Multi-Level Marketing Business Model: The Good, The Bad & The Ugly

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View of the ground from inside the Eiffel Tower

Not too long ago, a friend announced via her facebook that she had launched herself into a new [side] career, as a Rodan and Fields Consultant.  I had never heard of Rodan and Fields (henceforth R+F) before but I was happy for her because (1) I know she needed the extra money and (2) she said she really loved and believed in their products.  On a side note, I’m personally all for side jobs and finding other sources of income.  Having multiple streams of income is a smart financial move, it protects you in case one of the other streams of income disappear and it strengthens your overall financial standing by adding more cash flow.  I felt proud of her for empowering herself and doing something to help out her financial situation.  But then I noticed my facebook feed had become flooded with daily R+F advertisements, before and after pictures, sales pitches and special offers by her.  I started to realize that R+F wasn’t some little side business like when a friend decides to sell homemade jewelry or scarves on etsy or start a blog, but rather that it was something a bit more controversial.  Eventually I found out that R+F is a multi-level marketing company (MLM).

For those of you not quite familiar with MLM’s, multi-level marketing also known as network marketing is a special business model where people make money not only off the products they sell directly but also indirectly through a percentage of the product sales by people recruited below them.  Usually the highest earners in a MLM make the vast majority of their money through indirect commissions and therefore they tend to focus heavily on recruitment as they move up the hierarchy.  MLM  MLM’s tend to have a negative reputation and probably rightfully so.  While technically not the same thing, a lot people associate MLM’s with pyramid schemes, again not surprisingly since a lot of MLM’s end up pyramid schemes in disguise.  Still I think there’s usually two sides to every story and I feel MLM’s have another story to tell.  If you’re interested, here’s a list of MLM companies on Wikipedia.  Curiously R+F is not listed so I venture to say this isn’t a comprehensive list.

Let’s start with the Good:  Other than my R+F friend, I actually have another friend who’s been involved with a MLM company for over a decade now and I know for a fact that not only does she make a lot of money, she and her husband are one of the few who can balance the inherent conflict of interest that is involved in working in a MLM.  So the good I want to point out here is that you can be successful in a MLM without being shady, but it appears to be a combination of timing (getting in early which they did), and a lot of hard work either selling, selling, selling or recruiting, recruiting, recruiting, most likely both.  So it’s not easy money the way people might imagine because I see my friends still working almost every day to keep their income coming and growing, albeit they have a lot of flexibility.  Also I know they are the exception and not the rule in the MLM world.  Very few people will ever be as successful or make as much money as they do.  But, if you come into a MLM with realistic expectations and don’t mind being a sales person (yuk-sorry but sales is my least favorite thing to do) or plan on making it a full-time career (I personally would advise against coming into it with that expectation), I think joining a MLM can be one way to create some side income or allow yourself to create your own side business, which incidentally is also a good way to write off additional expenses on your taxes (but also more likely to get you audited). Joining a MLM is also one of the lower risk and cheaper ways to be in business for yourself.  Depending on the MLM the entry fee probably varies between $50 to a thousand if you have to take exams or get a license or what not.  While a thousand dollar is certainly no chump change, it’s pretty hard to start your own business for only a $1000.  We once looked into opening a franchise and that costs a minimum of $300,000.  We would have to take out a small business loan and fill out a mountain of paper work not to mention the mandatory trainings the parent company wanted us to attend.  My point is it’s generally not cheap to start your own business nor is it easy.  A MLM allows you easy access to a product and relatively cheap entry into being in “business for yourself.”  Also when you join a MLM you can generally expect a lot of support and help from your sponsor or the people above you, since they have strong incentives to help you succeed.  After all, their success hinges on your success to some extent, since they make a percentage of commissions of your commissions and whoever you recruit.

But it’s most definitely not all rainbows and lollipops with MLMs.  Onto the Bad:

Exploitation of your friends and family relationships:  MLM’s basically want and train their salespeople to target and exploit their friends and family relationships.  Say it with me-UGH.  Several friends told me how old friends / acquaintances have recently contacted them though they haven’t spoken in X number of years.  When they met up with them or wrote back to their emails/fb messages, it turns out they had also launched new careers as “skin care experts” (aka R+F consultants).  It’s definitely spreading among my peer group. ?  Is it a coincidence that friends who people haven’t talked to in “a long time” suddenly show up out of the woodwork after they join a MLM?  I bet not.  They were probably given that tip in their basic training session or kit.  MLM’s basically cultivate people to be that annoying salesperson.  Do you know who I’m talking about?  The one who becomes a walking advertisement for their products.  Any chance they get, whether it’s related or not to the conversation, they sneak in endorsements of their products.  MLM’s also like to exploit college students I’ve noticed, probably because they’re naive and hopeful at that age.

If you’re not hooked through dazzling testimonies sales pitches, friends and family are often “guilted” into buying their product(s) to support that person.  After all isn’t that what friends and family are supposed to do?  Either way I’m positive the MLM company is happy to have their sales people exploit this relationship connection to peddle their products, which is precisely why they train their recruits heavily on targeting their family and friends.  And while you probably did help your friend make a few bucks (or possibly more in the case of whole life insurance commissions), the people really getting rich are at the top.  Over time, it becomes less and less about selling something a person might really need or want and becomes more and more about just closing the deal and meeting a quota to get paid.  You have to wonder where does the money that MLM’s lavish on their top sales people come from.  I know for a fact top sales people are treated to fully paid glamorous “business trips” to Hawaii, river cruises through Europe, fancy dinner parties to even cars (brand new white Lexuses in the case of R+F consultants).  Don’t you wonder where all that extra $$$$ to fund these activities come from?  From selling overpriced products to you silly! ?

They act like cult members:  This reminds me of a time in my life, in my early 20’s, when I was sometimes hanging out with people who became involved with World Financial Group (WFG) now under Transamerica, which is a MLM that sells insurance, investments and other financial products.  I distinctly recall that hanging out with them reminded me of what I imagine it would be like to hang out with a cult.  Everything they talked about was related to WFG.  It seemed like they breathed, ate, and I venture to say even dreamed about WFG in their sleep!  And every chance they got, they were either telling me their “WFG life story” or trying to peddle different finance products.  After some time it gets tedious to hang out with people like that depending on how aggressive they are.  They either seem brainwashed or disingenuous.  Luckily for me, most of the people I’ve encountered who are involved with MLM’s are tactful enough not to cross that line, but let’s face it a lot of people aren’t.

That also brings back fond memories of 2by2 (pronounced two by two).  I don’t even remember what they were selling, but I remember I came this close to signing up with them and forking over the $200 sign-up fee because I was a naive college student and I heard a convincing sales pitch from an acquaintance on how rich I could become in just a few months!  Woohoo!  Several of my college friends had already excitedly signed up and I got my brother convinced too.  Then at the last minute my spidey senses felt something was off and so I pulled out and stopped my brother too.  Later on, it came out that 2by2 was basically a pyramid scheme and all my friends who had joined 2by2 never made more than a few hundred dollars in profit and most of them never recouped back a penny of their initial $200 fee.

Brainwashing and other psychological mind games:  I trust in the good intentions of my close friends 100%, but I can’t trust that they aren’t being brainwashed by the MLM and brainwashing is a powerful force.  Just look at North Korea for an extreme example. ?  What I’ve noticed about MLM’s is that a huge bulk of their “training” is on sales and psychological trickery.  Recruits are told to use their personal stories like religious conversion testimonies to share with everyone and anyone they meet.  Many of the early recruits are pushed into attending training seminars where basically the top sales people regale them with their success stories, closing their moving testimony with tears in their eyes and an earnest, “This could also be you!” or “If I can do it, so can you!”  Personal story after personal story of how this product changed their lives and the lives of the people around them and of course the boatloads of  money they make from selling it.  Money, especially the lure of easy money, is sadly a huge hook for many people.  I think brainwashing also leads to rationalizing and the placebo effect.  A lot of the recruits probably rationalize their less than ethical behavior to achieve a sale.  They probably say things like “I’m doing them a favor introducing them to this product.  They need  this product but they just don’t know it yet.”  Never mind if this product is in the best interest of the person they are trying to sell to or if there might be a better product out there for this person, their rationalizing brain won’t let them go there.  Then there’s also the placebo effect which to me explains why recruits probably do believe in their product even though it’s not anything special.  Did you know in drug clinical trials, where one group gets a placebo and one group gets the active drug, both groups usually end up doing better.  The trick for drug companies is to see that the group getting the actual drug does significantly better.  But my point is the placebo effect is real and well documented.  Sometimes all a person needs is to think the product is good to convince themselves it’s great without any real evidence.

Conflict of Interest:  Another bad of MLM’s is that it is fraught with inherent conflicts of interest.  I personally hate it when there’s a conflict of interest.  Maybe it’s because I work in healthcare for a nonprofit organization so I’m trained to always avoid any conflict of interest.  Anyways, think about it, they have no incentive to offer you any other product but their own.  They don’t get paid unless they sell you their product and they really won’t get anywhere unless they probably meet a certain sales quota.  A MLM salesperson is probably constantly thinking of how they can make a sale.  But that’s not all.  The people who are truly dedicated to getting rich in a MLM know they will make the most money through recruiting people underneath them.  So they are also always thinking of ways to sell “the dream” to others.  They’ll probably flaunt their wealth in some way, like how the 2by2 top earners drove around Ferraris? Lambos? I forget with the 2by2 logo emblazoned on it.  They post pictures of themselves with Hermes bags or a fleet of LV luggage with #thanksto<MLMcompanyname> #livingthedream.

The Ugly would be anytime a MLM salesperson takes a bad trait and runs wild with it.  Contacting everyone on their facebook, spamming friends email boxes, aggressive sales techniques, lying, etc.  Lucky for me I haven’t run across any uglies, but I’m sure many other people haven’t been as lucky as me.

So there you go, the good, the bad and the ugly with MLM’s.  Considering I haven’t actually ever been involved with a MLM my experience may be limited.  Still I think I’ve seen enough and done enough research to conclude that MLM companies can be a legitimate business and a legitimate way to earn money, but there’s definitely more likely to be more pitfalls with MLM’s than with other business models. If you’re considering joining a MLM do your research on the company and carefully consider whether this is something you really want to do.  Follow the guidelines posted here on the Federal Trade Commission (FTC) Website regarding MLM’s.  Also go into it with realistic expectations (eyes wide open!) don’t be lured by the promise of easy money or a lot of it.  You are highly unlikely to become an elite earner, making tens of thousands a month, so don’t quit your day job just yet.  I do think my friend who’s a R+F consultant is happy, at least for now.  She wasn’t expecting to become a millionaire, she only wanted to make some side cash with a product she truly likes and she’s so classy she’s won’t overstep her relationship boundaries and become an ugly or even a bad.  Still there’s a lot of people who aren’t as classy and I personally avoid those people like the plaque.

As a potential consumer or purchaser of MLM goods, I’m still on the fence.  I almost don’t want to support this business model because then it perpetuates it.  Call me a cynic, I just don’t think human nature can handle the MLM business model gracefully.  Even if the MLM is selling what appears to be a good product (1) I’m already skeptical because it’s a MLM product and (2) I know the price is likely to be inflated to pay out commissions for everyone involved from my direct sales person to the person who recruited them and all the way to the top.

What do you think? Have you had any experiences with MLM’s?  Share them with us in the comments!  The good, the bad and the ugly, but please no brainwashed sounding sales pitches in disguise.

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