What is Multi-Level Marketing?
You may have heard about MLMs when it comes to business or starting a business. They are also pages dedicated to being anti-MLM, so what does Multi-Level Marketing (MLM) mean?
Multi-Level Marketing (MLM) also called Network Marketing (and other names) is a direct sales business model. MLMs use independent salespeople to distribute their products instead of traditional methods like stores and online sales. It is a controversial business model due to the number of people who lose or make very little money in the industry. Also, the industry focuses on recruiting instead of selling to rank up to the top tiers of the compensation plans.
As a reminder, I have an MBA, I am a Certified Public Accountant (CPA), and have almost 15 years working in finance and accounting. These are my opinions based on researched facts and my understanding of those facts. However, this is not legal, financial, or tax advice. If you need legal, financial, or tax advice, you should reach out to a professional for a 1:1 chat! All opinions are my own.
What is an MLM?
MLM refers to the business structure of a multi-level marketing company. Multi-level marketing companies are a form of direct sales. Direct sales are when companies skip putting their products in a retail store (more info below). Instead, they sell via salespeople that are independent of the company. This means they are 1099 employees vs. a W-2, therefore, they are not employees of the MLM. The salespeople of each company have different names some examples are: Consultants, Coaches, Stylists, and Artists.
How to Make Money in Multi-Level Marketing
In multi-level marketing, the salesperson makes money in two basic ways, even though the compensation plans are very complex. The first way is by commissions on sales of products. The second is commissions and bonuses based on their team or downline sales.
I have reviewed many MLM Income Disclosure Statements (which you can find here). In every multi-level marketing income disclosure available, there is only a small percentage of people who make significant money. Those making the most money are all at the top of the compensation plan. This means they have recruited large downlines in order to rank up.
Each compensation plan will vary, but you must have several layers beneath you to start earning decent money. This means you recruit at least 2 people to work under you. Then each of them recruits at least two people, and so on and so on.
Once you build your downline, your commissions and bonuses will be based on the ranks and sales of those under you. The same is also true of your upline, the person/people that recruited you. Therefore, even though they claim you have started your own business, you will be pressured into recruiting and sales to help earn those above you more money. This is why many people refer to them as pyramid schemes, keep reading below on why that is.
To see more about the basics of an MLM and why they are bad, check out this video:
Examples of Multi-Level Marketing (MLM) Companies
You’ve most likely come across MLMs in your lifetime, especially if you’re a Facebook user. Have you ever been invited to a party, but when you show up it is someone trying to get you to buy something? Then they also want you to host your own “party”? That is an MLM. Have you ever been invited to a “party” on Facebook that is selling something? That is most likely an MLM.
Things that probably pop into your mind – Tupperware, Avon, Amway, Color Street, Pure Romance, Mary Kay, Thirty-One and so many more are MLM companies.
Are MLMs Pyramid Schemes?
Pyramid Schemes are illegal scams. The premise generally is that someone convinces you to join and promises you a huge return on investments. Then, you convince another person to join with the same promises. Each person takes a cut of the money of the people they recruit as your “return on investment”. Therefore, to keep the scam moving, you need to constantly be recruiting people to pay off the other’s “investment earnings”. Eventually, there is no one else that can join, and the money runs out to pay “investment income” and people realize most of their money went to a scammer.
MLMs do look and run a lot like pyramid schemes. Those at the top of the organization are constantly recruiting so that they can build downlines and earn larger commissions. There is no visibility (to the public) of how many sales in an MLM go to new “consultants” or to outside customers. If the majority of their sales are just going to new salespeople to start a business venture, this is very similar to how pyramid schemes work.
While all MLMs may not be pyramid schemes as defined by the law, the fact remains over 90% of people who join the MLM business model will actually lose money.
Pyramid schemes are scams. They can look remarkably like legitimate MLM business opportunities and often sell actual products, maybe even ones you’ve heard of.
FTC
What are MLM Huns?
If you’re reading about MLMs, you may have come from an anti-MLM page or have heard the phrase “Huns”. People in the anti-MLM community refer to those that are a part of MLMs as Huns. This is because of the generic messages many people in MLMs send, which often start out with “Hey hun…”. In this case, “Hun” is short for honey, and is a generic term of endearment that is used to seem warm and welcoming. It can also be mass copied and pasted to many people and does not need to be customized.
When you join an MLM, your upline may host a “Power Hour” where they encourage you to message as many people as possible. Therefore, it is best to have a generic message you can send and not need to customize the name each time, and “Hey hun…” was created.
This also reinforces how when in an MLM, your main priority isn’t selling the product, but instead finding people to recruit to the business.
Why I Think You Should Be Nice to Huns
While I am firm in my stance that multi-level marketing is unethical and I strongly encourage people to avoid it, this does not mean I’m anti-hun generally. Most people get involved in MLMs being told there is huge income potential and not really understanding the ethics and details behind it. The people joining like the idea of starting their own business, working from their phones, and are usually moms trying to create a better life for their families. Those traits should be celebrated, they were likely misled as to what it would take to earn money.
However, I do think we should hold the corporations and the top tiers of the uplines accountable for the unethical nature of this business model. MLM corporations should be required to provide reporting on how much of their sales go to customers versus their sales consultants. When recruiting new people for the business opportunity, they should clearly disclose that to make money the focus will be on recruiting.
Can You Get Fired From an MLM?
When being recruited to an MLM, they will say it is time to start your own business! But really, what they are saying is, to become a salesperson. Joining an MLM and earning commissions is not starting a business, it is a way to make income as an independent consultant. You have no say in the products, prices, etc. Most importantly, you can be fired from an MLM. Each MLM has policies & procedures that outline your conduct. If you do something the MLM doesn’t like, your relationship with them can be terminated and everything you’ve built can be lost.
What Are Other Names for MLMs?
Multi-level marketing can go by other names. MLMs are also known as network marketing, social selling, pyramid selling, direct sales, etc. People within MLMs know that the industry is under fire. So they are trying to distance themselves from the MLM name. If you are being recruited into a business where you will sell products under someone else, and then be encouraged to recruit others – it’s most likely an MLM. Another way to tell is if you get invited to a “party” on Facebook or in real life to sell things, it is likely an MLM. If you see some very vague Instagram or TikTok post that asks you to DM them or find them on Instagram for more information – it’s probably an MLM.
Obviously, some people are very successful in MLMs, but you really need to get in early – be one of the first people that join. You also need to be comfortable with the fact that 90% of the people who you recruit to join you will lose money. MLMs prey upon desperate women primarily, who are looking to find additional income for their families while being at home. While they may not always be illegal or easily proven to be illegal pyramid schemes, it is my opinion (which is shared by many others) they are certainly unethical.
What are Direct Sales?
Direct sales are when a company decides to market its products through people, instead of through stores. This means, that generally speaking, MLMs do not sell their products in stores, but instead rely on the people that join their company to sell their products. There are some exceptions, like seeing Tupperware in Target. However, this means that the company (in this case Target) is selling its products through two different distribution channels. They are selling through 1. Traditional Retail and 2. Direct Sales via Tupperware Consultants. There are two kinds of direct sales, single-level marketing, and multi-level marketing. You can read more about how they are different here: Single-Level Marketing (SLM) vs Multi-Level Marketing (MLM)
What is Anti-MLM?
There is a large Anti-MLM movement out there. But what does that mean? It means there is a group of people who are trying to educate consumers on the risks of joining MLMs. Network marketing is a huge industry. There are so many people who are pro-network marketing. But there are also others who see the harm that can be caused.
Truthfully, I consider myself anti-MLM, but I like to combat it with facts. I don’t like to put down people (except those who I think should know better). I’d like to see more transparency in this industry, like required income disclosures in a standard format and required reporting on sales made to customers vs. sales consultants.
Wrap Up
Please remember, if it’s too good to be true, it probably is! When in doubt, Google the business and find out as much as you can. Please don’t fall into the MLM trap.
If you liked this article, you could check out all my MLM-related articles here.
I’d love to hear from you if you have questions, comments, or differing opinions. Find me on Instagram, Facebook, or email me by going to my contact page.
