So You (Or Your Wife) Wants to Join a Multi-Level Marketing Company

A college buddy you haven’t heard from in years gives you a call to see if you want to do lunch. Heck yeah you would! Awesome that he thought to reach out to you.

So you meet your buddy at a burger joint. You reminisce about old times and play catch-up. You’re having a real good time. But then he mentions this nutrition company he’s been selling for lately. He says he’s just getting started, but there’s a lot of income potential. In fact, he knows a guy who has paid off his mortgage working for this company. He thinks you’d be a perfect distributor for it because you lift weights and you’re driven.

What began as a pleasant evening catching up with an old friend suddenly feels awkward. You feel . . . used.

You’ve probably encountered a situation like this. Or at least know someone who has. If you haven’t experienced this kind of in-person pitch, you’ve likely seen old high school friends or an aunt on Facebook or Instagram posting about an amazing business opportunity that involves selling eyelashes or health supplements or essential oils for something that can be described as a “multi-level marketing company.”


Because despite the growing ubiquity of glowing testimonials and aspirational lifestyle posts surrounding multi-level marketing, the reality of MLMs is quite different than it seems. If you, or your wife, is interested in joining one, you owe it to yourself to understand this other, darker, considerably bleaker, side of things.

What is Multi-Level Marketing?

There are lots of definitions of what multi-level marketing is and it gets called different things. Consequently, it can sometimes be hard to tell, at least initially, whether a company fits that label or not.  

First, here are the different things you’ll hear multi-level marketing called: network marketing (most common), direct sales, affiliate marketing, referral marketing, dual-level marketing, consumer-direct marketing, home-based business franchising, home-based business opportunity, and inline marketing.


Okay, so we know what terms might be used to talk about a business that uses multi-level marketing. How exactly does this business model work?

Here’s the definition the Federal Trade Commission has given for MLMs:


This is an okay definition, but to really understand what an MLM is, you have to see it “in action.” Below I walk you through the functioning of a hypothetical MLM called Company A. While every MLM differs slightly in how they work, they all share this same basic format.

Company A sells weight loss shakes. Instead of putting them on store shelves or selling them direct to consumers through an online store, they recruit sales people called “distributors” to sell the shakes for them.

To become a distributor, a person needs to buy a distributor starter pack from Company A. It costs $75 and contains brochures about the product and what distributors can do to make money with the company. It also contains a few samples of the product that the potential distributor can give away in order to help sell the product.


Jim fills out the application to become a distributor for Company A and buys the $75 starter kit. Jim can now buy Company A’s shakes at a 25% discount and sell them to friends and family at the full retail price and keep the profit. This is pretty cool.


Jim gets signed up for an auto delivery system where his credit card is charged a $100 a month and he’s sent product every month. He’s kind of worried about this $100 recurring charge, but the shakes will sell themselves, right? He’ll be able to make his money back. Definitely.

Jim starts pitching the shakes to his friends and family members. He gets a sale (from his mom), but that’s it. Most people are just plain uninterested. Selling these shakes is a lot harder than he thought it’d be.


Jim thinks to himself, “Hmm, this means this friend of mine is making 10% on the shakes I’m required to buy from Company A. That’s interesting.”


“And if those 12 recruits each recruit 3 distributors, you’ll earn 5% on the product they’re required to buy from the company. At this point, you’ll be a ‘Double Gold Star’ distributor. These recruits and sub-recruits are called your ‘downline.’ The bigger your downline, the more passive income you can make. Talk about an amazing opportunity!”

From this hypothetical, we can see the traits which define multi-level marketing; after researching over 600 different MLM companies, consumer advocate Jon Taylor enumerated these traits this way:

  1. Incentives to recruit new distributors into the company. Jim earns a commission on the product the distributors below him buy from the parent company.
  2. Advancement in the sales hierarchy is achieved by recruitment rather than by appointment. Jim can’t get to the next level in the sales hierarchy by someone above him saying “We think you’d be a good executive distributor.” It’s only determined by the number of people he recruits and that his sub-recruits recruit.
  3. “Pay to play” requirements are met by ongoing “incentivized purchases” and/or recruitment minimums, with participants the primary buyers. To become a distributor, Jim had to buy a starter kit. To maintain his status as a distributor, he’s required to make minimum monthly purchases.

Arguably the most defining feature of an MLM is that the main customers of the company’s products are not unassociated folks outside the company, but the distributors within it.

Here’s a great video explaining how MLMs work:

Rebuttals to Common Rebuttals 1-1

“MLM products are high quality and one-of-a-kind. That’s why you can only buy them from a distributor.”

If the products are as amazing as the MLM parent companies claim they are, they should do well sitting next to other products on physical and virtual shelves. If the products really had a competitive advantage, the company would want to make them available to the widest possible marketplace and consumer base.



MLM companies ultimately don’t have a strong incentive to make their products uniquely the best, because, remember, their main customers aren’t those outside the company, who they need to impress, but distributors who already work within the MLM and are required to buy their products.

“I joined the MLM just so I could get the discount on the product. It’s like joining a buyer’s club like Costco or Sam’s.”

I can see this actually being a legit argument for joining an MLM; if you like a certain brand and use it frequently enough, getting the 25% discount for being part of the MLM might be worth it.

But you have to ask yourself, is it possible to get a similar quality product outside of the MLM for cheaper than the discount I’d get for being a part of the MLM?

The answer is probably yes.

For example, I compared the cost per serving of Advocare’s whey protein ($2.55 per serving) to the whey protein I buy from ($0.85 per serving). Even with Advocare’s member discount, the Cellucor whey protein that I buy at retail is cheaper (and likely about the same quality, as just explained above).

You’ll find the same thing for most other products that an MLM sells. Essential oils, make-up, kitchen products, candles, leggings, you name it.

And here’s the thing. I don’t have to pay a monthly fee or buy a minimum amount of whey protein from to get the affordable price I pay. I just buy it when I need it.

But with an MLM, I’d have to buy a certain amount of whey protein (or pay a monthly fee) to stay qualified for my not-so-great discount, even if I personally didn’t need to buy more whey protein.

This monthly minimum requirement that MLMs impose on their members often results in unused product getting stockpiled in basements and garages – what folks who’ve been in the MLM world call being “Garage Qualified.”

Bottom line: if you joined an MLM just to get a discount, you’re probably not actually saving money. It’s better to be able to buy only what you need, when you need it, and to comparison shop like any other savvy consumer.

Wait. This Sounds Like a Pyramid Scheme. I Thought Pyramid Schemes Were Illegal?

After Jim hears the pitch from his friend, he says “This sounds an awful lot like a pyramid scheme. Aren’t pyramid schemes illegal?”

For those of you who don’t know what a pyramid scheme is, it’s an illegal business model in which investors are promised large profits based primarily on recruiting others to join their program, rather than the real sale of goods to consumers.


I got one of these when I was kid back in the early 90s. Instead of $1, you were supposed to send out a baseball card. In theory, you were supposed to receive like ten thousand free baseball cards back in return. I never got a single one back though.



Again, the real customers in an MLM are the people inside the MLM.

So if our hypothetical MLM works an awful lot like a pyramid scheme, why isn’t it illegal?

It’s all due to a legal technicality, which you can read about in detail here.


Thus, MLMs are able to operate exactly like an illegal pyramid scheme without technically being categorized as such.

If MLMs Are Basically Legal Pyramid Schemes, How Have Some Lasted So Long and Grown to Billion Dollar Companies? 


So if MLMs are essentially legal pyramid schemes, how have companies like Herbalife or Advocare continued to grow and expand?

Because they’re constantly opening up in new international markets like Latin America or India where the concept of MLMs is novel. They can start the whole process of creating a pyramid anew in these countries. Even with this international outreach, however, MLMs will eventually reach a wall where they can no longer recruit new people into the scheme, and even the longstanding billion dollar companies will collapse.

Rebuttals to Common Rebuttals 1-2

“All businesses are shaped like pyramids.”

Yes, most businesses and corporations have a structure that looks like a pyramid. There’s a CEO at the top, with several VPs below him, and the VPs each have several managers below them, and the managers have several employees below them.


What’s more, when you’re working at Walmart, the manager above you isn’t constantly pressuring you to recruit your friends and family members to work for Walmart. If you’re part of an MLM, you’re going to get that pressure.

So while the corporate structure of Walmart (or any other legitimate business) is shaped like a pyramid, it’s not a pyramid scheme in the way that an MLM is.

“Network marketing is just direct sales — like traveling salesmen peddling encyclopedias or insurance. It’s as American as apple pie. Do you hate America, free enterprise, and apple pie, you Commie pinko?”

Direct sales have been a big part of the American economy for centuries; Yankee peddlers and door-to-door vacuum salesmen are classic American archetypes, and legitimate direct selling continues to go on today in the form of dudes who canvas neighborhoods pitching pesticide treatment, satellite dishes, home security systems, etc.

At first blush, MLMs do seem to follow this same model. They’re selling products directly to the consumer.


The difference between true direct sellers and MLMs is that the main customers for the latter aren’t those outside the company, but those within it.

“Network marketing is like buying a business franchise.”

If you get an MLMer to admit that they’re having to pay a lot of money to be a part of an MLM company, they’ll all often say something like, “Well, this is just like buying a McDonalds’s franchise. When you buy a McDonald’s franchise you have to pay the company a large franchise fee to start and then buy the product (fries, burger patties, Flurry mix) from McDonald’s.”

This is indeed how franchises work. You have to pay the parent company a fee to operate a franchise and buy product directly from them to maintain it. But there are some big differences between traditional franchise businesses (McDonald’s, Taco Bell, GNC, KFC, etc.) and MLMs.

First big difference: the parent company takes extreme caution that a market doesn’t become overly saturated with franchises.



But MLMs can get away with this because of the second big difference between a traditional franchise and an MLM “franchise”: In a traditional franchise, the end customer is the consumer, whereas again, the primary way you make money in an MLM is by recruiting other sales people and making commissions off the product they’re required to purchase from the parent company

That’s why MLMs can afford to ignore the principle of supply and demand: you can have 100 ladies selling make-up in the same town because they’re not actually trying to sell make-up to outside consumers; they’re trying to get as many sales reps in their “downline” as possible.


So, while there are hints of similarities between an MLM and a bona fide franchise, they’re definitely not the same thing.

Why You Should Think Twice Before Getting Involved with an MLM

Hopefully, I’ve made the case that while not technically illegal, multi-level marketing is based on an unsustainable, ethically-questionable business structure that will eventually result in the collapse of the enterprise.

But maybe you’re not overly concerned about the questionable business model, or a company’s long-term prospects. You just want to make some money and you’re more focused on what you might get out of joining an MLM in the here and now.  

You should still think twice about getting involved in one though, as we still have to unpack the two biggest reasons for steering clear of them:

1. You’ll Probably Lose Money

As we said at the start, three-fourths of multi-level marketers are women. Why? First, MLM companies typically sell products that appeal to women: make-up, weight loss supplements, eyelash extensions, skincare products, essential oils, etc.

Second, women tend to have a wider, stronger social network than men, and thus a more effective conduit to facilitate sales and recruitment.

Most importantly, however, is that MLMs are attractive to women who are moms and want to find a way to make some extra cash while still being able to stay home with their kids.


For these women, multi-level marketing can seem like exactly the opportunity they’re looking for — a chance to earn income and be stay-at-home mothers.

When someone gets pitched to join an MLM, the recruiting distributor will do what’s called “selling the dream.” They’ll emphasize all the money you can make working as a distributor. They’ll share video testimonials of a distributor talking about how they paid off their loans and bought a nice car and take their families on nice vacations every year. (Watch this soaring, inspirational video, and notice how you’ll have to keep reminding yourself: this is a pitch for an essentials oils MLM.) The pitchman will have charts that show the earning potential once you recruit a certain amount of people. And best of all, they’ll tell you that this beaucoup income is passive. Yeah, you’ll have to work a lot in the beginning, but you’ll eventually reach a point when money just appears in your bank account magically without you having to do anything.

It’s a stay-at-home mom’s dream come true.

What distributors recruiting people into the company won’t tell you (and what the parent company does a good job of keeping out of the limelight), is that most people who sign up for an MLM receive zero to just a few hundred dollars in commission checks a year from the company.

And by most, I mean 90-99% of all distributors of an MLM. That’s the conclusion that consumer advocate Jon Taylor came to after analyzing over 600 MLM compensation disclosure statements. You can do the same analysis yourself by looking at the income disclosure statements of companies like Herbalife, Advocare, Rodan+Fields, and DoTerra.


Plus — AND THIS IS IMPORTANT — these commission numbers are before you subtract the costs the sales reps had to pay to join the MLM and the minimum required monthly purchases, and taxes. When you subtract all that, 90%-99% of all MLMers are likely losing money to be a part of this “business opportunity.” 

An MLMer will likely respond, “Well, those 90+% didn’t try or work hard enough. If you put in the effort, you can succeed!”

It’s perfectly true that you might succeed. It’s definitely in the realm of possibility. But it’s not probable — as even the MLM companies reluctantly admit in their own financial disclosures.

Why isn’t it probable? Not because people are lazy. It’s because of the way MLMs work. Remember, while not legally a pyramid scheme, MLMs effectively operate like one. To make money on a pyramid scheme, you got to get in on it early. You’ve got to be at the top. If you are, yes, you can make good money.

But if you’re a latecomer and are at the bottom of the chain — and the vast majority of people will be — the chances of you making money is almost zero, because it’s going to be extremely difficult if not impossible to recruit enough people beneath you to generate a good income. There’s a chance, but it’s a slim one.

“Well, there is a chance! And the only way you can get that chance is by joining!”

There’s also a chance you can win the $500 million Powerball, but no financial adviser in their right mind would tell someone to buy $100 worth of lottery tickets a month so they’d have the “opportunity” to secure their financial future with a jackpot.

Ultimately, the dream of attaining a hefty passive income is far more mirage than reality. An MLMer is far more likely (on the order of 1-9% vs 90-99%) to lose money than to make it.


All these options obviously have their own downsides, but they offer guaranteed incomes or honest-to-goodness entrepreneurial opportunities that your wife can fully own and control herself, allowing her to truly claim the title #bossbabe.

2. You’ll Damage Your Relationships

When you read the testimonials of women who belong to multi-level marketing companies, a lot of them talk about how it’s been a great way to make new friends. In a society that’s becoming increasingly isolated and lonely, this is a big draw.

MLMs make it easy to feel like you’re making friends because you’ve got the MLM in common with fellow participants. Every MLM has their own lingo and Instagram hashtags. Members of the same MLM comment positively on each other’s social media posts and provide encouragement during livestream “parties.” They can then go meet these people in person at giant “extravaganzas” — conferences where they dress to the nines, dance to “Despacito,” and hear motivational speakers. For a stay-at-home mom who spends her days discussing which is the best pup on Paw Patrol, that sounds pretty freaking awesome.

Unfortunately, these MLM “friends” typically don’t turn out to be genuine or to last. Your wife’s likely just a commission payment to those in her “upline.” If she decided to stop being part of the MLM, those “friends” will probably stop interacting with her.

What’s worse, by belonging to an MLM, your wife will likely alienate herself from her real friends and family.

When you join an MLM, you’ll be pressured to utilize your social network by pitching the product to friends and family, and encouraging them to become distributors themselves. First, your MLM recruiter will tell you to hit up your “warm leads” — your family members and close friends. After you’ve tapped that out, they’ll tell you to reach out to co-workers and even old high school pals. When you’ve drained that vein, they tell you to start pitching to random strangers in public or on the internet. That’s why it’s called network marketing.


Your friends will find hearing, and rejecting, your pitches awkward. They’ll stop returning your phone calls. They won’t ask you to hang out anymore.

Co-workers that you were once chummy with will try to avoid meeting you at the water cooler.

Family get-togethers will develop a weird tension. Even if you successfully recruit a parent or sibling to become distributors, you may fight over who’s got dibs on recruiting a mutual friend or family member, and who gets the credit for turning them into a distributor.

When pitching people face-to-face doesn’t work, you go online and start posting about the MLM all the time. You follow the formula recommended by the company: one post about the brand, then one about your family, then one about your lifestyle, then one about the brand again. But you notice that no one comments or likes your posts. Your follower count on Instagram has gone down. Finally, a friend DMs you and lets you know that a lot of people have blocked you on Facebook.

And let’s say you do succeed in getting someone to join. What happens to your relationship when they fail and lose money (which they’re almost guaranteed to do)? Well, they probably won’t want to be friends with you anymore. They’ll understandably feel used.

Even if you, or your wife, aren’t bothered by the pyramidal structure of multi-level marketing companies, even if you could make a ton of money by working for one, you still shouldn’t do it for this one reason alone: you shouldn’t ever want to commodify the sacrality of your relationships; you shouldn’t trade the genuine bonds of love for the cold economics of exchange.

Further Reading

If you’re looking for more information about MLMs here are a few resources I recommend checking out:

by Jon M. Taylor. Taylor lost a lot of money and nearly his marriage being a rep for NuSkin, a multi-level marketing company. He’s since become a consumer advocate warning people about MLMs. His free ebook MLM Unmasked is very informative.

Pyramid Scheme Alert. Run by another consumer advocate named Robert FitzPatrick

Talented Ladies Club. They’ve taken pretty much every MLM out there and done an analysis on how much money you can actually make. Answer: not much.

Betting on Zero. Documentary about hedge fund manager Bill Ackmans’s billion dollar short on Herbalife stock. Does a good job explaining how MLMs work.

on MLMs. Segment by John Oliver on MLMs. A bit crass and smug, but an accessible intro to MLMs.

Google is your friend. Just search “can you make money with [insert MLM]” and you’ll find lots of detailed and thorough reports on how and why people usually lose money working for that company.

The post So You (Or Your Wife) Wants to Join a Multi-Level Marketing Company appeared first on The Art of Manliness.

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