Fact-checking 13 MLM myths about business

Published by Nela Dunato on at 07:49 in Business, Tips for creatives, Thoughts, Marketing

People want to start their own business for various reasons—some want to earn more money, some want to do more fulfilling work, and others want the flexibility to fit their work around their family obligations or health needs. Whatever your reason to start a business, it's legitimate! But I'm tired of seeing misleading claims that multi-level marketing companies are spreading about business, so I want to raise awareness of how damaging those myths are.

Fact-checking 13 MLM myths about business

What are multi-level marketing companies (MLMs)?

MLMs have been known for over 70 years under different names:

  • Network marketing
  • Referral marketing (not to be confused with affiliate marketing)
  • Pyramid selling
  • Product-based pyramid scheme
  • Direct selling (if a recruitment aspect is present)
  • Direct marketing

The “marketing” or “selling” aspect means that a person joins a company to become a distributor of their products or services, and earns a commission by selling them to their network of friends, family, and acquaintances. The distributor doesn’t receive a salary, benefits, nor reimbursement of any costs incurred by this venture. They’re treated as independent contractors who are responsible for their own expenses, insurance, and taxes.

The “multi-level” or “pyramid” aspect means that distributors can recruit other people into the company, and earn a portion of the commission fees from the sales made by their recruits (also known as downlines), and the recruits’ own recruits, and so on. This means that the upline distributor (sometimes called sponsor or mentor) can earn money primarily by recruiting people who do the direct selling, instead of selling products themselves.

Simplified visualization of money flow within an MLM structure
It’s impossible to represent any MLM compensation structure accurately in two dimensions. This is one of the messiest graphs I’ve ever designed in my career.

MLMs claim that by eliminating the typical retail distribution chain and marketing expenses, they’re able to keep their prices lower. That’s not quite true, because a significant portion of the products’ retail price goes to not only distributors who sell the product, but also their uplines through residual commissions, generational bonuses, and other types of bonuses. I attempted to make sense of one MLM company’s complicated compensation plan so I can illustrate where the money from the sale of each product goes:

Pie chart: Where does the money from each sold MLM product go?
Assuming a 30% sales commission for the distributor who sold the product, the remaining 70% is divided between the MLM company and the distributor’s uplines.

The promise of earning money by building a “team” of salespeople under you makes the MLM business model seem very lucrative, especially during crisis times when regular work opportunities have dried up. However, data provided by companies themselves consistently proves that the vast majority of people in MLM earn very little, or lose money.

Why am I taking a public stand against MLMs?

Thankfully I’ve never been personally affected by MLMs. My family is extremely skeptical of things that sound too good to be true.

My interest in MLMs is partly sparked by morbid curiosity about cults (which I do have some experience with), and partly by the fact that people ask me for business advice. I feel responsible for the information I share with others, and don’t want to contribute to more suffering and disappointment.

My opinions are informed by hundreds (thousands?) of economic and legal reports, independently researched news articles, TV reports, videos and podcasts, as well as first-hand testimonies by former MLM participants and their family members. (I could write an MBA thesis at this point, but this article will have to do.) The data I’m referencing comes mostly from the United States (which is a hotbed of MLMs), and where economists and lawyers do the most research on them. Similar results are found in every country where people bother to look at the numbers.

I’ve also examined media released by MLM companies, so rest assured that I’ve heard “the other side of the story”—it’s just not convincing.

This article is here to clarify beyond any doubt that none of my advice or content may be interpreted as an endorsement of the MLM business model. I’d prefer if people refrained from using my marketing advice to build their MLM hustle. My goal is to support actual independently owned small businesses, not help multinational MLM corporations to get even richer.

Even if you consider yourself street-smart and well versed in business, and thus not likely to fall for any scams, your loved ones may be at risk—especially those who are financially vulnerable (unemployed, retired, students, new mothers, working low wage jobs, etc.)

Now, onto the myths. Strap in, this is going to be a #longread.

Table of contents

  1. Joining an MLM means you own your business
  2. Starting your own business is a big risk, while joining an MLM is risk-free. (Anyone can do this!)
  3. You will earn a lot of money in an MLM
  4. MLMs provide the best opportunity for residual income
  5. Startup costs for business are much higher than for MLMs
  6. MLMs provide training and support that you wonʼt get in a regular business
  7. MLM (or business) offers you more freedom than a job
  8. Every business is a pyramid scheme
  9. MLM is the business model of the future
  10. Believing in yourself is what’s most important to succeed in business
  11. Showcasing your luxury lifestyle will make people interested in your business
  12. People who are critical of your business and call it a “scheme” are haters that don’t have your best interest in mind
  13. If you don’t want to support MLMs, you don’t support women business owners

Myth #1: Joining an MLM means you own your business

MLM companies like to say that as a distributor, you get a “business in a box”—inventory of amazing products, training and support (see myth #6), and a proven sales system that works. Just sign the dotted line and pay the starter fee, and you’re a business owner!

Distributors do not own the MLM business.

The founder who started the MLM company owns the business. Lots of MLM distributors like to give themselves inflated titles like “CEO” or “Entrepreneur” in their social media profiles, but it’s very far from the truth.

MLM distributors are sales representatives of large corporations that get paid on commission. There are some similarities between MLM distributors and business owners:

  • There’s no job security.
  • If you don’t sell anything, you don’t get paid.
  • You need to pay your own taxes, health insurance, retirement fund, and all business expenses.
  • You can work as many or as few hours as you want (but it will have consequences).

However, there are some crucial differences between the two models, which highlight the fact that MLM distributors are not business owners:

Business owners can sell any products and services they want. (Their own, or produced by others.)

MLM distributor agreements often forbid selling competitors’ products.

Business owners control product/service features and sourcing, and can add new products or services as they wish.

MLM distributors don’t control product/service features or sourcing. In some cases they can’t even choose what to stock, and get sent product variations at random. The MLM company decides which new products/services to launch, and distributors don’t have any say.

Business owners don’t have supervisors—we literally are our own bosses.

MLM distributors have “uplines” (also sometimes called “sponsors” or “mentors”) who are highly invested in their performance, and will pressure their “downlines” to perform better.

Business owners cannot be fired from their own business.

MLM distributors can be terminated if they fail to keep an active status (by selling or buying a monthly minimum), if they say something wrong on social media, or if they join a competing MLM.

Business owners set their own prices based on their expenses, their financial needs, and marketplace demand. We are also able to decrease our expenses by switching to different vendors, or doing parts of the work in-house.

MLM companies set recommended retail prices (which are inflated). If distributors decrease the retail price, they’re losing their own commission, but everyone else in the MLM chain gets paid a fixed percentage. Distributors can’t increase the retail price to earn more in profits, because the recommended retail price is already too high for the market.

Business owners have full control over their marketing, advertising, and selling channels (as long as it’s not violating any consumer laws).

MLM companies often dictate which marketing, advertising, and selling channels are appropriate, and which may not be used. (For example: Amway distributors are instructed not to use social media.)

Many MLMs require distributors to register an LTD or a sole proprietorship, so your name is on all the official paperwork, and you’re responsible for complying with local laws and regulations. So we might say you own a business entity, but you don’t own any business assets and you have no control over the product line or pricing. Some MLM distributor agreements state that if you create a website or a social media profile to sell their products, you’re not allowed to use the same channels to sell a different product.

If you want to create your own assets like a brand, website, training materials, and other intellectual property, then why sign up for an MLM at all? You can just do your own thing!

MLMs often compare themselves to franchises.

Franchises operate on the same principle that you are only allowed to sell their brand of products and services. However, they’re highly selective about who is allowed to own a license, and they’ll limit the amount of franchises in a given geographical area to keep the demand sustainable. (MLM companies don’t care if there is too much competition in an area, and will encourage people to join even if the market is already over-saturated.)

Franchises are regulated according to a much higher standard than MLMs:

“Though many promoters refer to their MLMs as “like a franchise,” as an “un-franchise,” or even as a “personal franchise,” the last thing MLM executives want is to have to comply with franchise disclosure requirements, including a franchise disclosure document that could be hundreds of pages long with financial data, background of founders, etc. The MLM industry spent $4 million lobbying for an exemption from the Business Opportunity Rule so they would not be required to provide even a one-page document disclosing information to help prospects make a wise decision about participation.”

Franchise licensees do not recruit others to join the franchise—they earn their entire income from sales to customers.

MLMs have also started to compare themselves to affiliate marketing and influencer marketing.

The main similarity is that if someone has a huge social media audience, they stand to earn a lot through affiliate marketing, advertising, and potentially MLMs. Ordinary people with a small following won’t earn a significant income in any of the three business models.

Affiliate marketers are not bound by exclusivity agreements, and they don’t recruit others to become affiliates.

Affiliate programs don’t require any payment to join, and many don’t even expect you to buy the products you’re promoting. If you have a large enough audience, you’ll get free products to review and promote with your affiliate code. MLMs require you to pay a starter fee (for a product kit or a “license”), and you need to pay for all additional products you want to try out. (You get a “wholesale” discount on the products you purchase.)

Some programs won’t accept affiliates that don't have significant social media following or website traffic. MLMs will accept any warm body, regardless of their likelihood of success.

If you’re ambitious and want to build your own business, by all means start one!

But don’t buy into the lie that you’ll become a business owner the minute you sign up as a distributor for an MLM. That’s not how business works.

Myth #2: Starting your own business is a big risk, while joining an MLM is risk-free (Anyone can do this!)

The MLM lie that makes me most furious is that “anyone can be successful in an MLM”, because it’s sooooo simple and you just need to “work the system”.

I would never claim that “anyone” can be a business owner, because running your own business is difficult and emotionally draining.

You need skills that other people are willing to pay for. You’re bound to get burned out at least once, if not on the regular. You’ll need to learn so many things you never had to think about as an employee (see myth #6). It’s not for everyone, and there’s no shame in that!

I’d rather recommend people to get a job they like, if they’re able to find one. But some of us have health conditions or family obligations that make succeeding in a traditional job very difficult, so we’re better off doing our own thing. If you have the right personality traits and marketable skills, you can be a successful business owner. If you don’t, I’m sorry but business may not be the right career choice for you because the learning curve will be steep.

Starting a business carries a high degree of risk, but the odds of success are in fact much greater than that of any MLM company.

MLM proponents often quote the statistic that “over 90% of new businesses fail”, but this is a misrepresented statistic. The numbers that the US Bureau of Labor Statistics reported are: about 20% of small businesses “fail” in their first year, 50% of small businesses “fail” in their fifth year, about 30% will survive their 10th year in business. The “failure” rate means that a business has closed. The reasons for closing the business are unknown—maybe it really failed to turn a profit, but perhaps the owner got a full-time dream job, or they retired and didn’t have anyone to leave the business to.

“Small business failure rates are not as high as MLM promoters claim. A study by the NFIB (National Federation of Independent Business), using U.S. census figures in 1999, found that approximately 39% of small businesses are profitable over the lifetime of the business.”

Franchises have an even lower estimated failure rate of just 4%.

Contrast this to the average of 99.7% participants in multi-level marketing schemes who lose money. Take a minute for that number to sink it.

Many MLMs claim that they’re different from everyone else, but in many decades of research and reporting on over 600 MLMs, industry watchdogs such as Robert L. FitzPatrick, Jon M. Taylor, and The Finance Guy have never encountered a single MLM where more than 1% of participants made a profit. The MLM business model is less profitable than illegal pyramid schemes, where about 90% of participants lose money. In fact, you have a bigger chance of profiting by gambling on roulette in Las Vegas.

And if you think that MLM investments are so low that even if you lose it all it’s not a big deal, that may be true for people who get out within the first few months, but those who stay with the scheme for years lose jaw-dropping amounts of money. Former distributors and family members of active distributors report that many end up with thousands of dollars in credit card debt and depleted college funds. Some have to downsize, or move in with other family members because they can’t keep paying the mortgage.

Yes it’s risky to start a business, but at least there’s a realistic chance of succeeding. With an MLM, you’re practically guaranteed to fail.

Myth #3: You will earn a lot of money in an MLM

MLMs like to show flashy numbers of expected income for each distributor level, but that income rarely materializes. The crucial statistic they regularly fail to disclose in their income statements is the distributors who became inactive during the year, or didn't make any sales—which in some cases amounts to more than 98% of all MLM participants. Typically, the reported “average earnings” are actually made on the distributors who remained active and managed to earn something.

But what do distributors actually earn?

No one knows, because the numbers reported by MLM companies show gross income, not profit. Subtract from that the phone bills, transportation costs, display and storage furniture, booth rent, business cards and brochures (which distributors pay for out of their own pocket), taxes, unsold inventory, miscellaneous “website fees” and “training materials”, and the take home pay is actually less than a minimum wage job—if there’s any profit left to take home at all.

Research of over 600 MLMs in the United States has shown that on average, less than 0.4% of distributors earn a profit.

Even when given the biggest benefit of the doubt by accepting the self-reported figures, the income opportunity just seems pitiful.

“The average annual income for ALL U.S. Market Partners at all ranks (which includes Active and Inactive Market Partners) in 2020 was $876.”

That’s $876 gross per year, before expenses. While a lucky few may earn a lot more, remember that the vast majority will earn far less, and report a net loss.

Even more mind blowing is the hourly rate MLM distributors earn.

The MagnifyMoney survey of 1049 American multilevel marketing participants revealed concerning findings about the financial side of MLMs:

“Using median results, MLM participants worked 14 months out of the past five years for 33 hours per month. Overall, participants earned a median of $18.18 per month, translating to $0.67 an hour, before deducting business expenses.”

You could be earning considerably more per hour as an audio transcriptionist, working from home, without burning down your friendships and family relationships.

This is the kind of crucial information that MLM companies are hiding when they’re talking about the “amazing income opportunity”. Measly or nonexistent financial rewards for a whole lot of work is a rule, not an exception.

There are other flexible or work from home opportunities available that are paid much more per hour than any MLM. Read these articles for some ideas:

Why are earnings in MLMs so low?

There are quite a few reasons:

  • Commissions typically start at around 20%, which means distributors have to sell a lot of stock to make any profit once expenses are taken into account. (Higher commission rates may be unlocked in some MLMs if distributors sell over a certain total value of products.)
  • The products are overpriced compared to what's sold in retail stores, so distributors often sell them at a discount, which cuts into their commission.
  • Some companies require distributors to purchase excess stock in order to keep their active status or get into a higher commission bracket, which distributors are unable to sell (inventory frontloading). Some companies accept returns of unsold stock, but “seasonal” or “discounted” items may not be eligible.
  • Even if MLM companies do not require purchasing inventory, uplines/sponsors often encourage it, because they get commissions and bonuses based on purchases made by their downline.
  • When a new MLM comes to the area, the number of distributors quickly exceeds market demand because of intense recruiting. There aren't enough buyers in the area to support that many distributors. (Franchises avoid this by limiting the number of establishments in an area.)
  • Clothing, jewelry, and nail strip MLMs usually don't let distributors choose the contents of their starter kit inventory. They get a random assortment of styles, which leaves them with many items they can't sell if the style is not in demand. (LuLaRoe is infamous for their ugly patterns, which can make a large portion of the distributors' stock unsellable.)
  • MLMs exaggerate the quality and uniqueness of their products. It's usually possible to find comparable, identical, or better products at a lower price. Buyers are smart enough to realize this, and don't want to keep buying overpriced clothing, supplements, cosmetics, essential oils, etc. just to appease their distributor friends and family members.
  • If the products are in fact unique, typically they're very expensive and MLM companies spread unproven medical claims about them (like the magical water machines). These are difficult to sell.
  • Some MLMs charge monthly “website fees” to use their shopping portal to make orders, and other miscellaneous charges that add up over time.

Even experienced sellers struggle in these conditions, but most distributors don't have adequate sales training, nor natural talent to lean on. Despite MLM companies making it sound so easy, almost no one in MLM makes the big bucks from retail alone. Only people who recruit others can stand to make more than minimum wage, but most of that money comes from their downlines' inventory loading, not actual sales to customers outside of the MLM. Same as with illegal pyramid schemes: someone has to lose money so that the higher ranked participants could earn money.

“The non-retail schemes pay more to upper levels of hierarchy – who have nothing to do with the sales – than they do to the person at the bottom who actually makes the sale. Not only do those higher up the chain receive more pay – per sale – than the ones making the sales but also they do not have to incur any sales costs. Their profit per sale is therefore many times greater. The result of this pay plan is to discourage retail selling.”

MLM companies don't track how many orders are sold to buyers that are not affiliated with the MLM. They pull estimates out of their noses, but since few goverments ask for this level of accountability, they don't monitor it. Tracking this would prove what MLM critics have been saying for decades now: that the distributors are in fact the customers, and there is no legitimate business opportunity.

How do MLM critics know this is happening if there's no data? Because many former distributors admit that they have purchased inventory they didn't need to keep their status, or that they submitted orders with friends' contact information to make it seem like they were consumer purchases, when they were not. You can find these stories yourself all over YouTube, Reddit, and anti-MLM blogs.

Every once in a while we hear a story about a shining star who was able to make it big mostly through retail sales, not by building a downline. This only happens to distributors who get in early because the market is not yet saturated with products, and if there are any quality issues, consumers haven't gotten wise to them yet. These successful retail salespeople still fall into the 1% who succeed in MLM.

But I heard that 82% of women making over $100.000 per year work in network marketing?

Don’t believe everything you read on the internet. This is a completely invented statistic, also known as a lie.

This is probably a reversal of the claim (which I was not able to verify either) that out of people earning over $100.000 per year in MLMs, 82% are women. Women are specifically targeted by MLMs and make the majority of the MLM distributor force. (But not the majority of the MLM ownership structure, which is the more lucrative side of MLM.)

But I heard that the MLM industry produces the most millionaires?

Another often repeated claim that has no basis in reality. It has been attributed to an 80s MLM author Beverly Nadler, and has been parroted by other motivational speakers to this day, but none of them ever produced any proof—because there is none to be found.

MLM is nowhere near the top most high paying industries, let alone the top vehicle for creating millionaires.

The industries that produce self-made millionaires at a far greater rate include engineering, finance, entertainment, real estate, fashion, etc. You know, jobs you’d expect to pay really well because they’re valued by our society.

Myth #4: MLMs provide the best opportunity for residual income

“Make money while you sleep!” sounds very appealing to overworked and underpaid folks. If you invest some time and money upfront, you will be able to retire early and travel the world!

MLMs provide the best opportunity for company founders to amass millions of dollars by roping in thousands of distributors who will each pay a starter fee. All other promises are astronomically exaggerated, and will not happen for over 99% of participants.

People who get involved very early on and manage to build a huge downline will be getting large checks for as long as they’re able to keep their downline (or until the MLM collapses because of lack of sales, or gets shut down by the authorities). Most people will not be able to build and sustain a large enough downline to create meaningful residual income.

Over 50% of participants drop out of MLMs every year. (Source: “Multi-level Marketing Unmasked”) This means that uplines can never stop hustling for more recruits to replace the drop-outs, and keep their bonus checks. Former successful MLM distributors have admitted that the effort it took to keep their status long-term was unsustainable. (Here's just one former “bossbabe's” story, there are hundreds of similar video testimonies out there.)

“Residual” income flowing into your account while you’re sipping cocktails on the Canary Islands is a sham.

If MLM distributors invested the same amount of money, time, and effort in a serious business, they would be far more likely to:

  • Earn a livable (and comfortable) income both in the short- and long-term.
  • Turn a profit much sooner.
  • Create a nest egg of leveraged or “passive” income opportunities by developing their own intellectual property, or investing their savings in a more traditional way (real estate, stocks, etc.)

It is possible to “make money while you sleep”, and it doesn’t require joining an MLM.

Here's a few ideas:

  • Write a book or record a course and sell it online (which is what I did).
  • Get a mortgage for a rental property which will pay itself off, and then become a source of income. (My parents did that as soon as they paid off the mortgage on their apartment.)
  • Create and sell digital resources such as software, graphics, music, stock photos, stock videos, knitting patterns, etc.
  • Create a popular blog, podcast, or video channel and sell advertising space, or join affiliate programs to promote products relevant to your audience.
  • Write a hit song or a theater play and live off of royalties.
  • Develop a training program for a highly useful and sought after skill, and certify trainers to deliver the program to clients, charging a percentage or a flat-rate yearly fee for the rights to teach the program.

Sounds difficult? Yeah, that’s why most people don’t make money while they sleep. But the chances of success are still far greater than through an MLM.

Myth #5: Startup costs for business are much higher than for MLMs

Startup costs vary depending on the industry. If you own a computer or even just a netbook, you’re already set up for many office jobs (data entry, transcription, writing, etc.) without investing in more equipment and software. If you want to break into a creative industry where software can be quite expensive, there are cheaper or free alternatives available. If you’re a licensed therapist or a coach, you may be able to conduct client meetings using just a smartphone and a free video call app!

You can start a home based business for very little money, and then upgrade your equipment over time with the profits you earn. Depending on what type of support is available for businesses in your jurisdiction, you may even be eligible for grants. Many of my friends and clients have used such grants to get their small business off the ground.

MLM distributors who are trying to hook people use inflated figures for startup costs that make their starter packs look like a good deal, but it is not.

If you buy a new computer, camera, or a huge freezer and your business fails, you still have equipment you can use for something else, or you can sell it to recoup some costs.

The MLM product inventory has a very small resale value so former distributors often just give their stash away, or sell it on eBay at a fraction of the cost.

Myth #6: MLMs provide training and support that you wonʼt get in a regular business

The “training” distributors receive from their MLM “mentors” doesn’t count as business training by any stretch of the imagination. The “mentors” (or uplines) often have very little business experience themselves, and most of them just repeat what their own uplines had told them. Such pearls of wisdom may include:

  • Make a list of 100 people you know and start sending them a copy-paste message about your products.
  • Add friends-of-friends on social media, so you can message them too.
  • Join Facebook groups based on an interest (crafts, pets, health, sports, etc.) to meet new people, add them as friends, and then message them.
  • Post 3 social media updates about “your business” every day.
  • Use obviously fake “before and after” photos (digitally altered, deliberately taken in different lighting conditions and poses, even taken during/after pregnancy) to promote weight-loss or cosmetic products.
  • Read this motivational book / listen to this audio program that will change your perception of money, work, and life.
  • Attend all the in-person or virtual conferences where you’ll listen to motivational stories of people who are successful in the MLM.
  • Whenever you buy something, enjoy a meal at a restaurant, or go on a spa day, post a photo on social media and say how grateful you are for your MLM business that pays for your life’s necessities and pleasures. This will interest your friends in joining the MLM as well.
  • If you know a stay at home mom or someone working in a service job, tell them that they could also do what you do (and join your downline).
  • It’s all about the mindset and working hard—if you’re not able to sell anything, it’s because you’re not doing what is needed to succeed.
  • If someone is critical of your involvement with an MLM, that means they’re a “hater” and you should cut them out of your life.
  • If someone says “no” to your offer, ask them why, and then counter their objection with one of the scripts that we use.

I’m not exaggerating—these are all real examples lifted directly from MLM training literature, social media, and private chat screenshots. I’m appalled that anyone could think that’s what constitutes good business skills.

Some MLMs give their distributors misleading titles which imply professional experience they don't have, such as:

  • advisor (finance)
  • fitness coach, wellness coach or nutrition coach (weight loss products and supplements)
  • business coach, trainer, or mentor (higher-level distributor)
  • aromatherapist (essential oils)
  • skin care specialist (cosmetics)
  • sexual wellness advocate (adult products)

It is 100% not OK to imply you're an expert in a field you have just entered with no substantial education. I know it's common to hear “everyone's an expert”, or “you don't have to be an expert to make money”, but that is incorrect. Uneducated distributors spread erroneous claims about health and finance that can hurt people. The lack of education in MLMs is dangerous.

Actually useful business skills (that none of the MLMs teach) can be learned for free or very cheap.

You can start learning some of them before you even start your own business, so you’re well prepared once you do. In fact, that’s what I recommend.

I learned lots of business skills by attending free workshops at a local startup support organization. I’ve also followed business blogs and purchased a few reasonably priced online courses. (Up to $200 at most.)

Some critical skills any small business owner needs to learn are:

  • Setting sustainable and competitive prices for your own offers.
  • Financial tracking (income, expenses, taxes, profits) and cash flow projections. (MLMs don’t want you to learn this, because it inevitably reveals that you are losing money.)
  • Writing effective (and truthful!) sales and marketing copy.
  • Evaluating prospects, making an offer and closing the sale if it’s the right fit for both parties.
  • Negotiation and knowing when to walk away from a deal.
  • Project management and organization.
  • Basic product photography and photo editing (for retail businesses).
  • Basic website editing and creating social media graphics (if you don’t want to pay to outsource it).
  • Empathetic listening, expressing disagreement and boundaries tactfully, and persuasive speaking.
  • Managing discomfort, disappointment, and anxiety in the face of challenges. (This is light years removed from the “positive vibes only” and “fake it till you make it” approach propagated by MLM mentors.)

The skills you learn over the course of running a business will serve you well in any career. The “skills” taught by MLM mentors are ineffective even in the MLM industry, let alone outside of it.

MLMs are often compared to cults, because their members buy into a specific way of thinking that is at odds with the rest of the world. Former MLM distributors have to go through a recalibration period to shake off all the faulty ideas they were taught, which interfere with their ability to perform well in a job or as a legitimate business owner. MLM training is not just useless, it’s actively harmful.

What about that team support MLMs always talk about?

We can't dismiss the social aspect of MLMs that can look quite appealing to people who feel isolated, such as new mothers, military spouses, recently divorced, elderly folks, people with chronic illness or body image issues, etc. Vulnerable groups are typically the intentional target demographics of MLMs—you can't offer “betterment” to people who are happy and fulfilled in their career!

However, the “teams” that comprise of equally clueless distributors with a skewed sense of business norms and ethics can hardly provide any measurable support (as vividly illustrated by this former Younique distributor).

At their worst, the uplines’ pressure on their downlines devolves into bullying. (Just one famous example: LuLaRoe founder allegedly pressured high-ranking distributors to get cosmetic and weight-loss surgery.)

Small business owners who start their journey on their own have many options to meet like-minded people that don’t require buying into cult thinking:

  • Join one of thousands of free Facebook or LinkedIn groups for small business owners.
  • Join an affordable monthly mastermind group.
  • Start your own mastermind group.
  • Attend in-person or virtual meet-ups and conferences.
  • Ask local business owners you connect to online to meet for a drink.
  • Attend a class or a workshop (online or in person).

You don’t have to go it alone as a small business owner! And what’s even better, you’ll benefit from the diverse pool of experiences other freelancers and entrepreneurs are bringing to the table—fresh ideas, marketing techniques, productivity tips, cross-promotion opportunities, and client referrals.

Other MLM distributors are your direct competitors since they sell the very same products you are selling. Small business owners outside of your niche are potential accountability buddies, advisors, partners, and even clients.

Myth #7: MLM (or business) offers you more freedom than a job

MLMs lure people in with promises of passive/leveraged income (see myth #4) and lots of free time. Once you’re hooked, reality sets in: every waking hour spent messaging people, posting on social media, or harassing people in public spaces. Many distributors report spending weekends, family gatherings, and even hospitalizations(!) “working their business” as if it’s a demonstration of an admirable work ethic.

While every business is challenging in the beginning, none will have you on your phone all day long unless you’re doing emergency repair services.

Working from everywhere is not a sign of success.

When I’m lying in my hammock on the beach or cycling through the hills, I enjoy not having to think about my business. I don’t bring a laptop to any trips because it feels amazing to leave work behind. That is true freedom, as opposed to being glued to your phone.

Nela in the hammock
My natural habitat during the summer weekends and vacation

That said, there are also many advantages that jobs have over businesses (and MLMs):

  • Consistent, predictable, and sustainable working hours.
  • Paid medical leave.
  • Paid vacation.
  • Paid parental leave.
  • Limited responsibility.

Many jobs now accommodate working from home so you could get the best of both worlds. You can also find jobs with flexible working hours that enable you to divide up time for childcare with your partner, or enough free time to pursue creative projects.

Would I say I have more freedom as a business owner than I did as an employee? I’m able to set my own hours and take spontaneous days off in the middle of the week, but my mind is occupied with a myriad of issues I’m personally responsible for. It’s not perfect, and for some individuals and families it may not make sense.

Myth #8: Every business is a pyramid scheme

Often thrown as a defense when called out on their pyramid structure, MLMs claim that every business is pyramid-shaped because it has a hierarchy. But the pyramid structure MLM critics talk about is not about the role or pay grade hierarchy, it’s about the compensation plan. (That graph with lots of arrows I shared in the beginning of the article.)

Most businesses have set salary bands for employees, except for some sales jobs that have a base salary plus commissions (or tips). One employee’s performance doesn’t affect their supervisor’s pay. A team’s increased performance that is tied directly to the supervisor’s successful management actions is counted towards their own performance (since their job is to manage well), but it’s not defined for each of their reports’ sales with a numeric factor the way it is in MLMs.

The pyramid structure of MLMs favors rising up in the levels, because below a certain level distributors are not able to earn enough to live on. (See myths #2 and #3.) Advancing in an MLM depends on how many people you recruit that will carry your weight, because your own income is skimmed off their sales.

In a business (at least in countries with decent employment laws), all employees from the CEO to the janitor earn at least a minimum wage. Advancing in the ranks of a business is predicated on having skills that are useful to the business. Many employees are not interested in advancing, because their position affords them the right amount of income and responsibility. (I know lots of high-performing professionals that refuse management roles because they don’t want extra responsibility, not even for bigger pay.)

In an MLM, someone who wants to earn a five- or six-figure income can only do so by recruiting hundreds of downlines, which is a pyramid structure. But a small biz owner with a highly profitable business model (consulting services, or creating information products like books, courses, and templates) can earn the same income without hiring any employees. We may outsource administrative tasks or specialist services to other independent contractors, but all income comes directly from sales of products and services, so if there is adequate market demand, the business can profit almost immediately (depending on the startup costs, see myth #5).

So no, not all businesses are pyramid-shaped, and legitimate retail and service businesses are not pyramid schemes. Recruitment-based direct selling businesses (MLMs) are pyramid schemes, because it’s almost impossible to earn a livable income through direct sales alone.

Myth #9: MLM is the business model of the future

Recruitment based direct selling businesses have existed for over 70 years, and they’ve always been on the periphery, bordering on illegality because of the immense financial losses that many distributors suffer.

But when the internet came along, other types of business have exploded and proved themselves profitable for everyone involved: founders, workers, users, and shareholders.

  • Online retailers (Amazon, BestBuy, CDbaby, Zappos)
  • Online marketplaces (eBay, Etsy, AliExpress, Poshmark)
  • Digital products (ebooks, music albums, courses)
  • Software as a service (SaaS)
  • Online advertising
  • Gig platforms (UpWork, Uber, Lyft, Flexjobs, Fiverr, Instacart, TaskRabbit)
  • Online tutoring, coaching, and consulting

These are the business models of today that are growing at a much faster rate than MLMs.

While a few of the companies I listed use exploitative labor practices (no minimum wage, no overtime pay, hiring workers as contractors to avoid paying benefits, etc.), there are also many positive examples that treat (and pay!) people well.

MLM companies like to boast about their growth, especially during the pandemic—but it has not grown at the same rate as retail in general.

“For nearly twenty years the industry failed to keep up with the national growth in retail sales. At just .84% in 2019, multi-level marketing retail sales constitute roughly one-third less of national retail sales relative to the high watermark of 1.24% of U.S. Retail Sales in 2002.”

Numbers aside, MLMs have such an abysmal reputation, that many distributors are instructed not to say their company name publicly, so their prospects don’t research it online.

Social media that has helped MLMs proliferate will also be its downfall. If governments fail to protect people from this type of financial fraud, people will find a way to protect each other by sharing the dangers of getting involved in MLMs.

Myth #10: Believing in yourself is what’s most important to succeed in business

No. Having a profitable business model and products/services that there is sufficient demand for is what’s most important.

The second most important thing is to develop a marketing strategy that will attract buyers who need exactly what you sell, and are willing to pay the asking price.

No matter how much you believe in your own success, if the practical aspects of your business are not set up for profit, you won’t achieve your financial goals.

MLM training emphasizes motivation and personal development (see myth #6), and the main reasons for this are:

  1. The MLM company or an individual within the MLM structure makes money off the purchases of motivational literature. (Amway is notorious for this, but many influencers now offer their own training, because that’s where the real money is.)
  2. Anyone can “teach” motivation and personal development, because it can be boiled down to a few “principles” and catchphrases that are repeated over and over, no matter what issue a distributor is experiencing.
  3. Distributors feel like they are learning a ton (if this information is new to them), which keeps them in the MLM for longer.
  4. Teaching distributors that they alone are responsible for their success shifts the blame from the unsustainable MLM business model (see myth #3) to the individual.

I’ve been a personal development literature junkie since my early teens, so I know the limitations of positive thinking, and I know exactly where certain motivational “principles” originated. Most of it are repackaged ideas from the “New Thought” books published since the 1880s.

I’m critical of motivational literature precisely because I have previously bought into that mindset with full conviction, and realized that it’s not true. You can try to live according to positive thinking principles for a while, but sooner or later reality catches up to you. You realize there’s more depth and complexity to the human experience than what these authors and mentors claim, and keep searching for a more wholesome and compassionate worldview. Thankfully, I was able to find it, and it has made me a better person and a better business owner—but there is a lot more to business than just feeling optimistic and ambitious.

If your business model is not profitable, you need to change the model, instead of persisting in losing even more money.

Most MLM distributors are not able to get past the pity purchases from close friends and family, because they’re offering commodity products that can be found elsewhere for a lower price, or at a much greater quality for an equal price. The business model is bad because there is no market demand for these overpriced products, so it’s not possible to earn a profit from product sales alone. Yet many remain in the MLM for months and years, convinced that next month they’ll “hit that bonus” or “raise to the next rank”. As we’ve established earlier (see myths #2 and #3), the MLM (pyramid) business model favors about 1% of the top ranked participants, at the expense of the 99% of remaining participants.

If your business is failing, the solution is not to just believe in yourself even harder. You need to change something:

  • Describe your offers in more detail or in a more compelling way.
  • Experiment with your prices.
  • Change your target audience.
  • Create an effective marketing channel to reach more people.
  • Sell something else.

Noora Sharrab started a business with a wonderful product: olive oil soap handmade by Palestinian refugees that enables women to feed and educate their families. They started off by trying to sell the soap to local hotel chains, which didn’t want to pay premium prices. Then they switched their focus to wedding favors, and sales have grown. They found a great market fit for their niche product.

Unfortunately, sometimes it’s not possible to find an audience for the service or product you’re trying to sell, no matter how much effort you invest in marketing and selling. Businesses do fail, and it’s important to recognize it’s happening before we sink in even more money into it.

Good business mentors will warn you of this and advise you to pivot into a more profitable business model, or to take a break and come up with another business idea. MLM mentors will always say that you just need to keep going (spending even more money that goes into their pocket), and that success will come. They are wrong 99% of the time.

Myth #11: Showcasing your luxury lifestyle instead of the products will make people interested in your business

MLM mentors teach distributors to portray external markers of success on social media, so that other people will want to get involved in the MLM as well (which distributors earn money from). They post screenshots of payment statements (with the number censored because it’s embarrassingly low), photos of leased cars, manicures, and even cups of coffee-to-go and attribute it all to “the business”. Former distributors and people close to current distributors say that they did this even when “the business” was not making any profit. It’s all staged, in hopes of luring more recruits.

Even top-ranked MLM distributors who are paraded on stages and promo videos as success stories are hiding mountains of debt, all the while pretending to be experts in business and “financial freedom”. Unfortunately, we can’t take people at their word because many marketers exaggerate or lie about their own success.

Marketers (in or outside of MLM) who resort to this tactic in the name of supposed “authenticity”, realize that unless they imply their clients will achieve the same markers of success by following their “program”, no one will buy it—because they can’t prove the program is any better than other offers available. Buyers assume that if someone shows external markers of success, they must know something special. Fraud victims regularly admit to this in interviews: “This person seemed so successful, and I wanted what they had.”

The only thing lifestyle marketers know is how to manipulate others to part with their money—like an old timey con man, walking into a town in a fancy suit and claiming they’re a rich entrepreneur that will quadruple your investments.

A legitimate business doesn’t need to sell “lifestyle” to their buyers.

My clients and readers don’t care what kind of car I drive (or don’t drive), or whether I’ve hit “my best month”, because that doesn’t prove to them that I’m an expert they should hire, or an author they should listen to. I’m not impressed by my dentist’s or electrician’s house. I want to know how good they are at what they do and how quickly I can get an appointment.

MLMs are somehow able to brainwash participants into thinking flashing your “wealth” is admirable behavior, but it’s just tacky. People who know the MLM distributors well enough to have an insight into their real financial situation feel secondhand embarrassment, and will never look at this person with the same level of respect.

Your products or services, past references, and your buyer’s testimonials need to speak for themselves. Your lifestyle is irrelevant.

Myth #12: People who are critical of your business and call it a “scheme” are haters that don’t have your best interest in mind

People may be critical of your business for all kinds of reasons, and some of them are legitimate:

  • If you’re engaging in unethical activities, some people won’t appreciate that.
  • If you’re pestering friends and family to buy your products or join your downline, they are right to call you out.
  • If you’re selling products that contain harmful ingredients, of course people will warn others about it.
  • If you’re spreading unsubstantiated medical claims, you are in fact breaking consumer protection laws, and people have a duty to correct you.
  • If you send a weight loss program pitch to people recovering from an eating disorder, you deserve to be chased away with pitchforks.
  • If your attempts at running a business have consistently ended in net loss, and you’re putting your family members in financial jeopardy, they have a right to protect themselves and request that you look for work that pays.
  • If you’re working 12+ hours a day and have nothing to show for it, your family members are right to be concerned for your well-being, and about their place on your priority list.

Will sometimes people grumble or yell at you online even if you try your best to be honest, ethical, respectful, and mindful of your family’s needs? It can happen. I’ve received a few critical emails and comments over the years, when I shared an opinion someone disagreed with. (I’m sure this article will invite more of those.)

But in general, most small business owners are on good terms with their friends and family, do not get blocked on social media by acquaintances because they’re pushy, and are not constantly questioned about their decision to run a business because it’s not a money sink.

While people close to us worry about our well-being and may be cautious about us starting a new venture, they are reassured once money starts coming in. Friends who know that we were always passionate about this thing will be happy for us, and genuinely support our business by telling others about it.

But when someone who always loved baking starts selling shampoo, supplements, or essential oils, people are rightly taken aback.

It seems out of character. Loved ones also become worried because of the sudden personality shift new MLM distributors display on social media. It’s not normal behavior for a small business owner to talk about nothing but their business! I’m connected to hundreds of small business owners and independent creatives, and they all have interests and hobbies outside of their profession. When we post vacation photos, pets, or children, we focus on what’s right in front of us, and keep the “business” out of it!

Yet so many “huns” (slang for distributors) always look for a way to involve their MLM into every single social media post. They message everyone on their friends list with sales pitches, which is annoying, so recipients ignore or block them.

Business owners may sometimes feel misunderstood and lonely if everyone around them has a job or is a stay at home parent. We need to release some of the “good worker mentality” we’ve picked up in school or previous jobs. There are some real challenges, and yet we’re also able to stay connected to our friends, because we can keep a conversation that isn’t a sales pitch.

We’re not pressured to kick out all the “haters” who are “dragging us down” out of our life by our mastermind buddies. We’re able to make a distinction between other people’s worry, reasonable questions, criticism, and spitefulness.

Myth #13: If you don’t want to support MLMs, you don’t support women business owners

A subset of myth #12, this callout is specifically framed as a feminist issue. Here’s why this statement is false:

  1. The majority* of MLM company owners, founders, and C-level executives (people who get rich) are men.
  2. 75% of MLM distributors (people who lose money by participating) are women.
    (Source: Direct Selling Association 2020 report)

* Out of 26 popular publicly traded MLM companies I checked, 3 had female CEOs, and 7 had at least one female founder. I couldn't find a more comprehensive research, but this is consistent with the low numbers of female leaders in other industries, so I'm confident this trend holds up across other companies as well.

MLMs like to talk about “female empowerment”, but they’re actively anti-feminist, because they take women’s money and syphon it towards the MLM founders and executives who make the most profit. The few women that do earn substantial money, do so at the expense of other distributors in their downline—they’re trampling other women to meet their goals.

MLM distributors are not “women business owners” because they do not own anything, except for the piles of product stock they’ll never be able to sell. (See myth #1)

MLM critics are concerned about the women trapped in a system that’s actively harming their finances and personal relationships. We don’t hate ambitious women—we sincerely want each of them to find a great work opportunity to support themselves and their families! And we know MLM is 99 times more likely to get in the way of that, than it is to help.

MLM distributors would prefer if people supported them by purchasing products, enrolling as distributors, hosting “parties”, sharing their MLM with friends, lending them money to “invest in the business”... but that only prolongs the illusion that the MLM business model works. This confidence boost pushes distributors to invest even more money, and once their downline collapses, they will lose it all. The sooner distributors realize they need to get out, the less money they’ll lose.

By educating distributors about the unlikely odds of success in MLM, and the importance of tracking income and expenses, we’re supporting them long-term. The truth sometimes hurts, but it’s better than living an expensive lie.

Still considering joining an MLM?

If the proof I offered isn't enough for you, here are more resources I highly recommend you to read and watch before signing up. If you still choose to sign up after that, at least you’ve made an informed decision.

I’m an MLM distributor, and you’re wrong!

Hi there! Welcome to my blog, where I publish my own opinions. I’m not required to let the “other side” spread MLM propaganda on my own platform, so I turned the comments off. But I have some more words for you.

I don’t earn or lose money if people decide to join an MLM (or not). You however profit off of people who believe these myths. Out of the two of us, who is able to weigh both sides more objectively?

MLM proponents like to say that MLM critics are uninformed, and we “shouldn’t knock it if we haven’t tried it”. Well, I don’t have to personally try gambling to understand that getting sucked in is not a good idea. If I see a small brown pile that stinks from two meters away, I don’t have to stick my finger into it to know it’s dog poop. But we both know that this statement is disingenuous anyway, because when people who were involved in MLMs share their experience, MLM proponents try to discredit them by saying:

  • “That distributor failed because they didn’t work hard enough.”
  • “That distributor didn’t have the right mentor to guide them to success.”
  • “That particular MLM may be problematic, but my MLM company is different.”

No matter how many facts presented, MLM devotees always spin the rhetoric and move goalposts to try to make their MLM seem like a good deal.

You can’t convince me that MLMs are a legitimate business opportunity, because once someone sees the facts and figures, they’re impossible to ignore. Your anecdotes about this or that person who was able to succeed in MLM don’t change the fact that 99% of participants across every MLM company out there (no exceptions) have lost time and money.

Instead of wasting your energy trying to prove me wrong, create a spreadsheet with your income and expenses so you can figure out how much money you’re actually making, and whether it's worth it.

Good luck, you’ll need it where you’re headed!

Nela

Nela Dunato

About Nela Dunato

Artist, brand designer, teacher, and writer. Author of the book “The Human Centered Brand”. Owner of a boutique branding & design consultancy that helps experienced service-based businesses impress their dream clients.

On this blog I write about art, design, creativity, business, productivity and marketing, and share my creative process and tips. Read more about me...