Recently, John Oliver did an amazing report on Multilevel Marketing companies, also known as MLMs or, oftentimes, pyramid schemes.
What is a Multilevel Marketing Company and why is it bad? Well, Mr. Oliver does a great job of explaining, but in short:
A Multilevel Marketing Company is a business where your success depends on how many people you recruit and how many people they recruit. And what shape does that make? A pyramid. And what’s the problem with these sorts of companies? Well, first and foremost, they make promises they can’t keep. If you recruit X number of people and help them recruit X number of people and so on and so forth, and you all sell X amount of product every month, you will make enough money to quit your job and buy a yacht!
That’s a lot of “if” statements, and let’s be honest, it’s really hard to make it happen. Worse, a lot of times, these companies require you to sell a certain amount of product every month to keep your status. If you don’t, you can lose out on your payments. So to prevent that from happening, you end up buying the product yourself.
You aren’t going to get rich from an MLM. Do some people? Sure, otherwise they wouldn’t exist. But the average person will not make millions.
Don’t get me wrong – there are some MLMs out there with decent products. I may not love the way their businesses are structured, but if you like the product, just want to get a discount and sell enough to make a little pocket money and have no desire to recruit people? Go for it. But watch for suspicious MLMs. There are a lot out there selling health and beauty products that make outlandish claims. Don’t you think that if that vitamin drink really cured cancer that we would have heard about it before? Perhaps all over the news? Also, if that pill really blocked all the fat and carbs in your pizza, those fat and carbs would have to go somewhere. Remember the Olestra craze? (If not, look it up – yuck.)
If you’re going to join an MLM, make sure that it’s one that doesn’t require you to buy a lot of products up front and then continue to stock product. That’s where you can get into trouble. (If you haven’t already, read my warnings about LuLaRoe.) Many of them just have a start-up package and then you pay for your online shopping portal. There, the costs are fixed and you know what you have to do. And if you end up not selling like you thought you might, you’re not out as much money.
I don’t know about you, but my Facebook feed is currently filled with friends from various points in my life who are pushing their products. And you can easily spot the scammy posts – those are the “friends” who are constantly pushing their items and talking about what a difference they have made in their lives. I have even had old friends from high school find and add me on Facebook only to push their products. Clearly, I’m not buying. And I hate seeing more and more intelligent people getting sucked in.
If you love and want to sell jewelry or makeup or nail wraps or bags or any number of products that don’t make outlandish claims, then go for it. But pushing your weight loss products and then convincing other friends to also sell weight loss products isn’t going to help you make money or lose weight. You will likely lose friends though.
In short – be wary of multilevel marketing. Pyramid schemes have a bad name for a reason. At the very least, know what you’re getting yourself into.
Megan is a 40-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.
Money Beagle says
Yeah, you have to be careful. My wife has attended several parties and has, in some cases, actually bought products. In each of these situations, she’s had friends repeatedly bug her to try to join in on trying to sell the product, which she’s (so far) gracefully rebuffed.
Millennial Money says
MLM’s are very common and can suck you in if you’re not paying attention. Lots of sales strategies are based on MLM and reward bringing people in to the company to sell for you. Thanks for reminding us to be careful.