Multi-level marketing is a touchy subject in Utah. On the one hand, it’s the second largest industry in the state behind tourism, according to one KUTV report. Some might even say it’s the unofficial world capital of MLM companies.
On the other hand, people who have been burned by an MLM company or have seen loved ones get burned, can’t stand the thought of them.
Having worked for an MLM company on the corporate side, I’m firmly on the side of the latter.
My experience working for an MLM company
When I was in college, I did customer service for an MLM company for three-and-a-half years. I enjoyed some elements of the culture, and I loved working with distributors from all over the world.
But I also witnessed toxic elements in the industry’s culture that made me pity most of the people with which I worked. I remember talking to a woman once on the phone who asked if she was going to earn a commission that month. She was broke, living paycheck to paycheck, but didn’t want to cancel her $60 monthly order because it was required to earn a commission.
She had never earned any money from the business and likely never would.
When I first started at the company, the business was exploding in Portugal and Mexico. It was an exciting time for the people who got in at the beginning of the wave, but there were hundreds of people who signed up at the tail end who generated commissions for people above them but never made anything themselves.
As the customer service supervisor for the company’s European markets, I was always investigating people for shady business practices. They’d make false claims or create dummy accounts to make it look to prospects like their “tree” was filled.
And while the company had roughly 20 to 25 distributors who made big bucks — some more than a million a year — thousands upon thousands lost money.
The numbers don’t lie
While some could pass off my experience as anecdotal, research shows that the problem is endemic. Jon M. Taylor, a top research expert on the matter, analyzed the compensation plans of hundreds of MLM companies and the average income for those that share such data.
In his e-book, “The Case (for and) Against Multi-level Marketing,” which the Federal Trade Commission published on its website, he found that more than 99% of distributors lose money.
This in itself would not be so bad, except that MLM is promoted as an ‘income opportunity’ – or even as a ‘business opportunity’ – a misrepresentation in itself, wrote Taylor.
Why MLM products are so expensive
To operate legally, MLM companies are required to allow distributors to focus on the product rather than the business. So, instead of signing up your friends underneath you in the pyramid, you can invite them to a party or Facebook group and sell them overpriced goods.
There are two reasons why they’re overpriced:
- The middlemen and women: Even if you’re not participating in the business side of things, you’re helping pay the commissions of those who do.
- The executives: When I was working for this MLM company in college, I was astounded when someone on the customer service team found several accounts earning commissions without any activity. They turned out to be dummy accounts the company’s executives used to skim off the top. And according to Taylor’s research, that’s a common practice.
The fact is that you can usually get these products for less somewhere else. Essential oils, bright leggings, and festive candle warmers are all available at lower cost at regular retailers.
Some MLM companies add qualifiers to their products to make it seem like you can’t get them anywhere else. For example, “certified pure therapeutic grade” essential oils sound legit, but it’s just a marketing term and it’s misleading. Don’t believe it.
Why we fall for it
Despite the inherent problems of the MLM industry and culture, new ones continue to crop up all over Utah, and members of the church continue to take the plunge. But why?
Here’s what Elder Dallin H. Oaks wrote about it in his book, “Pure in Heart“:
Some have charged that modern Latter-day Saints are peculiarly susceptible to the gospel of success and the theology of prosperity. According to this gospel, success in the world—particularly entrepreneurial success—is an essential ingredient of progress toward the celestial kingdom.
According to this theology, success and prosperity are rewards for keeping the commandments, and a large home and an expensive car are marks of heavenly favor. Those who make this charge point to the apparent susceptibility of Utahns (predominantly Latter-day Saints) to the speculative proposals of various get-rich-quick artists. They claim that many Utahns are gullible and overeager for wealth.
Certainly, Utah has had many victims of speculative enterprises. For at least a decade there have been a succession of frauds worked by predominantly Mormon entrepreneurs upon predominately Mormon victims. Stock manipulations; residential mortgage financings; gold, silver, diamonds, uranium, and document investments; pyramid schemes—all have taken their toll upon the faithful and gullible.
Whether inherently too trusting or just naively overeager for a shortcut to the material prosperity some see as the badge of righteousness, some Latter-day Saints are apparently too vulnerable to the lure of sudden wealth.
Objective observers differ on whether Latter-day Saints are more susceptible to get-rich-quick proposals than other citizens. However that may be, it is disturbing that there is no clear evidence that Latter-day Saints are less susceptible. Men and women who have heard and taken to heart the scriptural warnings against materialism should not be vulnerable to the deceitfulness of riches and the extravagant blandishments of its promoters. (emphasis added)
The primary victims of MLM companies: Women
According to the Direct Selling Association, 74% of the people involved in MLM companies are women. I see a lot of critiques of MLM companies, and with them is a smug undertone that the people involved — again, mostly women — are stupid. But based on my experience talking with so many people who got in over their heads, these people aren’t stupid.
They were enticed by the false promises of a get-rich-quick opportunity. Their concerns were assuaged with the assurance that it’s easy. They were caught up in the hype.
They were duped.
As a result, there’s a marked desperation for many MLM distributors to succeed at all costs. They’ve spent all this money and need to at least try to break even. For some, achieving that goal means potentially destroying relationships in the pursuit of making it big.
And all the while, the company builds a profit on the backs of the ignorant and desperate, and the executives take home the spoils.
Alternative business ideas
There’s nothing wrong with wanting to be your own boss. In addition to my full-time job, I do freelance writing for several personal finance websites. Turning this hobby into a business has been one of the best things I’ve ever done.
Focus on what you like to do
For starters, think about things you enjoy doing. For me, the writing wasn’t the hobby — it was personal finance. I’ve always loved it, but I was terrible at writing when I started my first blog. But over time, I learned the writing part and then took this course on how to earn money doing it.
For you, it may be something completely different than writing or personal finance. Take a step back and think about what you enjoy doing in your free time. Then see if there’s a way to turn it into a business.
Focus on what you’re good at
There may be things that you wouldn’t necessarily do in your free time, but that you’re really good at. For example, I’m a good researcher. So, even though I write mostly about personal finance topics, I can branch out and write authoritatively on other topics if there’s an opportunity.
Again, I talk about this stuff in terms of writing because that’s what I do. You know better than I do what you’re good at. The trick is doing it.
Learn something new
If you just want or need to make some money and don’t have time to start a business right now, there are several job opportunities out there for people who want to work from home. It’s just a matter of doing the research and finding one that works with your schedule.
Don’t be afraid to invest in yourself
If you plan to go the start-your-own-business route, it’s going to have some startup costs. The good news is that you’ll likely spend less than you would if you were to buy into an MLM.
In 2013, I spent around $300 to set up my first blog. At the time, I was making around $20,000 a year. But because of that initial investment and other small investments along the way, I’ll make more than $100,000 this year.
These investments don’t always pan out. It requires a mix of discipline, hard work, and being in the right place at the right time. But you’re a lot more likely to make money than if you were to join an MLM.