What is Your Fantasy Life?
Starting your own business and becoming your own boss is a dream for millions of people around the world. How many of us have spent time fantasizing about working from home in our pajamas? Or having an office where we get to run the show and delegate to employees? As much fun as it is to dream, starting a business is not easy. It can be a daunting task with lots of research, startup capital, documentation, and the like. It can also be stressful, and risky financially. There is never any guarantee that any business will succeed, and it takes a lot of faith and discipline to get through that rough beginning and stick with it.
Not everyone is cut out for it. Even though it's a dream for many, sadly there are those who don't have the training, education or skills to start a business. The good news is this can be easily overcome, however, with determination and hard work.
What is an MLM?
MLM stands for multi-level marketing. It is a business structure that allows individuals to buy products from the company at one cost and then sell those products directly to consumers at a higher cost, thus allowing the individual to earn a profit. It also has the option for the individual to recruit others to sell the products and earn a percentage of that individual's sales. Also known as Direct Marketing or Network Marketing, MLM companies have existed for decades and do not show any signs of slowing down. With the advancement of social media and a connected global market, it is easier than ever to reach an audience to market and sell products.
MLM companies promote the idea of entrepreneurship and "being your own boss". It's certainly a tempting way to shortcut your way to owning your own business! After all, it sounds like a pretty good idea; buy some products at a low price, sell it for a higher price, and keep the profit. And as an added bonus, if you recruit others to sell, you get a cut of their sales. Easy enough, right?
Well, like anything in life, if it sounds too good to be true, it usually is. Let's take a look at some of the finer points of MLMs and see what we find.
MLM, aka Pyramid Scheme
The Devil is in the MLM Details
Before going any further, let’s make a list of some of the most common companies that function as MLMs. This of course is not a complete list, but it’s the more popular ones:
- Mary Kay (makeup and skin care products)
- ItWorks! (weight loss/energy/health products)
- LuLaRoe (women’s clothing)
- Amway/Quixtar (variety of household, beauty, health and wellness products)
- Scentsy (scented wax melts and accessories)
- Herbalife (vitamins/supplements)
- Primerica (Financial and insurance products)
- Rodan + Fields (beauty/skincare)
- Ambit Energy (electricity/natural gas)
Heard of any of these? Now that you know the names of some of them, let’s dive into how MLMs work. Even though these are all separate companies, they all have a very similar process to get you to either join the business or buy their products. Here are a few examples:
- A friend or family member tells you that he or she has started her own business and wants you to hear a presentation about the business or have you host a party to sell the product to your family and friends. In the days before social media this was usually done at your home, but now “parties” can be held on Facebook.
- A stranger approaches you in a public place, such as the grocery store, mall, or gym. They will start out by making small talk or complimenting you on your appearance or clothing, makeup, etc. Then they might ask what you do for a living and if you’re happy with your work. They will then segue into offering you a business opportunity and try to set up a second meeting, usually with their “mentor” that retired in their 20s from the business opportunity.
- Same approach from the stranger, but this time on social media. You may have mutual friends on Facebook, or they may follow you on Instagram. They will private message you various pitches, such as asking you to be a 90 day model for your product (but you have to pay to model the product!), or ask you to post on your account on their behalf (you will get a discount on the product as a thank you!), or ask you to watch a video presentation about the business opportunity so you can make extra income in your spare time.
Every single MLM uses some variation of the above to entice you into joining the MLM or buying the products. It’s very, very rare that a person who has already joined an MLM will try to sell you the products without also trying to recruit you to join yourself. Here are some other common denominators you need to know that every MLM requires to join:
- All MLMs have some sort of startup fee. The fees can range from as little as $30 to startup and can go up into the thousands, depending on the MLM. The startup cost usually includes basic product, samples, marketing materials, and training to get you started. There are usually different levels of startup kits that have different costs, and MLMs will use pressure tactics to get you to join at the more expensive levels.
- All MLMs have an upline and a downline. It’s impossible to join any MLM without being a part of an upline or downline. Your upline includes the person who recruited you, the person who recruited them, and on and on. Your downline are the people that you recruit.
- All MLMs have commission structures that are based on how much product you sell or how many people you recruit. The structures are very confusing and convoluted, and are extremely difficult to maintain, even for the best sellers. They are usually on a monthly basis, so if you fail to meet the requirements in any given month you will lose whatever commission or bonus you are supposed to receive for that month and will have to start over. The bonuses can vary from company to company, but can include anything from cash, to free or discounted products, to cars.
- All MLMs have minimum requirements to maintain your account or membership. So in addition to the startup fees, you have to continue to buy inventory on a regular basis, whether you need your inventory stocked or not. There are also other costs, such as additional marketing materials, website fees, meeting costs, samples, etc. Some of these fees are required to keep your account active, and some are optional but you will be pressured into buying them to be a “successful business owner”.
- Most MLM products are expensive and low quality. While this is an opinion and not true of every product that every MLM sells, it is a general consensus and one of the reasons it is so difficult to move inventory. MLMs claim that their inventory is sold to the consultant (the person who joins the MLM) at wholesale prices and the consultant sells to their customers at a retail markup. This is simply not true. The product is already marked up when sold to consultants. That is how MLMs stay in business and stay profitable.
Alternatives to MLM Products
These leggings can be found on Amazon for half the price of LuLaRoe leggings
Amazon Price: $16.99 $11.99 Buy Now
(price as of Jul 4, 2018)
So Bottom Line...
Is it a Good Idea to Join an MLM Company?
The answer is no. The business model simply does not make any sense and makes it very difficult for anyone who joins to see any real profit. If the product is something you enjoy, check Facebook or eBay for GOOB sales (GOOB stands for Going Out Of Business) before paying retail price from a consultant. Since most consultants discover that this is not a sustainable income, they will deeply discount their product in order to recoup some of the money they spent, and this happens quite frequently.
Please do your research before joining any MLM. You will save yourself a lot of time, money, and anxiety if you do.