Have you been invited to sample an amazing new product a friend has found, or join them for a party at their home to try a new gadget or cream? Or have you received a social media message out of the blue from an old acquaintance, urging you to try a new diet or book a bargain holiday? If so, the chances are you are being targeted to join an MLM.
Multi-level marketing, or MLM as it’s more commonly known, has been around for almost 100 years. The first MLM company is generally considered to be the California Vitamin Company (later renamed Nutrilite), dating back to at least the 1930s.
MLM (also called network marketing or pyramid selling) is a business model in which a company’s products or services are sold by unpaid distributors. Rather than being employed and receiving a salary, these distributors earn commission and bonuses on the sales they make, as well as the sales of anyone they recruit to the company.
Sounds quite reasonable, right? So why has there been extensive criticism of the MLM business model over the past few years? Hannah Martin is an MLM expert, having investigated them for a decade and appearing on BBC Woman’s Hour on the topic. We asked her to explain how it works — and how you can avoid getting sucked in…
The problems with the MLM business model
There are several problems with the MLM business model. Firstly, it commoditises your relationships; you are often taught to view every interaction with another person, including friends and family, as an opportunity to either sell or recruit.
Secondly, unlike franchise businesses, you don’t ‘own’ a territory. Instead, you can find that everyone in your friend group or street is a distributor for the same business. Which, given your neighbours, friends and family are all your potential customers, begs the question, “Who can you sell to?”
This leads us to the biggest problem with MLMs: the REAL customer is often the distributor. Most MLMs will have a minimum amount of sales you need to make every month (usually known as being ‘active’). They will also encourage you to be a ‘product of the product’.
What this means is that you are encouraged to buy the products you are selling yourself. And if you want to stay with the business, or meet bonus or promotion targets, you will often find yourself buying more products than you can use. This even has a term: “Garage qualifying”, as many MLM distributors will have garages or spare rooms full of unsold products.
Even more problematic, if you have recruited people (known as your ‘downline’), your bonuses and position in the company will probably depend on them hitting their sales and recruitment targets, too. So you will need to pressure them to keep selling (and buying). This can lead to a toxic culture of gaslighting and bullying.
No surprise then that research published by the Federal Trade Commission (FTC) found that on average, after business expenses, including personal purchases are deducted, 99.6% of people who join an MLM will lose money. Or that MLMs often have a high turnover rate of distributors (Herbalife have admitted that in a period of 12 months, “90% of our distributors that are not supervisors turned over”).
Why MLMs target midlife women
An ideal potential recruit for an MLM is someone with a big network, some free time, and a need for extra money – with limited opportunities to earn it in a conventional job or business.
They are known for targeting immigrant communities (especially undocumented people in the USA), students, people with disabilities, and mothers. And there’s another group of people who, increasingly, are becoming attractive to MLMs: midlife women.
© Getty ImagesMidlife women usually have plenty of friends and acquaintances. They are also more likely to be in a caring role of some kind, which means they may be looking for ways to boost their income.
This becomes more important as retirement gets closer. According to government research on the gender pension gap, women have 35% less private pension wealth than men. This means that finding some kind of side hustle could be even more tempting – and leave more women vulnerable to the lies often told by desperate MLM recruiters.
Sadly for the women who do get sucked in, the statistics show that joining an MLM is more likely to get you in debt than pay your bills or boost your pension pot.
Luckily, there is increasing evidence that the MLM industry is dying out. But until we are finally rid of the risk of being targeted, if you are invited to sample an ‘amazing’ new product or attend a product launch party, it might be wiser to politely decline.
Hannah Martin is the founder of Rich Retiree, an online resource aimed at helping women plan for a more rewarding retirement. For more than a decade she has been a campaigner against and media spokesperson on the topic of MLMs.
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