“Most multi-level marketing companies sell products that are traditionally marketed towards women.” - Casey Bond Click To Tweet
You have probably heard of multi-level marketing also called MLM or network marketing. A multi-level marketing company is a company that recruits people to sell their products to their network including their friends and family. Network marketers typically buy inventory and then try to sell it. They can also recruit people underneath them and create a triangular shape in which they can collect commissions on the people underneath them who are also making sales.
Casey Bond is a certified personal finance counselor and a lifestyle reporter for Huff Post covering money, home, and living. Her work has also appeared on Business Insider, Yahoo! Finance, MSN, The Motley Fool, U.S. News & World Report, Forbes, TheStreet, and more. Casey has been reporting on MLM’s for the past year.
The big question many people wonder is if multi-level marketing is a great business opportunity or an opportunity to lose thousands. On today’s episode, Casey shares her expertise to help you make the decision that is right for you and help you beware of possible red flags.“If you want to be your own boss, you can start your own business very easily as a writer, website builder, or virtual assistant.” - Casey Bond Click To Tweet
- [01:13] – A multi-level marketing company is a company that recruits people to sell their products to their friends and family and their network. It is also called network marketing or direct selling.
- [01:29] – They typically buy inventory and then try to sell it. They can also recruit people underneath them and create a triangular shape in which they can collect commissions on the people underneath them who are also making sales.
- [02:14] – You will find a wide range of products offered including everything from kitchen knives to insurance products.
- [02:23] – Most multi-level marketing companies sell products that are traditionally marketed towards women.
- [04:06] – These days the gig economy is huge. One-third of adults are involved in the gig economy somehow.
- [05:02] – It is often presented as a way to make a ton of money in your spare time, and be able to win vacations, cars, and extra products. That is usually the case for a small percentage of people involved in MLM’s who usually got in very early and built a huge downline.
- [05:41] – The key for being successful in an MLM is not necessarily making a lot of sales, but instead recruiting a lot of people underneath you.
- [06:37] – A big red flag is having to buy your inventory upfront.
- [08:10] – Another big red flag is when the initial details of this opportunity are vague or coming from someone you don’t know very well.
- [09:40] – MLM’s really play into the emotional side of people who would really like to have something of their own and who would really like to become more financially independent.
- [10:39] – The FTC watches and keeps an eye on the MLM industry.
- [12:14] – Illegal pyramids schemes do operate legally until they are caught.
- [12:50] – The Direct Selling Association oversees all MLM and direct selling companies.
- [13:48] – Casey is very hesitant to recommend multi-level marketing to anyone because it is so easy to get in a hole with debt or overspending when there are so many other ways to make extra income.
- [14:28] – It’s best to go out and create something for yourself instead of relying on an MLM.
- [14:52] – The FTC does have an option on their website to report companies that are operating questionably.
- [15:46] – Working for an MLM can put strains on relationships and friendships.
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Casey, can you give us an overview of what multi-level marketing is?
Yes. You probably recognize some big brands like Tupperware, Mary Kay. Some companies that have been around for quite a few decades, and those are actually multi-level marketing companies. Since then, the industry has evolved quite a bit, and some of the newer players are companies like LuLaRoe, doTERRA, a lot of companies that sell skincare products, health and wellness, and things like that.
Essentially, what an MLM or a multi-level marketing company is, is a company that recruits people to sell their products to their friends and family and their network. It's also called network marketing or direct selling. Essentially, what people who are involved in MLMs do is buy inventory and then go out and try to sell it. They can also recruit people underneath them and create a triangular, or some would say, a pyramid-like shape in which they can collect commissions from the people underneath them who are also making sales.
Got you. There are two components to work in the business. They're selling the product and then recruiting other people to sell the product?
I assume wonky compensation plans to compensate you several tiers down, hence the pyramid.
Got you. Is it really just limited to cosmetics and essential oils or is there just a very wide range of products and services that are offered?
You'll find everything from kitchen knives to insurance products. There's a really wide-ranging number of products that MLMs can sell, but interestingly, what you'll find is most of them do sell products that are traditionally marketed towards women. I think that's a very intentional thing as you'll see that most people who actually sell for MLMs are also women.
Is that because, traditionally, historically, men have had the nine-to-five jobs and the women, if they're taking care of the kids, that's marketed towards an extra way for them to make money working from home?
Right. Women are considered the stay-at-home providers for the family. Especially back in the day of Tupperware and Mary Kay, that was certainly the case. These companies relied on their personal connections with other women in the home to market these by word-of-mouth. Today, many of those types of traditional family roles still play out.
Women who may be at home with their children who feel like they want to contribute to the household finances, maybe are feeling a little bit disconnected from the outside world. They're hanging out with kids all day looking for a way to interact with other adults. Military wives, especially, who may not be able to get a traditional education because they're constantly moving from base to base along with their husbands. These are the type of people who are really marketed hardcore towards in terms of joining MLMs and selling for them.
That makes sense. It's people that have the time and the relationships to be able to actually network. Do you see this, with the transition of the economy, with lots of portions of the economy of people going from the traditional nine-to-five to starting to go to have more gig-type of employment, do you see a demand or a rise in the promotion of multi-level marketing?
Yeah. These days, the gig economy is huge. I think a third of adults are involved in the gig economy somehow. This definitely presents itself as an attractive option. Many of the marketing materials for MLMs present them as an opportunity to be your own boss. “Be a boss babe.” This is what they love to say, become this entrepreneur. Although, once you dig into the business model of an MLM, you start to realize that those things don't actually hold true. You don't actually own your own business. You're not entrepreneurial in the sense that you're creating your own product.
Is that the predominant way it's marketed? We talked about exotic vacations. What are some of the consistencies that you see across MLMs in terms of how they're marketed to people?
People who tend to be higher up in the food chain with MLMs will present the opportunity to others as this way to make a ton of money in your spare time and be able to win vacations, cars, and extra products as a reward for their success in selling.
That's certainly the case for a small percentage of people who are involved in MLMs. Usually, those people who are going on lavish vacations and driving nice cars are people who got on the ground really early, built a very large downline or people who are recruited underneath them, and are able to collect a lot of commission.
That's really the key to being successful in an MLM. It's not necessarily making a lot of sales because you only know so many people. You can only cold message so many people. People start to get tired of the pitch after a while, but if you can recruit a lot of people underneath you, then you have an almost limitless opportunity to make money that way.
Another interesting thing is that the people who go to the parties, the rallies, and talk about the success they've had and how they're going on these vacations and live in beautiful houses are often paid by the MLM company itself to do that. There's this hidden kind of speaker income that they're receiving that people might not realize.
Got you. If someone is, for whatever reason, looking into participating in an MLM, what are some of the red flags of specific issues that they should watch out for?
One of the big ones is having to buy your inventory upfront. That's usually a red flag and it often gets people into trouble where they buy so much inventory, often because they're required to, aren't able to make the sales to make up for it, and then are required to keep buying inventory on a monthly basis, so you kind of dig yourself into a hole.
LuLaRoe, for example, has one of the biggest buy-ins of all the MLMs that make $5000 or $6000. Other companies may have you buy a starter kit that's a couple of hundred bucks. Again, then you're encouraged to buy more and more inventories that you have so many options for your friends to choose from. Some of them require quite an upfront investment of your money.
It seems to me that today with drop shipping, cross shipping, and e-commerce ordering, it doesn't really make a whole lot of sense that people participating in MLMs would actually need to stock a significant amount of inventory. If, say, someone who wants to buy something says, “Here’s my referral code, go to the website, and order it.” The person doesn't even have to stock.
Exactly. It's an outdated mode of marketing and selling these days, but for some reason, people still keep trying.
What are some of the other significant warning signs other than having to put out a whole lot of cash on the front end?
Another big one is you're generally not out there looking for the opportunity. Somebody you know comes to you with it. Often, the initial details of this money-making opportunity are quite vague. A lot of people these days, especially with Facebook now, are used to getting these friend requests from people they probably haven't seen since high school—friends of friends of friends. You're like oh, that's interesting that this person wants to reach out. I guess I'll add them.
Suddenly, you're getting these copy and pasted messages from these people that are like, “Oh hey, hon. I have this great opportunity. I'd love to tell you more about this company I'm working for. Would you like to be your own boss? Would you like to become an entrepreneur?” These kinds of stereotypical pitches will definitely come through from somebody you know, often somebody you don't know that well.
The warning sign is the lack of clarity and the lack of details to what the opportunity really is.
Right, because one of the tactics is to keep you in the dark for a while until you can get pulled into one of these rallies. That's another big component of the whole marketing of these companies because they don't want you to google the name too early on, see all of the bad press, and get cold feet. It's all about reeling you in slowly.
That's one of the factors that's commonly wrong. A lot of scams are having an emotional hook and getting people where they're making an emotional decision about something as opposed to a well-thought-out “Do I have the time to do this? What's it really going to cost me? What are my obligations? Can I return the inventory?”
That's true. They really play into the emotional side of people who really would like to have something of their own, who would really like to become more financially independent. Often, there's this female empowerment angle—again, the boss babe idea—where they really play into this idea of women, especially, who would like to become financially independent. They really get you there before you're able to really think through how the business model makes sense.
I assume also red flags would be, “Hey, it's easy money. You can do this really quickly. It only takes a couple of hours a month.”
Right. Normally, when you go and apply for a job you need to show them your resume, some experience. Anybody can join as long as you have the cash to get started. That's another huge red flag.
Are there any federal or governmental agencies that are acting as a watchdog for this industry?
Yes. The FTC keeps an eye on the industry. Recently, one of the most high-profile cases would be Herbalife, which is an MLM who got fined by the FTC for the way they operated, essentially as an illegal pyramid scheme. They were forced to pay out—I think it was a $25 million settlement and restructure their business. A couple more companies recently have come under fire for the same thing. They're found to be operating as pyramid schemes and are either shut down or fined and forced to remodel.
They're out there watching, but there are so many fly-by-night companies, so many new ones popping up all the time that they can't catch every single one and investigate every single one. Hopefully, as this problem becomes more apparent, they'll be able to catch a lot more.
I remember reading about one company—I believe it was AdvoCare. There is a $150 million settlement versus the company. The CEO, the top distributors, consultants, or whatever the terminology is that they use for that particular entity, for making these, “Hey, you're going to make lots of money,” kind of the unfounded income.
The funny thing is that a lot of proponents of MLMs will use the argument that well, pyramid schemes are illegal, so this isn't a pyramid scheme, this isn't a predatory company, this is just multi-level marketing. Just because something is illegal doesn't mean it's not happening, they just haven't been caught yet. As the FTC is proving, they do exist. Illegal pyramid schemes do exist operating legally until they're caught.
For the companies that are maybe operating as network marketing companies that are trying to play within the law and, obviously, there's always going to be people at any organization that are doing things and misrepresenting and stuff, but are there industry entities that are helping them to change their practices and be more in the light about how the business practices are?
Not that I'm aware of. There's a Direct Selling Association, which is the organization that oversees—all MLMs are direct-selling companies. They have a lot of lobbying power. They spend a lot of money ensuring that they can keep operating the way that they do. I can't say that there's another checkpoint out there that's helping them get better because they don't really need to at this point.
Until there's more pressure from the government, or there are more lawsuits, you don't see that there's going to be a whole lot of change in this particular vertical?
I think there will be. I'm not exactly sure who's going to be leading the charge on that change.
You would hope the companies will start to get more flat, more about the selling of the product, less about the promotion of the opportunity to others, and just more about actually selling the product as most businesses do.
Are there instances where you think that network marketing or multi-level marketing might be a good fit for somebody?
I'm personally very hesitant to recommend that to anybody simply because it's so easy to get in a hole with debt or overspending when there are so many other ways to make a side income, especially if you do want to be your own boss. You can start your own business very easily, whether you're a writer, you build websites, or you want to be a virtual assistant. There are so many ways to make money, either out in the world, online. Become an Etsy seller.
To contribute your hard-earned money to a company that institutes these predatory types of practices is doing yourself a disservice and a disservice to other people who might get wrapped up in them. It's best if people avoid these companies, really go out, and do try to create something for themselves instead of relying on these MLMs.
Create their own products or market existing products and services from companies who aren't, like you said, predatory. Is there any way that consumers can report if they're seeing this behavior going on for companies? Is there anywhere they can report it?
Yeah. The FTC does have an option on their website to report companies that are operating questionably. I would say if you feel that you're involved in one or someone you know is involved in one and there's something shady going down, contact the FTC and have them investigate.
From you talking with people, does working in the MLM business put a strain on families at times?
Absolutely. I talked to a few people whose marriages became very rocky at the times that they were selling for MLMs just because they're spending money that the family doesn't necessarily have, they're spending all of their time attending these meetings and Facebook live events and pitching people on Facebook for eight hours a day. All this time, of course, not being compensated for.
It can put strains in relationships. Friends who constantly receive these pitches from their other friends get tired of it. You can only say no so many times politely, but one of the marketing strategies, again, is to keep pushing. It's an unintended consequence of selling for an MLM is you tend to put a lot of strain on your existing relationships.
Yeah. People are encouraged to leverage their own personal network as opposed to market products online or actually have a store or something.
It's all about that network marketing, so marketing to the people you know.
Got you. If people want to read more about what you've written about MLMs, how can they find that?
I've been reporting on MLMs for the past year for HuffPost. If you want to read more, you can visit HuffPost and look up my byline and see what I've done.
That's Casey Bond?
That's Casey Bond.
If people want to follow you on social media, what's the best way that they can do that?
Please follow me on Twitter @CaseyLynnBond and connect with me there.