As the global economy continues to remain volatile, people are getting more and more desperate. This desperation translates into many different forms, good and bad, but seems to be accompanied by falling for multi-level marketing (MLM) companies. It’s definitely alluring; you get to be your own boss, set your own hours, and make money based on how well you do. To top it off, everyone you bring in contributes to your income as well. Sounds a bit too good to be true doesn’t it?
You could view it as one point spreading out to a few, each of which spread out to a few more. In the end, you get this awesome triangular structure which almost resembles a pyramid when you throw in some layers. I say almost, because it clearly, legally, is entirely different than a traditional pyramid scheme. Instead of useless stock, you’re given stock which is useless outside the system, and there’s a huge difference.
The “join my team” or “get in on the ground floor” emails, texts, chat, desperate calls, etc. have begun once again. All my wife or I have to do is buy into either sales training (the “better” ones) or buy an introductory package and we can get in to start selling passively and make loads of money. MLMs prey on naivete and desperation, and there’s plenty of that going around with the current job market.
What Makes an MLM?
An MLM is typically composed of a business model where you buy in as an affiliate and resell the product. The commissions are pretty low since you’re not really buying at wholesale prices, but you get a percentage of every sale beneath you. This model incentivizes selling to friends, family, etc. and is a great way to get uninvited from events.
Most MLMs work by selling some kind of disposable product (makeup, “fashion” clothing [most are garish at best], etc.) and offloading the entirety of the risk to the seller. You don’t just take orders, you order product and resell it. If those 50 pairs of barely-held-together leggings don’t sell, it’s your problem; HQ made their money. The need to pay to work is the number one sign of an employment scam, but we’ll dive more into that in a little bit.
The next major piece which helps define an MLM is that there is a tiered structure to the commissions. If you sell a product, you get 5%, but if you bring someone into the coincidentally triangular sales structure, you get 0.5% or similar of everything they sell. The ratio is going to depend on just how profitable the legitimate business model is and how fast they want it to grow. The lower the price to manufacture, the more desirable the product, and the more gullible the populace, the closer the gap between commission and minion reward can be.
MLMs mirror something like a franchise structure in how they’re presented and supposedly work, but the numbers and benefits just aren’t the same. A franchise receives concrete assistance from the actual franchising process. A franchise owner pays in to have help implementing a supply chain into something a level above a turnkey business. You get financial help acquiring the property, furnishing it, supplying it, etc. for most franchise agreements. An MLM “franchise” tends to receive debt and risk.
Making an MLM Work
An MLM model is parasitic. It preys on offloading almost all of the risk to you, taking advantage of a zero-cost, commission-based payout, and exploiting people’s dreams of financial and employment freedom. You have to spend money to make money, and this is an investment!
Desperation, lack of understanding, and exploitation are what make an MLM successful. You put a substantial amount of money (for the position you’re in when they prey on you) in order to buy in. That money is gone; you can either eat the loss or dig your heels in and double down on your sunk cost business. The structure is very much like a cult, but with a more upfront financial stake.
The only people who come out truly ahead in an MLM are the founders and the initial group. People who really drink the Kool-Aid early enough, or are themselves parasitic enough can do well. Everyone else is a gear in the system to siphon money out of the hopeful and desperate.
They avoid being classified as pyramid schemes simply by selling a product. You aren’t just paying blindly, you’re buying inventory and selling it for what you can (or off a fixed sheet) to hustle. You become a glorified middle-man skimming a tiny spec off the top, but never really enjoying the true profitability of the system. This means the company takes virtually zero risk (especially if you pay in), and you even give them a sustainable profit margin up front. Even better, they can use you to enforce any of your downlines (the “team” you bring in), because you take the risk of the representation of the company too.
Never Pay to Work
I was always told that you should never pay to work. It never really made sense why my parents were so adamant to drive this point home until I hit the job market. Pay to work scams used to be extremely common but have largely died off in recent years in place of MLMs (same difference anymore though). A certificate to even get a foot in the door is different than “getting the job” and needing to get something else (without being paid for and it being paid for).
The scams prey on desperation. You want or need a job, and you need it now. Some of them are really good at selling themselves, but just like most scams, they take advantage of naivete, desperation, and need. The social element just helps them spread through a downtrodden community.
Any job which requires you to pay to work is at best a toxic parasite looking to suck as much value from you as possible. Some jobs may not be “pay to work”, but they move the promotions or advancement opportunities to be something up to the individual to pursue. This arguably isn’t much better from a conceptual standpoint, but the subtlety is enough to accept.
MLMs are pay to work scams, but with the difference of you receiving something tangible for the payment. You get a box of (unwanted) goods associated with a scam that you can sell to others, or equally scam to hide your shame. The goods may cost $1,000, but you only make $100 for selling the entirety at the best MLMs. The money is in tricking others into buying in so you can get an extra $20 for their $1000.
If It Sounds Too Good to Be True….
The general concept of an MLM can be distilled in a way which sounds perfectly legit. You just have to sell this product, and if you get others doing the same, you get a proportional reward. Sounds like a good sales or affiliate program, except you just need to buy in and the commission percentages are abysmal.
You get to work as much or as little as you want because your dream’s the product. Your buying in is enough, they made their $900 off of your $1,000 paying your upline (the person who brought you in) and to manufacture the product. The financial freedom you feel is you buying into a scam where the risk has been moved onto you. If you make some extra money, they still get an additional percentage and pass a bit on to motivate you, your downlines, and your upline to keep getting people to buy into the fleecing. Better stock up on more product, because next quarter is going to be even more stellar, boss babe!
The model also creeps geographically. Your potential to expand is limited by the local market which limits competition and limits expansion. There’s the implication of an exclusivity. You become the head of wherever you are if you play your cards right. There’s infinite room to expand upward, as long as you’ll own the risk.
…It Probably Is
It’s easy to fall for the trap if you don’t know the financial implications of doing so. While the claims aren’t wrong, they just require you to make sales every 35 seconds to break even, let alone make a profit. The company offloads the cost of marketing, sales, etc., and the risk entirely. You bought the product and the strategy, but you aren’t paid directly for your time.
The system works because it relies on you not making good decisions. You buy in with training or a sales package, and then the burden is entirely on you to make it work. If it requires you to pay in or the risk ends up on you, it’s probably a scam (or it’s contract work in IT). To add to this, you end up socially and geographically limited unless you explicitly take the risk on.
There isn’t a downside to the MLM for you buying in. As long as you don’t fail in a way which reflects on the company (which the method is made to prevent), it really doesn’t matter. You didn’t fail because it’s a scam, you failed because you can’t sell or just didn’t buy in enough. Just believe and remember it’s all on you!
Avoiding MLMs
As long as you avoid paying to work, look at the actual numbers, and don’t get enticed by something too good to be true, you’ll probably avoid an MLM. Paying to work means a scam or deception any way you slice it. The numbers make the difference between how much you get paid (especially if you take on the risk), and if it’s too good to be true it probably is.
While the numbers can be shaped, a cost which isn’t matched by obvious benefits is going to be exploitative. You can tell if it’s a scam by who owns the ultimate risk. A franchise costs money, but you get assistance with the process and get handed something which has been researched and which is going to enhance the company franchising it. Their success is your success. MLMs reduce the cost to buy in, but offer basically nothing but a “discount” on an overinflated good. You buy in and they make their money, if you succeed, well, they just make a little extra and reinforce the model.
To make the scenario even more opaque, the fee schedules get more and more convoluted. You may pay in to your upline, but get paid by a downline, then get a cut of what the downline’s downlines do. The ideal here is a strangely triangular layout which should send up every red flag possible. They’re going to be low while you own the risk and cost of delivery. It’s one thing to make 3% to point someone to a website to buy what they want, it’s another thing to make 3% to take ownership of receiving the product, selling it, shipping or delivering it, and being responsible for satisfaction. How much is that 3% working out to per hour of your time invested? Keep in mind, you’re paying self-employment tax in the States on top.
Conclusion
If you own the costs and the risk, what do you get out of the business? If you don’t really get anything except product and a fixed fee schedule, why would you do it? If there’s no risk, it makes sense, but as soon as you become accountable, it usually becomes a scam. I make the same percentage off of affiliate Amazon links as I would the last MLM which reached out to me. If you look at the alternatives and the business model just doesn’t make sense, it’s probably a scam.
There are so many red flags. Don’t let desperation blind you to the parasitic nature of these businesses. What do you make per sale and how much time does a real sale take? This can be hard to calculate, but if you don’t, you run the risk of trading assets for liquidity without improving the situation.
It might cost money to make money, but what are you actually getting for your money? When you pay into a real system, you get a benefit. MLMs prey on hope offering a surprisingly transparent view into a scam while making it seem legitimate. You can make money in surprising ways, but an MLM isn’t one.
Image by Simon Matzinger from Pixabay