Multi-level marketing, network marketing, pyramid marketing. Whatever you want to call it, you've probably encountered these types of businesses before. They reach out to you on LinkedIn or through Instagram and talk about “entrepreneurship”, “earn money on the side”, and “be your own boss.” If you're like me, you're bound to be a little skeptical of anything that sounds too good to be true. So today, we will be uncovering what MLMs are actually about and whether or not they are viable ways to make money. I'll be sharing what MLMs really are, my own experience with MLM, and my opinion on them.
What is MLM?
MLM stands for multi-level marketing, but it can also be called “network marketing” or “pyramid selling.” It doesn't really matter what you call it, the concept is the same. As the name suggests, MLM is a certain way to sell products and services. How it works is you sell the product/service yourself but you ALSO recruit your own group of salespeople who then sell as well, and you receive a bit of money every time they sell something or recruit someone else.
In theory, there are two ways to make money through MLM:
- Sell products/services and earn a commission on what you sell
- Recruit people who then sell and get a cut of all the sales of the people in your “downline”
Still doesn't make sense? Let me paint a simple example. Let's say I sign up for an MLM company that sells soap for $10 a bar. For every bar of soap I sell, I'll receive $2 in commissions. BUT, I can also recruit people and for every soap bar THEY sell, I'll receive $1. So the first month I go out and sell soap and make my 20% commission but start to realize that there's only so much soap that I can sell in a month.
What do I do? Recruit my good friend Tim! Now every time he makes a sale, I get $1. I realize that it's much more profitable to spend my time recruiting people who will make money for me while I sleep than actually sell soap myself, so that's what I start doing full-time. Soon enough, I have money coming in from 10 people I've recruited and then THEY also start recruiting people (whom's sales I get a cut of too!)
The business model is basically: “recruit people to sell who are then incentivized to recruit more people to sell who are then incentivized to recruit more people to sell…” You get the idea.
My Own Experience With MLM
Before we dive into my opinion on MLM, I want to share my own story regarding MLM. I'll try to keep it as concise as possible, so be sure to note things that jump out at you.
It started with a person reaching out to me on LinkedIn. Let's call this person Bill. The message was this (literally copied and pasted):
Hello Jeffrey, It's a pleasure connecting with you on LinkedIn. I see that you have ongoing experience in your field, Also with an Indifferent skillset, you have zest to pursue more. Apart from my full-time job, I am working with a team of entrepreneurs and business owners to increase the online revenue of our partnered major brands and retailers like apple, best buy, nike and many more in skincare, nutrition from fortune 500 on an e-commerce platform. Have you considered diversifying yourself with your skills in your spare time to build business assets in part-time as social entrepreneurs to generate an extra source of income and own business apart from your full-time commitments? Right now we are looking to get on board a few selective individuals as partners in a business team who would like to do side hustle 10-15hrs in a week to build and expand digital business assets. If this opportunity interests you, we can schedule our zoom call to have a two-way productive conversation for further discussion.Bill
Now, this might look scammy/spammy to you, and it does to me now, but keep in mind that I got this when I was new on LinkedIn and BEFORE I received a bajillion of these messages. So I responded!
The Zoom Calls
I set up a Zoom call with Bill and we hopped on. Honestly, he seemed like a super-smart guy during our talk and we chatted for a while. Surprisingly, I found myself agreeing with a lot of what Bill was saying. He was emphasizing the importance of financial freedom, talking about Rich Dad Poor Dad, and saying how to become wealthy you need to invest or own businesses. I didn't disagree at all.
After our chat, he assigned me some tasks to do:
- Read “The Go-Giver”
- Write a report on it
I happily read the book and again found myself agreeing with a whole bunch of the ideas. That to be successful you had to help people and that you had to give more than you took if you wanted to lead a happy life.
We hopped on the second zoom call and this was when I started to get a little suspicious. I asked him what exact tasks I would be doing and he dodged the question. I asked him if his business had an official website and he said he couldn't share. He said he had an E-commerce store but I couldn't find it anywhere and he wouldn't provide its address. He said that “everything would be revealed in the Seminar.”
Alright, fast-forward a few days and I'm sitting in this zoom seminar along with something like 300 other participants. I notice that Bill is also one of them. Then this other guy starts talking enthusiastically about financial independence, his journey, and business in general. I figure out that he's the host. He's describing stuff and finally gets to the business model part. He describes the recruiting and the selling and used phrases such as “you can make money from work you did 3 months ago… where else can you have that?”
Finally, he got to this slide and shifted to a more serious tone:
“On this next slide I'm going to reveal who we partner with. Keep in mind, we do not WORK for this company, we simply PARTNER with them. Also, let me ask you….. what is Google? It's a SEARCH engine right? Exactly, Google is a SEARCH engine, NOT a RESEARCH engine. So just keep in mind that not everything you find on Google is truthful.”
He flipped the slide and bam! Amway. For those of you who don't know, Amway is the biggest MLM company in the world. All of a sudden, I realized that what I THOUGHT had been an actual e-commerce learning / business opportunity was actually just an MLM.
I listened to the end of the seminar, then contacted Bill and told him that I wasn't interested. He sent me a message like “aw that's a shame. You would've been so good.”
Why did I say no to this opportunity? 3 main reasons:
- If you do some research you'll find that the number of people who actually succeed in MLMs is unfathomably low.
- They hid the fact that they were an MLM until I was 3 zoom meetings in. That frustrated me….. like why didn't you tell me outright that you were an MLM and working “with” Amway? I probably would have been more receptive if you did.
- I was getting the vibe that they were trying to sell me into this position. In a normal job interview, you're trying to sell yourself, not the other way around… the intense selling was very suspicious.
My Own Thoughts on MLM
As you can probably tell from my own experience with MLMs, I am NOT a fan. When I say that, I mean that I personally will never join one and don't recommend that you join one if you are actually looking for a viable way to make money.
Why? Well consider these statistics:
- The chance…
That's right, 1 out of every 100 MLMers make any money at all. Emphasis on “any money at all.” 1 out of every 100 MLMers breaks even, not make a fortune. The percentage of MLMers who can sustain their lifestyle off the MLM profits is even less!
This itself is enough to turn me off from MLM, but what seals the deal is how they try and recruit people. If you'll notice in the LinkedIn message I got, nowhere did he mention Amway or MLM or anything of the sort. Instead, Bill describes it as an “entrepreneurship opportunity” and “E-commerce” and mentions big name brands like “Apple, Nike, Best Buy.” (P.S. They didn't mention ANY big name brands in the seminar at all.)
I'm okay with a few euphemisms in job descriptions, but this crosses a line for me. It's one thing to describe a data-entry job as “excel clerk” and another to describe a job which requires you to mostly beg and persuade people to join your downline as “An e-commerce store which partners with brands like Apple, Nike, and Best Buy.”
The Bright Side
Here's the bright side: MLMs will teach you some valuable skills which you can take with you into other areas of your life.
To succeed in MLMs, you need to be able to recruit, sell, and speak in front of large audiences convincingly. These are ALL great skills to have and great to develop early on. Even better, if you're actually able to make money in MLM, then you should have absolutely no problem being successful in other areas of your life.
If you join an MLM, you probably won't make any money (in fact you'll probably lose a couple hundred bucks to book fees and mandatory app downloads) but you'll probably pick up a few useful skills along the way.
Be Sure to Make an Informed Decision
Just like with investments, I can't and won't tell you what to do. I can only let you know my own experience and my own thoughts on MLMs. Also, please do your own research beforehand and try to find statistics on how many people actually make money in the organization. Ask your recruiter person how much money they make from it. Ask people who have been in the organization before. Do your research! If you find out that the success rate is 1% or less (which it probably will be) and still want to join… all the power to you.
Now, if you currently ARE part of an MLM, you've probably left the post already. Your sponsor probably tells you that I'm a “dream-stealer” or can't see the “long-term vision” or that I “don't value financial freedom” or “being my own boss.” That's fine. Like MJ Demarco says in his book Millionaire Fastlane, come back in 5 years and let me know how you're doing. If you've actually achieved financial independence through your MLM income, then we'll talk.
Make informed decisions everyone, and happy wealth building!
Thanks for reading through my own experience with MLMs and thank you for following along! If you want to learn more about me, head over to this link here. If you want to get exclusive updates and tips, drop your email in the “get updates” box (might have to scroll up a bit.) Let me know your thoughts and suggestions in the comments!
Jeff is a current Harvard student and author of the blog Financial Pupil who is passionate about learning, living, and sharing all things personal finance-related. He has experience working in the financial industry and enjoys the pursuit of financial freedom. Outside of blogging, he loves to cook, read, and golf in his spare time.