Wait, Is This An MLM? Here’s How To Suss Out That New Side Gig

Do you have that one “friend” on Facebook who tags you in a post trying to get you to buy some sort of product? 

I have several. 

My first thought was “Who IS this person” followed by “Oh no, they’re selling Amway like in the movie ‘Go.’”

If you’ve not seen that movie (please rectify that immediately), one of the stories includes a cop trying to recruit people into joining an MLM. 

For those of you who haven’t been tagged in a sus FB post selling leggings you’d never wear or vitamins you’d prob never buy, an MLM is multi-level marketing — a business venture that is not profitable at best and super shady at worst.

Recently, MLMs have been thrust back into the spotlight with the release of the new Amazon series ‘LuLaRich.’

In the series, LuLaRoe, the MLM known for its stretchy leggings and several ongoing lawsuits, is in the hot seat. 

Watching it, it’s very easy to think “Wow, these people are dumb” or “I would NEVER do that” — but it’s easy to feel superior from your couch. 

That’s a mistake. 

These people are trying to eke out a living, make ends meet. Single moms who can’t work a 9-5, moms who need a second income — an MLM comes along promising just that and more, so they seize on it. 

What Are MLMs?

The Federal Trade Commission (FTC) defines MLMs as “companies selling their products or services through person-to-person sales. 

“That means you’re selling directly to other people, maybe from your home, a customer’s home, or online.”

When you participate in an MLM program, the company describes you as an independent contractor and they say you can earn money by either selling the MLM’s wares to customers not affiliated with the MLM, or by recruiting — getting other people to join as independent contractors and making a profit off of what they buy and their sales. 

Confused as to how this could ever be profitable? 

You’re not alone. 

The people who do make a profit are the ones who get in at the very beginning of an MLM — they’re at the top of the pyramid — the ones below them are much less successful financially, if at all. 

“Most people who join legitimate MLMs make little or no money. Some of them lose money. In some cases, people believe they’ve joined a legitimate MLM, but it turns out to be an illegal pyramid scheme that steals everything they invest and leaves them deeply in debt,” according to the FTC.

How MLMs Work

The people you recruit into the MLM, then the people they recruit, etc., become your sales network, or what’s called your “downline.” 

If an MLM is legit (not a pyramid scheme), it will pay you based on your sales to retail customers, without having to recruit new distributors.

How To Tell The Difference Between MLMs And Pyramid Schemes

According to Showbiz Cheatsheet, “In a legitimate MLM, the focus is on a product that has inherent value. While recruiting other salespeople might increase your earnings, it should be possible to make money just by selling.”

With pyramid schemes, there is no product, or the product that’s being sold is worthless, explains Investopedia.

LuLaRoe began as a legitimate MLM company (compared to others) and the reason why so many jumped on board was because they could actually make money selling the clothing. 

Therein lies the problem — it was too popular, and the market for sellers became so over-saturated that the only way to continue making money was to recruit other sellers. 

It went from being a profitable business opportunity to a downselling scheme where only the top tier was rewarded financially. 

“The only way to make money is by convincing more people to ‘invest’ in the scheme, which will eventually collapse.”

Here’s how the FTC explains the difference: 

“Not all multi level marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multi level marketing plan. 

“If the money you make is based on the number of people you recruit and your sales to them, it’s probably not. It could be a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.”

Is An MLM Right For You?

If you’re thinking about joining an MLM, know that most MLMs may not be a good investment of your time or money. 

Some MLMs may not be a good fit for you personally, so the FTC offers some tips when considering an MLM.

Questions To Ask When Considering An MLM

Do you want to be a salesperson? 

“If you join an MLM, you’ll be a salesperson. Your job will be to sell the company’s product and, in many cases, to convince other people to join, invest, and sell. If you don’t like selling, or if you’re uncomfortable asking people you know to put their time and money into a business venture, joining an MLM is a bad idea.”

Is there a solid sales plan? 

“Consider whether you have friends and family who will buy this product from you over and over again. Think about how you would find and keep other regular customers. Can people buy something like this product elsewhere, maybe for less?”

What are your income goals?

“You might think that, with your willingness to work hard, you can earn substantial income through the MLM. In fact, most people who join MLMs and work hard make little or no money, and some of them lose money.”

Risk Assesment

Can you afford to risk the money and time?

“Every business venture has risks. MLMs are no different. Even if the start-up costs seem low, additional expenses can add up quickly. Expenses can include training and travel costs, website fees, promotional materials, costs to host parties, and costs to buy products. If you need to borrow money or use your credit card to finance your expenses, you may face hefty interest charges too. Also, consider the time demands of the business, like going to training, recruiting new distributors, managing paperwork, recording inventory, and shipping products.”

Always do your homework!

“Research the company. Search online for the name of the company and words like ‘review,’ ‘scam,’ or ‘complaint.’ You may also want to look for articles about the company in newspapers, magazines, or online. Does the company have a good reputation for customer satisfaction? Check with your state attorney general for complaints. A lack of complaints doesn’t guarantee that a company is legitimate, but complaints can tip you off to possible problems.”

Know What You’re Signing Up For

Research what distributors are saying.

“Individual distributors often post their own training videos online to promote the MLM. Search for these materials. Be suspicious if the trainings make earnings claims, tell you that the fastest way to make money is to ‘recruit, recruit, recruit,’ or suggest that all you need to do to build a downline is ‘find two people who find two people.’ Claims like these are hallmarks of a pyramid scheme.”

Consider the products. 

“MLM companies may sell quality items at competitive prices. But some offer goods that are overpriced, have questionable benefits, or are downright unsafe to use. For example, be very skeptical about health products advertised as having ‘miracle’ ingredients or guaranteed results. Those claims are generally false or at least unproven and, at worst, the products could be dangerous.”

Understand the costs. 

“Many MLMs make you buy training or marketing materials, or pay for seminars on building your business. You may need to book travel and pay for hotels and meals. Make sure you know what you must pay for, and how much it will cost over time. If the company says some of these things — like periodic product purchases or training — are optional, find out if you’ll become ineligible for bonuses or rewards if you opt out of them.”

Ask about refunds. 

“In many MLMs, before you can start selling the products, you have to buy them from the company. So get the company’s refund policy in writing. Make sure it includes information about returning any unused products, including restrictions and penalties. Consider whether you’ll get a full refund or only a partial one — and how long it may take.”

Read the paperwork and have a friend or advisor review it. 

“Read the company’s sales literature, business plan, disclosure documents, and any contracts or agreements you’ll need to sign. Ask an accountant, a lawyer, or someone else you trust — and who is not affiliated with the company — to help you review the MLM’s materials. Have them look at your possible earnings and whether the company can back up its claims about how much money you can make. Get their honest opinion about whether they think the MLM is legitimate and a good fit for you.”

Be Sure An MLM Company Is Right For You

In my opinion, MLMs are akin to a hamster running on a wheel — it’s doing a TON of work but going nowhere. 

But I realize I’m employed, don’t have kids to feed and, luckily, am not drowning in credit card debt, so I’m not particularly worried about making ends meet. 

If my circumstances were different, would I view MLMs differently? Maybe! 

Just make sure you thoroughly research any MLM you are thinking about getting into bed with — and stay far far away from anything that you aren’t 100% sure isn’t a pyramid scheme. 

Have you or someone you know been involved in an MLM? Let us know in the comments!

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