One of the most popular ways to earn money from home is to join a multi-level marketing (MLM) company. It sounds great. You sell products you believe in to friends, family, and anyone else who cares to buy from you. It’s flexible, perfect for busy moms and dads who want to earn an income while raising their family.
But are MLM opportunities worth the risk?
Make no mistake, there are risks when you join an MLM. Some involve more risk than others. And the risks aren’t only financial.
Personally, I’ve never been a huge fan of MLMs. The selling style has never appealed to me, nor has the level of risk.
MLM Risk: The Cost Of Joining
The cost to join an MLM varies significantly by company. Many are quite affordable to join, under $100. Other, such as Lularoe, can be several thousand dollars.
People trying to recruit you into an opportunity can make the cost sound entirely reasonable and recoverable. They have an incentive to do so, of course – it helps them to make money. It shouldn’t be their primary means of earning money, as that’s a sign of a pyramid scheme, but recruiting always has some kind of benefit in MLM.
The cost of entry isn’t the only one you will face. With most companies, you’ll face a push to attend special conferences and events at an additional cost. These events can be quite educational and motivating, but they’re also expensive.
The pressure to attend these events can be huge. I have a friend who has tried several different MLM opportunities who tried starting a GoFundMe to attend a conference, stating that while she didn’t have the money on her own, she wanted to know that her friends and family had that much faith in her ability to succeed in her new business.
Then there are the costs of finding customers and building a downline. Sure, you start with your friends and family, but for many people, that won’t be enough. So you sign up for online training, that being cheaper than attending a conference, and keep trying to build. You might even try paid advertising.
All these costs add up. If you don’t succeed in making sales and recruiting a downline pretty quickly, your new business isn’t going to work out for you.
MLM Risk: Few People Succeed In MLM
While most MLM companies love to brag about their success stories, these truly are the outliers, not the average.
In 2006, the Direct Selling Association (DSA) testified to the FTC that the median annual gross income from direct selling is about $2,400 per year and that 59% of direct sellers earn under $10,000 per year.
TruthInAdvertising.org reviewed the income disclosures of 32 direct sales companies and found that more than 80% of distributors in those companies earned less than $1,200 annually (less than $100 per month!).
All in all, not a terribly promising proposition, is it?
Yes, some people make serious bucks and an amazing living in MLM. You can hope that you’ll be one of them. Just be aware of the odds against it and be ready to work hard toward that goal if that’s what you decide to do.
If you want even more information, check out this list of MLM Income Disclosures. It’s only for certain companies, but what you’ll quickly see is how little money is earned by the people at the bottom of the list, and how much the very, very few at the top get.
Pay attention to how they disclose income. Some companies look pretty good until you realize that the income table only includes top earners, while lower earners averages are hidden in the paragraphs of text above or below. They have to share that information, but that doesn’t mean some won’t try to hide it a little.
MLM Risk: The Company Goes Out Of Business
When you join an MLM, the life of your business is connected to the life of theirs. If they go out of business, you’re out of luck.
While this happens only rarely with older MLMs, it’s not all that uncommon with younger companies. Some just never manage to get sales going well enough. Others are shut down as pyramid schemes.
MLM Risk: Too Much Competition In Your Area
A popular MLM opportunity can sound hugely appealing. It has some name recognition, which could make it easier to find customers.
It can also mean there’s too much competition in your area.
If you have several friends doing the same MLM opportunity, for example, where are you going to find a customer base of your own? Odds are that they’ve already contacted many of the people you would target.
The other problem is that you create your own competition as you recruit a downline. Sure, you make money from their sales, but not as much as if you made those sales yourself.
Worse, they were probably one of your customers to begin with. Will your sales to them be the same after? It’s hard to say.
A significant downline is vital to success in MLM, as it’s hard to find all those customers yourself, but when that downline reaches people you would have liked to have customers sooner than you
MLM Risk: Your Friendships
Have you ever had an old friend (or even a current one) contact you out of the blue, wanting to reconnect? It’s a pretty special feeling, right up until you realize all they want to do is recruit you into their downline.
The Washington Post shared an article recently on how MLMs hurt female friendships. A part of the problem is that recruiting efforts have gone beyond inviting people to join a downline at an event they know is about MLM to bringing it up under the guise of renewing a friendship or starting a new one. When the recruiting effort fails, the interest in friendship disappears.
It doesn’t make the person recruiting look good. It makes them look deceptive and damages the relationship. How can you be friends if they only care about you if you sign up under them?
MLM Risk: What If It’s A Pyramid Scheme?
MLMs are in the form of a pyramid, that’s their nature. Each person recruits people below them, who recruit people below them, and so on. It can’t be helped.
But that doesn’t mean most are pyramid schemes.
One of the key signs of a MLM being a pyramid scheme is that you have to buy a large inventory of products. Having to buy some products is reasonable – being forced to carry a large inventory is not.
Another sign is that recruiting new people is more beneficial to you than selling to the public. A legitimate business opportunity should make most of its money from sales to other people, not to recruits.
Is LuLaRoe A Pyramid Scheme?
LuLaRoe was an extremely popular MLM company a few years ago. You probably saw several people online selling it if you were on Facebook. There were groups everywhere, and people bragging about the money they made from it.
Things don’t look so great with them now.
The Washington Attorney General has filed suit against LuLaRoe, accusing it of being a pyramid scheme. They accuse the company of making misleading income claims and pushing consultants to focus more on recruitment than on sales.
The company often promised high profits and that a
full timeincome could be made through part timework. The included disclaimers may not have been adequate.
Over time, they also had problems with product quality and returns. Consultants found that the company was steadily less willing to allow them to return products as promised.
Is LuLaRoe a pyramid scheme? That’s for the courts to decide, but it’s a great example of a company that was hugely popular that may have been one.
But the Washington lawsuit isn’t the only one LuLaRoe is facing. They’ve been sued by many consultants over their business practices.
What you should learn from the LuLaRoe example is that popularity does not mean a company is not a pyramid scheme, or that it’s safe to join. Take your time to ensure that you really understand what you’re getting into with any home business opportunity. Not just MLMs, but all opportunities.
How Can You Investigate The Risks?
No matter how much you trust the person recruiting you into
- Consider the products
- Is the pricing reasonable?
- Are they safe?
- How good is the quality?
- Can claims be backed up?
- Investigate the company
- How long has the company been around?
- Does the company have a good reputation?
- Has the company been sued for deceptive business practices?
- Consider your potential earnings
- How do you earn money?
- How much does the average distributor earn?
- What expenses should you expect?
How Else Can I Earn Money At Home?
If you’ve read much at all here, you know there are lots of ways to earn money from home. Some are flexible, some aren’t.
Work at home jobs have the advantage if you want to know how much you’ll earn for the work you do. The pay may be hourly, salary or based on production, but you know what to expect from your paycheck. Depending on whether you’re a regular employee or an independent contractor you may have to provide your own equipment. Some also require training that you would get on your own before applying or require that you pay for a background check during the application process, but otherwise, have few costs.
Home businesses have all kinds of opportunities and risks. What I love most about starting a home business is that you can decide exactly what you want to do, and figure out how to make it happen. You can blog, freelance, sell crafts, cook, design apps or whatever suits your skills and interests.
Home businesses, no matter how affordable, are not without risk, but that’s okay. The fact that there is a risk is a part of what makes the reward so worthwhile. Even when the learning curve is difficult, you know you’re building something that is yours. About 50% of small businesses fail in the first 5 years, which is much better odds than you get with an MLM.
Even though I’ve met someone who had significant success in MLM, I just can’t say that MLM opportunities are worth the risk. Too few people succeed in them. I know quite a few more who have failed in MLM, some multiple times. If you decide to join an MLM opportunity regardless, do so with your eyes open to the risks so that you don’t get caught off guard.