I’m going to crack open the lid on something that I bet has touched your life in some way, even if you’re not quite aware of it. We’re talking about Multi Level Marketing (MLM) schemes, and they’re a bit like a chameleon, changing colors with the environment. They blend into the landscape of our everyday transactions, often masquerading as one thing, when really, they’re something else entirely.
What Are MLM Schemes?
MLM Schemes represent business models that promise participants payment not just for selling products but also for bringing other sellers into the fold. Now, not all multi-level marketing businesses are out to dupe you. Some are legitimate, offering real products and a fair compensation plan. But there’s a thin line between the legit and the fictional, and that’s where things get tricky. More on that in a moment. First, let me tell you about my own experiences with MLMs.
I’ve purchased a few MLM products in my time. Some are really good! Like Intimo clothing. How I love my fabulous stretchy black dresses, leggings, and lovely underwear. Quality clothes that I keep going back to. The only problem is, that the Intimo Consultants never hang around for very long, so I never know who to contact when I need replacements! And Thermomix is another good one. I love my Thermomix and would happily recommend one to anyone. Arbonne is another one. Truly lovely makeup, even if it is a bit pricy for what you get.
Gosh, the more I think about it, the more that are coming to mind! When I was growing up I remember my mum and me going through Avon catalogues, and every now and then we’d buy a little something. I have such fond memories of Avon! And we’d collect our goodies from our neighbour’s house. And then there was a time when I must have been about 10 or 11, and I was allowed to go to a perfume party with my mum and her friends (which I now recognize was MLM). What a treat it was to be there with the grown-ups. We bought some perfume too.
And yes, I have cupboards full of Tupperware. I’m a sucker for a Tupperware party.
Those are examples of MLMs with pretty decent products that typically result in people’s repeat-buying.
I’ve personally seen a few MLMs in action, not just from a purchasing perspective. I’ve been approached by many a friend online (often in groups where we have a common interest, such as parenting), and I’ve been to a few sessions where meeting spaces are hired and presenters pitch about the company and the benefits of becoming a ‘Consultant’. Let me give you a rundown of how these sessions typically work.
A Typical MLM Business Presentation Session
Welcome and Introduction
The session usually starts with a warm welcome from the host, who might be a high-ranking member or an experienced recruiter in the MLM company. They’ll briefly introduce themselves, sharing how the MLM opportunity has transformed their life.
The host sets an upbeat and positive tone, emphasizing that the session is a life-changing opportunity. They might mention that this presentation could be the first step toward financial freedom and a better lifestyle.
Success Story Showcase
A key element of the presentation is the personal success story, usually told by the host or another top performer. They’ll share how they started with nothing or very little and worked their way up to achieving significant success within the MLM. They might talk about their past struggles, such as working a dead-end job or being in debt, and how the MLM opportunity was a turning point. They will often also emphasize the flexibility the MLM offers, and will appeal to time-poor people with other responsibilities, such as parents with children, and people who already have work and are looking for something extra.
To make the story more compelling, they might show photos or videos of their luxurious lifestyle—such as expensive cars, vacations, or a beautiful home. This visual evidence is intended to inspire and create a desire in the audience to achieve similar success.
Presentation of the Opportunity
The presenter provides a brief overview of the MLM company, its history, and its mission. They’ll emphasize that the company is well-established, reputable, and growing rapidly.
The products or services the MLM offers are introduced. The presenter will highlight the quality, uniqueness, and demand for these products, often using testimonials from satisfied customers.
The most critical part of the presentation involves explaining the income potential. The presenter will outline how the compensation plan works, including commissions, bonuses, and other incentives. They’ll emphasize that the earning potential is limitless and directly tied to the effort the recruits put in. The idea of “you get out what you put in” is strongly emphasized.
The concept of passive income is often introduced at this point, explaining how recruits can earn money not just from their own sales but also from the sales made by people they recruit. This is portrayed as the key to financial freedom, where recruits can eventually earn money while doing very little work.
Overcoming Objections
Anticipating skepticism, the presenter will address common objections. They might downplay the risks, stating that while success takes effort, anyone can achieve it if they follow the system. The presenter might also dismiss concerns about the initial investment or the difficulty of recruitment by presenting these as minor hurdles on the path to success.
Additional testimonials from other members who have found success are often shared to further reassure the audience. Sometimes, they might mention endorsements or partnerships with well-known brands or individuals to lend credibility.
Call to Action
The presenter will create a sense of urgency, suggesting that the opportunity is time-sensitive. They might mention a limited-time offer, such as a discount on the initial investment or an upcoming event that new recruits should not miss.
The audience is encouraged to make a decision on the spot. They might be asked to sign up immediately to secure their place or to start with a starter kit. The presenter will stress that this is the first step toward changing their lives.
Closing and One-on-One Conversations
The presentation usually ends with a motivational talk, reiterating the limitless potential and the opportunity to achieve financial freedom. The presenter will likely say that the only thing standing between the audience and success is their decision to take action.
After the formal presentation, the host and other experienced members mingle with the attendees, answering questions, providing reassurance, and encouraging sign-ups. This personal touch is meant to close the deal by making each individual feel supported and ready to commit.
Enrollment Process
Interested attendees are guided through the enrollment process, which often includes purchasing a starter kit or an initial package of products. They’ll be asked to sign contracts or agreements, and payment information will be collected.
New recruits are welcomed warmly into the “team” or “family,” and they are often added to a group chat or invited to the next training session. The excitement of joining the community is emphasized, with promises of ongoing support and mentorship.
The Pros and Cons of MLMs
The Pros of the MLM Model
One of the key advantages of joining an MLM is (generally) the low barrier to entry. Unlike traditional businesses that often require significant capital to start, MLMs typically offer low-cost entry points. This makes it accessible for individuals who may not have the resources to launch a conventional business. For those with limited entrepreneurial experience, MLMs provide a structured environment with pre-existing products, marketing strategies, and training programs. This structure can be appealing to individuals looking for a guided approach to business ownership.
Another pro is the potential for flexible work hours and the opportunity to build a business from home. MLMs often market themselves as ideal for individuals seeking a better work-life balance. Participants have the autonomy to set their schedules, allowing them to work around other commitments, such as family or another job. Additionally, for those who enjoy socializing and networking, MLMs offer a way to engage with others while earning money. The community aspect of MLMs can be fulfilling, providing a sense of camaraderie and support among members.
Whilst I have said there is a generally low barrier to entry, there are MLMs that have very high barriers to entry – the one I’m most familiar with is Prosperity of Life – we’ll get to that in a moment!
The Cons of the MLM Model
Despite the potential benefits, MLMs are fraught with significant drawbacks. One of the most concerning aspects is the low success rate among participants. Studies and data show that the vast majority of individuals who join MLMs do not make a profit. In fact, research by the Federal Trade Commission (FTC) suggests that 99% of MLM participants lose money, with many spending more on products and training than they earn in commissions. This high rate of failure is often due to the pyramid-like structure of MLMs, where income is heavily dependent on recruitment rather than product sales.
Another major con is the potential financial risk involved. While the initial cost to join may be low, many MLMs encourage or require participants to purchase inventory, attend costly events, or invest in training programs. These expenses can quickly add up, leading to financial strain, especially if sales do not materialize as expected. Moreover, the focus on recruitment can create a predatory environment where individuals are pressured to bring in new members to sustain their own income. This can lead to damaged relationships and ethical concerns, as recruits may feel misled or exploited. Additionally, the relentless optimism promoted within MLMs can create a culture where failure is blamed on the individual’s lack of effort, rather than the inherent flaws in the business model. They are masters at gaslighting in this regard. Think ‘well if I can do it, you can too – if you haven’t reached my level of success that’s on you’.
If you haven’t yet seen the Netflix series ‘On Becoming a God in Central Florida’ with Kirsten Dunst, it is well worth a look. Whilst the show is fictional, it is based on themes and ideas that are true of the MLM world.
So how do you distinguish a good opportunity from what could be a financial vacuum? The stakes are high: we’re dealing with the law, your finances, and in some cases, your relationships. Getting involved in the wrong sort of MLM scheme can not only drain your bank account but also draw the ire of regulatory authorities.
Recognizing MLM Schemes: Red Flags and Warning Signs
You’re going to find out about the telling signs of an MLM scheme in this section. It’s crucial to recognize these signs early to steer clear of potential financial and emotional distress. Trust me, knowing these red flags will save you more than just money.
First off, high-pressure sales tactics are a major red flag. If you’re being pushed to make quick decisions, encouraged to recruit relentlessly, or told you’re missing a ‘once-in-a-lifetime opportunity,’ then alarm bells should ring. MLM schemes often thrive on urgency to cloud your judgment.
Then, there’s the promise of high returns in a short amount of time. I’m here to tell you that this isn’t just about making a quick buck; it’s also about sustaining feasible growth over time. Any plan that assures you rapid wealth without much explanation is sketchy, to say the least.
Another point of concern is the requirement to buy and stock inventory. This isn’t a small-scale book club; we’re talking about significant investments that MLM schemes might ask you to make under the guise of starting your business venture. Be wary if you’re pushed to purchase more inventory than you can realistically sell.
Lastly, let’s talk about their commission structures. If they’re more complex than a jigsaw puzzle, chances are it’s designed to confuse you. Legitimate businesses have straightforward earning plans; MLM schemes, on the other hand, can have convoluted systems that only benefit those at the top.
The Realities of the MLM Model – Some Quick Facts
Average Time Spent in MLMs
According to various studies:
- Most participants stay in MLMs for less than a year. The average time before giving up is typically 6-12 months.
- Around 50% of participants drop out within the first year, with 90% leaving within five years.
Average Number of MLMs Ceasing Operations Annually:
- It’s estimated that hundreds of MLMs are created each year, but a significant number also fail. According to the Direct Selling Association (DSA), the failure rate is high, with approximately 90% of MLM startups failing within the first five years.
- While there isn’t a precise annual figure, industry experts suggest that dozens to over a hundred MLMs may cease operations annually.
Reasons for MLMs Ceasing Operations
- Unsustainable Business Model – Many MLMs rely on constant recruitment rather than product sales. Once recruitment slows, revenue drops significantly.
- Regulatory Actions – Authorities like the FTC shut down MLMs that are found to be operating as pyramid schemes.
- Market Saturation – In mature markets, it becomes increasingly difficult for new participants to find customers or recruits, leading to business failures.
- Financial Mismanagement – Poor financial planning and management can lead to the collapse of MLMs.
- Loss of Public Trust – Negative publicity and consumer skepticism can erode the customer base.
Perceived Common Unethical Practices in the MLM Business Model:
- Emphasis on Recruitment Over Sales – Many MLMs prioritize recruitment of new members over the actual sale of products. This can lead to a structure that resembles a pyramid scheme, which is illegal and unethical.
- Misleading Income Claims – MLMs often highlight the success stories of a few top earners while downplaying or omitting the fact that the vast majority of participants earn little to no money. This creates false expectations and can be considered deceptive marketing.
- Inventory Loading – New recruits are sometimes pressured to buy large amounts of inventory that they may not be able to sell. This practice can lead to significant financial losses for the recruits.
- High Dropout Rates – The high turnover rate in MLMs indicates that many participants find it difficult to succeed. This high dropout rate is often not disclosed to new recruits.
- Cult-like Culture – Some MLMs foster a cult-like atmosphere where dissent is discouraged, and recruits are encouraged to invest significant time and money without questioning the likelihood of success.
- Exploitation of Personal Relationships – Recruits are often encouraged to sell to friends and family, which can strain personal relationships and lead to social isolation if the MLM venture fails.
- Legal Ambiguity – Many MLMs operate in a legal grey area, making it difficult for participants to understand their rights and the legal ramifications of their involvement.
Sometimes, it’s hard to even tell if what you’re presented with is even an MLM. Because MLMs have such a poor reputation, many go to great lengths to hide that they are indeed MLMs.
Now, back to the example of Prosperity of Life I mentioned.
A Case Study: Prosperity of Life MLM
Prosperity of Life, also known as Polaris Global or Liberty League International, is an MLM company that offers personal development and success coaching programs. The company promotes itself as a provider of educational products designed to help individuals achieve personal and financial success. However, they don’t call themselves an MLM, and attempt to hide that they are in fact an MLM.
Tactics Used by Prosperity of Life
High-Pressure Sales Tactics: Prosperity of Life is known for using high-pressure sales tactics to recruit new members. Prospective recruits are often subject to intense sales pitches that emphasize urgency and the fear of missing out (FOMO). These tactics are designed to push potential recruits into making quick decisions without fully considering the risks involved.
Promising Financial Freedom: The company heavily markets the idea of achieving financial freedom and an extraordinary lifestyle. They highlight success stories of individuals who have purportedly become wealthy through their programs, often showcasing luxury lifestyles, exotic vacations, and high incomes. This creates a compelling, albeit misleading, narrative of guaranteed success.
Significant Upfront Costs: Prosperity of Life requires significant upfront investments from recruits. The costs of their programs can run into the thousands of dollars. For example, new recruits may be encouraged to purchase expensive educational packages or attend high-cost seminars and events. This can lead to financial strain for individuals who do not see a return on their investment. We’re talking thousands of dollars here.
Emphasis on Recruitment: While the company offers educational products, there is a strong emphasis on recruitment. Recruits are incentivized to bring in new members, often with the promise of high commissions and bonuses. This focus on recruitment over product sales is a common characteristic of MLMs that can resemble a pyramid scheme.
Cult-like Culture: Prosperity of Life fosters a culture that can be described as cult-like. Members are often encouraged to adopt a highly positive and unwavering belief in the company and its products. Dissent or skepticism is discouraged, and recruits are motivated to immerse themselves fully in the community, often at the expense of critical thinking.
Use of Personal Development Language: The company uses the language of personal development and self-improvement to appeal to individuals seeking growth and change. They position their programs as transformational experiences that can unlock personal potential and lead to greater success in life. This messaging can be very attractive to those looking for direction and purpose.
How do I know about Prosperity of Life? I went down a rabbit hole one day and … well … I still get their marketing material and it’s fascinating to me.
The reason I’m writing about Prosperity of Life here is to show you a recruitment tactic that they train their Consultants to use. I often keep my eye on roles that come up in the HR, People, and Culture space, and one of my favourite sites to do that is LinkedIn. I have alerts set up that email me with opportunities related to my search criteria. I can’t tell you how many ‘jobs’ I get emailed to me that are not jobs at all. They usually say something similar, and they always have the same hallmarks:
- the company has 1-10 employees
- the company is in the Professional Training and Coaching Space
- it’s a global company
- the experience – well let’s just say there’s no HR experience required, but you do need to know about social media and be a good communicator
- the tasks – well see for yourself in the ‘job advertisement’ below.
As you can hopefully see, there is no actual ‘job’ here. This is recruitment to an MLM plain and simple. The fact they have advertised this as an HR Manager role irks me because I am an HR professional with over two decades of experience, and seeing this passed off as an HR opportunity is not cool with me.
And you know what really annoys me … not only is it NOT a job where they pay you to do work, but the reverse is true. You need to pay them thousands of dollars to join this MLM. Not a hundred dollars or even two hundred – THOUSANDS. And it costs many more thousands to sell their more expensive courses.
I’ll stop my little rant now. The point of this was to demonstrate that even MLMs try to hide that they are MLMs sometimes. So be careful! Ask questions, and always delve deeper.
Now, after pinpointing these warning signs, what’s the next step? It’s understanding the psychological play at work here. Stick around, because we’ll explore why MLM schemes can be so enticing, despite these blatant red flags. It’s one thing to spot them, but understanding why we fall for them is key to outsmarting these deceiving practices.
The Psychology Behind the Appeal of MLM Schemes
I’m hoping to crack open the psychology of MLM schemes to shed more light on why they’re so enticing. You might wonder why smart, savvy individuals fall for these setups. The truth is, that MLM schemes are designed to tap into our basic social and emotional needs, which is why they can be so alluring.
At the heart of their appeal is the promise of community and belonging. They often use the language of family and teamwork to draw you in. Participating in an MLM can feel like you’re part of something bigger, with a group of people who support each other’s dreams and goals.
These schemes also play on the allure of success and lifestyle improvements. They showcase stories of people who have achieved financial freedom, often accompanied by images of luxury cars, exotic holidays, and the promise of quitting the 9-to-5 grind. The chance to transform your life can be hard to resist, especially if you’re dissatisfied with your current situation or if you’re facing financial hardship.
Social media intensifies these promises by giving MLM schemes a platform to broadcast success stories wide and far. It’s these highlight reels of supposed ‘life-changing opportunities’ that pique interest. They cleverly mask the challenges with eye-catching testimonials and aspirational narratives. It’s also very important to remember – often the people who are promising financial freedom have only just started on their own journey, and are VERY far from reaching their own financial freedom. They are not recruiting you based on their personal experience of success, but rather on a dream that someone else has sold them. In all likelihood, the person offering you the ‘opportunity’ is only a few months into their own journey of disappointment, frustration, and ultimately embarrassment when they quit without having made anything of significance.
I’m here to remind you that this isn’t just about the possibility of making money; it’s also about the psychological traps that are set to encourage people to join. Schemes often use motivational speeches and events to keep spirits artificially high and doubters at bay. These rallies and seminars are breeding grounds for confirmation bias, where you’re more likely to believe the hype because everyone around you seems to be buying into it, too.
Now, this understanding of psychology is crucial as you push forward. It’s the perfect segue into the next section, where I’ll unravel how legal MLM operations differ from these schemes. Spoiler alert: legitimate MLM businesses focus more on selling products than on recruiting members.
Legal Distinctions: MLM Schemes vs. Legitimate Direct Selling
I’m going to tackle a vital but often confusing aspect of multi-level marketing: the legal landscape. Understanding the legal side of things is crucial because it lets you recognize the boundaries of legitimate direct selling compared to illegal MLM schemes.
Now, the law typically places emphasis on the revenue source in these businesses. Genuine direct selling companies generate most of their income from genuine product sales to consumers, not just from recruiting more participants.
To put it simply, if a company’s focus is more on bringing new people in rather than selling the actual product, that’s a glaring issue. Pay close attention to whether you can feasibly make money from sales alone, without ever having to recruit anyone.
It’s important to know that several legal frameworks govern these practices. In the U.S., for instance, the Federal Trade Commission (FTC) is the watchdog, and they’ve got guidelines that can help differentiate between the good and the bad in MLM.
Now when you’re looking at an MLM’s business model, ask yourself: Is the commission plan straightforward or more confusing than a maze? Legitimate businesses usually have compensation plans that you don’t need a Ph.D. to understand.
Don’t worry too much about getting into the nitty-gritty of every case and precedent, but do be aware that court rulings often shape how these businesses operate. Sadly, a lack of consistent regulation across regions can muddy the waters.
In my opinion, empowering yourself with this knowledge is like carrying a shield; a shield that helps deflect the potential harms of getting involved with the shady side of MLM. So, let’s stay sharp and informed, and with that, let’s look at some real stories that underline the impact MLM schemes can have on lives.
Victim Stories: The Real Impact of MLM Schemes on Lives
You’ve heard the pitch: Join our company, sell products to friends and neighbours, and make a fortune. But what you’re not hearing are the stories of those who’ve walked this path only to find financial ruin and broken relationships. It’s stories like these that paint a stark picture of the true impact of MLM schemes.
Personal anecdotes from real people are heart-wrenching. They tell of individuals who were convinced to invest thousands, only to be left with unsold products and a mountain of debt. Some were persuaded to alienate friends and family in the name of sales, a regret that lingers long after the hype has faded.
Interviews with former MLM participants reveal a common theme of regret and frustration. Many share how they were drawn in by the success stories and charismatic leaders, but the reality was much different: diminishing returns, constant pressure to recruit, and the sinking realization that they were part of a system rigged against them.
However, it’s also from these experiences that we find guidance on how to move forward. Survivors of MLM schemes often become vocal advocates for change, educating others about the warning signs and strategies to recover from financial setbacks. Their hard-earned wisdom is crucial in combating the spread of these deceptive practices.
Protective Measures: How to Guard Against MLM Schemes
I’m going to share some armour you can suit up with to fend off the advances of MLM tactics. It’s crucial that you don’t walk into the battlefield unarmed; that means being equipped with knowledge and a healthy dose of skepticism.
Your first order of business should be to dig deep. Research is your best defense mechanism. Look for credible reports on the company, read through independent reviews and consumer watchdog sites, and don’t take any testimonials at face value, as they can be cherry-picked or even outright fabricated.
In my opinion, nothing beats professional advice. If you’re seriously thinking about investing time and money into an MLM, chat with a lawyer or a financial advisor. They’ll have the eagle eyes needed to spot hidden clauses or unrealistic projections in the company’s materials.
I always stress the power of critical thinking. Before diving in, ask hard questions: How does the company make money? Can you earn a decent income without having to recruit others? If it sounds like recruiting is the core moneymaker, you might want to step back and reconsider.
There’s a lot of opportunity to network with folks who’ve been there. Engage with former MLM participants and listen to their experiences. Unlike the company’s pitches, these voices provide unfiltered insight into the day-to-day realities of the operation.
Above all, remember that if an opportunity seems too good to be true, it probably is. An authentic business venture usually requires hard work and doesn’t guarantee overnight success or riches.
Choose something that resonates with you, sure, but make it a decision grounded in facts and not just feelings. And remember, it’s perfectly okay to walk away. You can always adjust your approach down the road.
Hopefully, you have some additional knowledge and strategies to shield yourself from MLM schemes.
Remember, your first attempt at spotting or dealing with an MLM scheme may not be perfect, and that’s okay. The goal is to be better informed and to apply this knowledge moving forward. If you’re ever in doubt, choose to reach out—to a trusted financial advisor, to legal authorities, or to community support groups dedicated to helping those affected by these schemes.
What Now?
In my view, MLMs are not the way to build a home empire. Few people succeed in MLMs, but for the VAST majority of people, this is simply not the case. Don’t be one of those people whose friends walk away when they see you coming – your friends don’t want your MLM products. Your family certainly don’t want them. Enter into a quality business that will improve your life rather than make you a social pariah.
There are many ways to build legitimate and successful businesses from home, and in my view, the best way to do that is online.