Multi-level marketing, direct sales, network marketing: There are now many names to describe the industry in which as few as 1% of workers actually make money. But at their core, MLMs, as they’re commonly known, are nothing more than pyramid schemes. However, because so many operate legally, it can be tough to tell the difference between a legitimate business opportunity and a scam.
Proponents of MLMs are quick to point out that pyramid schemes are illegal; therefore, if MLMs are in operation, they must be legitimate businesses. However, the Federal Trade Commission notes that some MLMs are, in fact, illegal pyramid schemes ― they simply haven’t been caught yet. The FTC is cracking down, though. For example, in 2016, the well-known MLM Herbalife was forced to restructure its business and pay a $200 million settlement to the consumers it deceived. Just last year, the FTC sued Neora, an MLM formerly known as Nerium, alleging that it operates as an illegal pyramid scheme.
Thanks to growing exposure in popular media and entertainment, such as the podcast “The Dream” and Showtime’s “On Becoming a God in Central Florida,” the dangers of MLM companies are becoming more widely known. Still, thousands of people (mostly women) are duped every day into joining MLMs, chasing the dream of becoming their own bosses even as their personal wealth and relationships suffer.
So the next time a friend or family member reaches out with an exciting opportunity to make money ― and someone undoubtedly will ― stop and consider whether it may really be a ploy to rope you into an MLM.
1. It starts with a pitch
Unlike a traditional business, which likely relies on a human resources department to hire new employees as needed, MLM businesses depend heavily on recruiting by all members. Every time a person joins an MLM, they become part of their recruiter’s “downline,” and a cut of their sales is funneled upward. In order to continue growing their downline (and commissions), the MLM rep must constantly seek out new members.
“As someone at the helm of her own company ― one which I started from my own seed of a dream ― I am always on red alert when I get the ‘Hey girl’ messages in my DMs,” said Kaylin R. Staten, founder and CEO of Hourglass Media. “I automatically know this person will attempt to add me to his/her downline and I will be fed strategic messages of empowerment and independence.”
It might be a cousin, an aunt or Karen, whom you barely knew in high school and haven’t spoken to since. The point is that you didn’t go looking for the opportunity ― it came to you in the form of a pitch in your Facebook messages or disguised as an offer to “catch up” over coffee. Though the spiel might sound convincing, it’s ultimately a sales pitch to get you into the downline.
2. Certain buzzwords are used
MLM businesses tend to use the same phrases and buzzwords to paint a specific picture for potential recruits. Often, these companies sell the dream of leaving the rat race and becoming the CEO of your own company. They lean on images of female empowerment, targeting women and stay-at-home moms who want flexibility and financial independence.
Of course, selling for an MLM is not anything close to owning your own business. For one, the product is not your own. Plus, you have an upline ― essentially, your boss ― dictating your sales quotas and marketing strategy, and taking a cut of your earnings.
“If certain words and phrases are listed, then you may want to watch out,” Staten said. Words to be wary of include “work from home” and “earn extra income.” When combined with phrases such as “be your own boss” or worse, “boss babe,” it’s a sure sign that you’re being targeted by an MLM.
3. You get love bombed
Love bombing is a form of manipulation used by toxic romantic partners, narcissists, cults and, you guessed it, MLMs. It might not be obvious it’s happening at first, but love bombing is an effective way to control another person. “The MLM rep praises your intelligence in an attempt to stroke your ego, and then preys on your fear that you’re not doing enough with your life,” said Patrick Ward, a marketing director who said he’s been pitched many times by MLMs.
As mentioned above, one of the big selling points in an MLM pitch is that you can leave the corporate world and become your own boss. So if you haven’t done so already, what’s stopping you? “The ego stroke is seamlessly integrated with undermining statements like ‘You could be doing so much more, why are you settling for a 9-to-5?’” Ward said.
4. The business model is unclear
Most job listings are quite clear about what the job entails. After all, these companies are looking for qualified candidates. “In job and freelance postings, I always put my company’s name, website and other pertinent information for a potential applicant’s perusal,” Staten said.
With MLM businesses, however, the details are usually not so clear. It’s more important for the recruiter to draw interest in an exciting new opportunity than to get bogged down in the details of how that opportunity actually works. “The MLM rep will never explicitly say what the opportunity is, instead using vague terms like ‘the project,’” Ward explained. The reason? To prevent you from doing background research too early and finding negative reviews or accusations that it may be a pyramid scheme.
Staten said a company’s track record should speak for itself. “If you feel like you’re being advertised to in a job posting, then it is most likely an MLM or something very much resembling a pyramid scheme,” she said.
5. There are no qualifications to join
Most job openings require you to submit a resume, interview with multiple employees and maybe even pass a background check. That’s true whether you’re applying for a full-time job or a contractor position. Even franchise businesses have rigorous qualifications to join. Chick-fil-A franchisees, for example, have a lower acceptance rate than Stanford.
But when it comes to MLMs, there is generally no formal interview process. Again, it’s more of a sales pitch than a job interview. As long as you know how to send a text and can learn to start a Facebook Live video, you’re in.
6. The training and compensation are minimal
Once you join the typical MLM, there’s very little in the way of training. Many companies rely on PDFs and handbooks that you read at your own pace, as well as cut-and-paste sales messages you’re expected to send to everyone in your network. There’s no official onboarding process, and if you have questions or need help, you may find it hard to get a straight answer.
“Responses to any deeper level questions are either dismissive, elusive or lacking any details,” said Jacques Buffet, a career expert with resume website Zety. “There’s a lot of ‘it depends’ and ‘well, it’s up to you’ answers where you don’t get the help that you need.” Usually, if you aren’t finding success, you’re told it’s because you aren’t trying hard enough.
And unlike most legitimate businesses, there’s no compensation for time spent training or additional tools you may have purchased out-of-pocket. There are also no benefits such as paid time off or health insurance, and you don’t get any federal protections such as a minimum wage.
7. You have to buy your own inventory
One of the biggest red flags of an MLM is that you have to spend your own money upfront on inventory. LuLaRoe, for instance, notoriously requires a minimum starting investment of more than $5,000. And inventory that isn’t sold ends up sitting in storage or is donated to secondhand stores as a loss to the seller.
Plenty of salespeople in other industries work on commission only. The big difference is that they don’t have to buy the products with their own money in order to sell them; the company provides the product or service directly to the customers. With an MLM, however, the employees are also the biggest customers.
8. There’s a cult-like culture
In addition to love bombing, MLMs rely on other cult-like practices to attract new members. You might notice a strange, cultish vibe from members right away, especially if you join a meeting.
In the MLM world, meetings, rallies or parties are a key strategy for hooking new recruits. “The initial MLM rep tends to be low on the totem pole and will try to convince you to attend an event led by their leader,” Ward said. Here, participants face a combination of inspiring rags-to-riches tales and high-pressure sales tactics.
“If it sounds cultish, that’s because it is,” Ward said. “Think a lot of chanting, hyping people up to make lots of money and very little about the actual substance of the business.”
9. Moving up the ranks requires recruiting
As noted earlier, MLMs rely heavily on recruiting new members. Often, the only way to reach the lofty sales numbers promised in the pitch is by amassing a giant downline, not by selling the products. If your success in the company is dependent on how many people you recruit, it’s surely a scam.
“If the request is for you to buy a lot of products, store huge amounts of inventory, or worse yet, contingent upon the number of people you must recruit: Run,” Buffet said. “Income should be based on sales to the public and not the number of family members, friends or acquaintances you can convince to work for you (hello, pyramid scheme).”