The global multilevel marketing (MLM) industry has a market size of about $190 billion. The largest MLM company in the U.S. is Amway, with revenues of almost $9 billion.¹

From cosmetics to financial services, MLM businesses have been providing independent-minded people the ability to generate income, build a business and facilitate personal social interaction.

How Does an MLM Model Work?

Companies that operate on the MLM model rely on “distributors” (i.e., non-salaried individuals who sell their product to other people). These distributors are compensated in two ways: 1) from commissions earned on the sales they make, and 2) by recruiting other distributors and earning a portion of the commissions earned from sales by these recruited distributors.

Is MLM a Pyramid Scheme?

The confusion is understandable, since both models operate in the same pyramid-shaped structure.  However, the MLM model is legal, while a pyramid scheme is a scam and illegal. Pyramid schemes are often characterized by promises of riches. They typically require new recruits to buy a certain amount of the product at regular intervals, which can become very costly if someone is unable to sell them. In fact, a pyramid scheme relies less on selling products to others and more on how many people a recruit enlists as new recruits. Such schemes may also require that you pay for expensive training sessions and marketing materials.

In the end, most of the distributors are unable to recruit enough new distributors or sell enough products to make any money. Which is why pyramid schemes involve extravagant promises, high-pressure sales tactics to get someone to enroll, and require distributors to buy the product to qualify for bonuses or stay active in the company.

Is an MLM Right for You?

MLM businesses can be very attractive for ambitious people who desire flexible work hours and like the idea of being their own boss. Here are some questions to ask yourself to determine if an MLM business is right for you:

• Do you like being a salesperson? Selling involves convincing friends and strangers to buy a product and even become a distributor. Many people are not comfortable in such a role.
• Do you have a good sales plan? How will you find new customers once you’ve run out of friends and family? How will you keep them? Do you have the time and money to invest in the business?
• Are you comfortable without benefits? As a non-salaried distributor, you generally are not eligible for benefits or compensated leave.
• Can you thrive with minimal support? Unlike working with the support system of an establish company, distributors must rely on themselves for nearly all elements of sales, marketing and administrative duties.

The draw of making your own hours, juggling a family while bringing in income, and being your own boss makes an MLM business attractive for many, particularly women.  However, there are challenges in operating in such a model that must be considered.  As distributors struggle to sell the products they purchase and/or recruit new members, the Consumer Awareness Institute finds that 99% of those individuals who committed to the MLM model actually lose money.²  In the end, much like any job or career, the determining factors of success lay with the individual—their personality, drive and ambition.

Sources:

1. https://www.zippia.com/advice/largest-multilevel-marketing-companies/
2. https://www.forbes.com/advisor/investing/multi-level-marketing-mlm/

Please reference disclosures at: https://blog.americanportfolios.com/disclosures/