Retirement Income

4 reasons to avoid MLM schemes

4 reasons to avoid MLM schemes

Whether you’re looking for an income boost or are strapped for cash, you’re likely to come across multi-level marketing (MLM) while figuring out your options.

Multi-level marketing, also known as direct selling, is a form of direct sales where salespeople who aren’t employees of the company and don’t receive a salary or wage are used to distribute products or services.

These companies often sell wellness and cosmetic products - such as essential oils, supplements, and skincare products.

Recruiters of MLMs often target vulnerable people with promises of flexible working hours, getting to be your own boss, and being able to “get rich quick”.

In situations where money is tight, it’s easy and understandable to be susceptible to that kind of temptation.

To combat the stigma and dispel the myths around MLMs, here are four reasons why they may not be the solution.

#1 You have a 99.7 percent chance of losing money

Though some MLM recruits say their income allows them to travel the world and buy new cars, the representative body for direct selling, Direct Selling Australia, says otherwise.

“Direct selling isn’t about buying boats or bigger houses … [rather] earning additional income that contributes to school fees, weekly groceries, saving for a holiday and bills.”

But even that is a reach for most members.

Gerard Brody, CEO of Consumer Action Law Centre, said more than 99 percent of recruits will lose money, going against the wealthy lifestyle MLMs claim to fund.

Professor David Wishart, who has researched the dangers that come with MLMs, said it’s important to remember these companies “don’t operate within the social contract that business has with society”.

“If you are in business, yes you look after your own needs, but there are limits and morality - everyone is supposed to have that,” Professor Wishart said.

“[MLM recruits] operate outside of that.

“People down the end are simply ripped off. It’s a bad taste capitalism.”

#2 It could cost you your friendships

Members of MLMs often rely on their existing relationships with friends and family, but it can come at a cost.

“Many people become frustrated with friends attempting to ‘commodify’ their emotional connection,” said Marie O Sullivan, a lecturer in marketing at the Cork Institute of Technology who has studied MLMs from a feminist perspective.

Dr O Sullivan also said some of these companies encourage members to cut ties with those who don’t support them.

“Participants are encouraged to cut out anyone who expresses doubt as this negativity will prevent them from achieving their full potential.”

#3 You’re blamed for failing, despite working hard

With many MLMs pushing the idea that the harder you work, the more you earn, many are left feeling shame when they don’t make it in direct selling, Dr O Sullivan explained.

Sara Balanuik, who had sold weight-loss products for a MLM in the past, recalled: “I hustled hard but was still not a successful boss babe, as was promised.”

She was told by her “upline” that she wasn’t seeing the results promised because she wasn’t working hard enough.

This kind of business model sets people up to fail, according to Anna Jenkins, a senior lecturer in entrepreneurship at the University of Queensland.

“It’s very, very important for all potential sellers to make themselves aware of the statistics around MLMs,” she said.

#4 It can be an ethical conundrum

While MLMs aren’t strictly illegal - unlike pyramid schemes - they can be ethically dubious.

Many MLMs use a business model that focuses on recruiting “downline” - meaning they get new distributors to buy the product - rather than selling products to actual customers, making them similar to pyramid schemes.

“While there are many genuine underlying economic activities involved in these schemes, they commonly operate to benefit those at the top. And disadvantage those at lower levels,” Mr Brody said.

Professor Wishart recommended doing your due diligence on the company before deciding to join their ranks.

“Read what you’re in for. Work out what the terms are.

“Look at the product and the sales commission you get on it. Compare the product with what else is on the market. Nobody buys Tupperware anymore as there is stuff that is just as good.”