for the leggings, undercutting sellers who remain in the game at full price.

LulaRoe isn't the only company with issues. Another problem that plagues many MLM companies is that their products often carry a high price tag that doesn’t quite match the quality. For example, Juice Plus supplements aren’t proven to be any more effective than a regular multivitamin, but Juice Plus is significantly more expensive.

The expiration date on perishable products often means sellers struggle to shift the massive amount of stock they bought with their wholesale discount.

To put these factors into perspective, 99.7 percent of multi-level marketing sellers lose money.

Women Still Can’t Get Enough

Regardless of the negative aspects, what’s really intriguing about multi-level marketing is the gender gap. Why are so many more women selling these products than men?

It just sort of came up when I was at a party and I just thought, why not?

For stay-at-home mothers, it’s certainly not hard to understand the appeal. Full-time parenting doesn’t leave much time for a regular job, and most MLM companies boast a flexible schedule with high earning potential as the biggest benefits. When you’re supporting a family, every little bit of extra income counts.

Today

Leanne Digby was a stay-at-home mother who had just gone through a particularly traumatic separation from her partner when she decided to start selling Tupperware.

“It kept you motivated,” she said. “I was living in the middle of nowhere. There was no childcare, really. It just sort of came up when I was at a party and I just thought, why not? It really helped me get over what happened, to be quite honest, because it got me out.”

Because of her rural location, she only ever recruited two other women, and says she didn’t feel much pressure to find more. The women she recruited became sellers to get the wholesale discount on Tupperware products, and only ever sold a small amount each month to family and friends.

She also sold for Mary Kay, a multi-level marketing cosmetics company. She says that she only ever sold products that she was confident were good quality, but has noticed the recent influx of MLMs selling what she describes as “just junk.” Some of them have even tried to recruit her.

Mary Kay

“You have to be fussy,” she says.

Like Digby, Nay Cananzi became a seller for Juice Plus because she enjoyed the products.

“An old friend started talking about it,” she says. “Apart from her being a health freak, I was more interested in the product because I wanted to get healthier.”

While she continues to use Juice Plus products, she was unable to commit the amount of time required to become profitable. She stopped selling after a few weeks.

The pressure to sell can be time-consuming and doesn’t always match the supposedly flexible schedule that draws many sellers in. Anti-MLM groups on social media often post pitches they receive from sellers they know, with many of them using strange and even inappropriate tactics. But those desperate attempts to find customers aren’t surprising when you consider how few are able to turn a profit.

Flexible schedule or not, the one thing that appeals to all sellers is the potential for success (remember those sports cars and tropical vacations?). Anyone can become a seller, regardless of education, background, or social status. And each of these companies show off their highest performers (while disregarding the majority who stay in the red month after month). It’s clear to see why this would appeal to women, particularly those without secondary education or formal job experience.

via Pinterest

According to a report by the United States Joint Economic Committee, American women earn an average of $10,800 less each year than men. They’re also more likely to study and work in fields that have lower pay and are far less likely to hold positions of leadership in a company.

Simply put, women are not experiencing the same level of financial success as their male counterparts—which may very well be the reason so many are eager to sign up to multi-level marketing.

#BossBabe Business Owners or Pyramid Scheme Suckers?

Many women who sell multi-level marketing products argue that they feel a sense of empowerment as a seller. How? Because they’ve managed to build and run their own business, of course.

But is a multi-level marketer a legitimate business owner? Let’s take a look at the differences.

As a seller, your entire customer base consists mostly of people in your own social circle—something that few conventional business owners do.

Some MLMs don’t allow sellers to choose their own products. How many regular businesses would allow their distributors to send them mystery boxes of stock each month?

More importantly, the hiring process is completely different. When regular businesses look to employ salespeople, they’ll consider applicants based on their skills and experience. With multi-level marketing, the only prerequisite is to be willing to do it.

Additionally, when typical businesses hire one individual, that doesn't often immediately increase their success or profits, whereas adding to your downline in a direct marketing company is essential to success.

Granted, buying a starter kit from one of the many multi-level marketing companies out there means you skip over much of the initial groundwork involved with actually starting your own business.

But no matter how many hours their sellers work per week, these companies don’t offer basic benefits like a regular wage, health insurance, or retirement contributions.

But there’s one more thing you're likely to miss out on: profit.

Unless, of course, you happen to own a company like Herbalife—in which case you're probably worth billions.

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