Multi-level marketing (MLM) is a business strategy where the revenue of the company is derived from an unpaid workforce selling the company’s products or services, while the earnings of each employee are made from either the commissions of sales or by recruiting other employees to be their downline distributors. The latter is however crucial to earning money.
With this in mind, it is easy to see why people equate MLM’s to pyramid schemes. Pyramid schemes are illegal almost worldwide. In Ireland, participating or promoting one is punishable by fines of up to €150,000 and/ or five years in prison. The EU also has a ban on pyramid selling, listing it under “unfair and blacklisted commercial practices.”
Traditional pyramid schemes earn through recruiting, but there are no sales of products or services involved. MLM’s operate by simply proving that their main purpose is to sell products, even if it is to other MLM distributors.
With so many of these companies opening every year, it is difficult to police them, so MLM’s essentially get to operate as pyramid schemes without being identified as such. Amway, Mary Kay, and Herbalife have become popular MLM’s in Ireland. Others include Avon, Younique, Monat, Beachbody, and Arbonne.
MLM’s are designed to recruit an infinite amount of people and are destined to fail due to oversaturation in the market. Recruiters often pitch the business as a “get rich quick” scheme where you are allowed to choose your hours, but it is important to determine why this isn’t the case, and why joining an MLM is dangerous and unethical.
MLM’s are more likely to target vulnerable people, such as stay-at-home mothers and young adults. Now with the Covid-19 pandemic when unemployment is rising, recruiters are urging people to join by promising them stable, at-home jobs. This however is a blatant lie. Most MLM distributors make zero to only a few hundred dollars each year. In addition, employees for such companies don’t receive the same benefits they would working for regular corporate jobs such as paid time off and health insurance.
By law, companies must make their income disclosure statements public. For example, in 2019 Rodan+Fields declared that the top 1% of their distributors earned over $26,096 that year, while 50% only earned $466. Thankfully, this company is banned in Ireland as some ingredients used are not approved by the EU.
Because of this recruitment-based business model, new distributors are forced to pitch the company to friends and family first which puts a strain on personal relationships. 23-year-old Ericha Dunne joined an MLM company and subsequently quit a month later. “The woman that recruited me always pushed for me to post and invite friends. Always saying that I should be making at least X amount by now. It felt like a lot of pressure to get orders and take money in, even when I had plans. She was a lovely, bubbly person, but the pushing for sales really didn’t help my personal view as I felt very pushed when she would message,” she said. “There were lovely people I met through it but it was just constant. Also, not enough knowledge was given about the products, so selling them was just working from a script,” she added.
When asked about the reactions from friends and family, she said that people were tired of seeing all of her posts on social media, as well as the constant invitations to join. “I quit because I felt like all I should have been doing was selling and posting. I felt like when I was busy, I was guilty of not posting about the products. I’m also a big believer in only promoting products I’ve tried and am confident in. Obviously not knowing the products was just not sitting right with me,” she said.
Ethics also plays a big part in network marketing. Looking at income disclosure statements, there is only one question: is it morally justifiable to recruit potentially vulnerable people and set them up for failure for your financial gain? Registering as a distributor to get discounts is a valid argument, but is the product quality worth it? If the products are top quality, why are they not sold in stores competing with other brands?
Buying from these companies is also more likely to fund their legal fees rather than pay the distributors. In 2017, Herbalife was fined $200 million and was forced to restructure its business model, as they were found guilty of being a pyramid scheme.
Products from MLM’s are also not always safe for consumption. The hair care company Monat faced multiple lawsuits in 2018 as hundreds of people claimed that their shampoos caused severe balding and scalp sores. Lularoe, the women’s clothing company faced controversy in 2017 over the poor quality of their legging range. Over 22,000 people claimed that the leggings either arrived already torn or would tear easily. The leggings cost up to $65. Cheaper and better quality items are easily accessible without supporting the unethical business practice.
Essentially, burning a pile of cash and bridges with everyone close to you will give you the real MLM experience all the same. It is up to each individual to decide if they want to be involved with multi-level marketing. Just be aware and research the companies before deciding to work with them.