Multilevel marketing

{{bronze}}{{scam}}
{{cquote|But in the land of MLMs, failure is just another opportunity.|||Brandy Zadrozny<ref>[https://www.nbcnews.com/news/magic-dirt-internet-fueled-defeated-pandemics-weirdest-mlm-rcna6950 'Magic dirt': How the internet fueled, and defeated, the pandemic's weirdest MLM Black Oxygen Organics became a sudden hit in the fringe world of alternative medicines and supplements, where even dirt can go for $110 a bag.] by Brandy Zadrozny (Dec. 2, 2021, 3:01 AM PST / Updated Dec. 2, 2021, 4:49 AM PST) ''NBC News''.</ref>}}
'''Multilevel marketing (MLM)''' or '''network marketing''' is a type of [[scam|unfair]] and [[deceit|deceptive]] financial [[woo]], purportedly a [[business]], promoted by a non-salaried workforce selling a company's product(s) or service(s) independently. Sellers get paid according to a commission structure that heavily incentivizes [[pyramid scheme|endless recruitment]].

MLM presents itself as a "business opportunity," with products ostensibly on sale to the general public. However, MLM doesn't resemble any other retail model at all, and what it does ''strongly'' resemble is a [[pyramid scheme]]<ref name=skepdic>{{cite book |last= Carroll |first= Robert Todd |title= The Skeptic's Dictionary: A Collection of Strange Beliefs, Amusing Deceptions, and Dangerous Delusions |url= http://www.skepdic.com/mlm.html |publisher= John Wiley & Sons |year= 2003 |pages= 235–36 |accessdate= June 29, 2009 |authorlink= Robert Todd Carroll |isbn= 0-471-27242-6 |deadurl= no |archiveurl= https://web.archive.org/web/20090626110842/http://skepdic.com/mlm.html |archivedate= June 26, 2009 |df= mdy-all }}</ref><ref name="autogenerated168">{{cite book |last= Coenen |first= Tracy | title= Expert Fraud Investigation: A Step-by-Step Guide |publisher= Wiley |year= 2009 |page= 168 |isbn= 0-470-38796-3}}</ref><ref name="autogenerated880">{{cite book |last=— Salinger (editor) | first= Lawrence M. |title= Encyclopedia of White-Collar & Corporate Crime |publisher= Sage Publishing |year= 2005 |volume= 2 |page= 880 |isbn= 0-7619-3004-3 |url= https://books.google.com/books?id=0f7yTNb_V3QC&lpg=PP1&dq=isbn%3A0761930043&pg=PA880#v=onepage&q&f=false |accessdate= 13 June 2016 |deadurl= no |archiveurl= https://web.archive.org/web/20170224110403/https://books.google.com/books?id=0f7yTNb_V3QC&lpg=PP1&dq=isbn%3A0761930043&pg=PA880#v=onepage&q&f=false |archivedate= February 24, 2017 |df= mdy-all }}</ref><ref>[https://pyramidschemealert.org/are-all-mlms-scams/ Are all MLMs scams?]</ref> — the underlying mathematics of the two are identical. Regulators have characterized MLM as a form of [[gambling]] or [[lottery]].<ref name="JonTaylor">{{cite news|last= Taylor |first= Jon|url= https://www.ftc.gov/sites/default/files/documents/public_comments/trade-regulation-rule-disclosure-requirements-and-prohibitions-concerning-business-opportunities-ftc.r511993-00008%C2%A0/00008-57281.pdf|format= PDF|title= The Case (For and) Against Multilevel Marketing |work= Consumer Awareness Institute |date= 2011 |accessdate= 2018-04-08}}</ref><ref name="SouthAfrica">{{cite journal|last1= Krige|first1= Detlev|title= Fields of Dreams, Fields of Schemes: Ponzi Finance and Multi-Level Marketing in South Africa|journal= Africa|volume= 82|issue= 01|year= 2012|pages= 69–92|issn= 0001-9720|doi= 10.1017/S0001972011000738}}</ref> Some MLMs resemble [[cult]]s.<ref name="ChinaVitaminCult">[https://boingboing.net/2017/06/23/hidden-camera-footage.html A Chinese vitamin MLM cult is replacing healthcare for poor Ugandans]</ref> The MLM industry denies that MLMs are anything other than normal, legitimate businesses, and unlike pyramid schemes, MLMs operate openly and (just this side of) legally in most countries.<ref>In [[China]] they are technically highly regulated [http://www.china-briefing.com/news/2017/09/12/multi-level-marketing-china-isnt-buying.html but remain widespread].</ref>

According to numerous independent analyses and the MLM industry itself, the vast majority of MLM distributors make little to no money or lose money;<ref name="skepdic" /> according to one researcher, "you'd be hard-pressed to find anyone [in network marketing] making more than $1.50 an hour".<ref>{{cite news|last1= O'Donnell|first1= Jayne|title= Multilevel marketing or 'pyramid?' Sales people find it hard to earn much |url= https://usatoday30.usatoday.com/money/industries/retail/2011-02-07-multilevelmarketing03_CV_N.htm |accessdate= April 6, 2018|work= USA Today|date= February 10, 2011}}</ref> Some MLM participants lose much more than just money, squandering social capital and damaging careers, reputations, and relationships.<ref>[https://www.falseprofits.com/files/1a752febbefe73223e22a28e5e5e5106-35.html The Cult of MLM]</ref>

With all this, not to mention numerous high-profile failures and legal troubles,<ref>Amway, BurnLounge, Equinox, Fortune Hi-Tech Marketing, Herbalife, Solavei, Trump Network, WakeUpNow and others</ref> it's no wonder MLMs have a poor reputation with consumers.<ref>[https://www.allbusiness.com/how-can-network-marketing-fix-its-bad-reputation-15621233-1.html How Can Network Marketing Fix Its Bad Reputation?]</ref> Nevertheless, in the USA alone, MLMs had a combined total of more than 20 million members and generated more than $36 billion in revenue in 2015.<ref>[https://www.dsa.org/docs/default-source/research/dsa_2015factsheetfinal.pdf?sfvrsn=6 Direct Selling in 2015: An Overview]</ref> The situation is worse in emerging economies in regions like Latin America, Africa and Asia.<ref name="SouthAfrica"/><ref name="ChinaVitaminCult"/><ref>[https://www.nytimes.com/2018/01/08/business/amway-china.html Amway Made China a Billion-Dollar Market - Now It Faces a Crackdown]</ref><ref>[https://www.theatlantic.com/magazine/archive/2014/06/wall-streets-6-billion-mystery/361624/ Is Herbalife a Pyramid Scheme?]</ref>

Multilevel marketing began in the 1920s.<ref>
{{cite journal
 | last = Pareja | first = Sergio
 | title = Sales Gone Wild: Will the FTC's Business Opportunity Rule Put an End to Pyramid Marketing Schemes?
 | journal = McGeorge Law Review | volume = 39 | issue = 83 | year = 2008
}}
</ref>
The largest and most well-established MLM, [[Amway]] (founded in 1959), has heavily influenced the style of virtually every MLM that has come and gone since.

==The structure (more or less)==
{{main|Pyramid scheme}}
[[File:MLM pyramid.jpeg|300px|thumb|right|A slide from an actual pitch deck for a multilevel marketing scheme. Note the distinct pyramid shape of the commission structure and the large amount of fine print.]]
In mainstream terms, it's most similar to franchising, where a [[business]] operator buys the rights to a specific brand and in turn receives support from the company that owns the brand. But there are two big differences:
*[[Pyramid scheme|an endless chain of new distributors]]: A standard franchising model is protected and franchisees buy into a specific segment of the market with the understanding that they will not be directly competing with other franchisees within the same brand. MLM imposes no such limits and actually encourages exponential growth.
*the upline/downline: A normal franchise model is flat, and all franchisees deal with corporate headquarters or a regional manager for supplies, point-of-sale materials, and the like. In MLM you deal directly with whoever recruited you (your "upline") and in turn manage those directly underneath you (your "downline") in a weirdly [[feudalism|feudal]] hierarchy.

Essentially, the idea is that any given upline collects a cut of the sales from every member of their downline. As a result, the only path to solvency for the upline is to make sure that the downline recruits as heavily as possible, with as deep a pyramid beneath them as possible — as opposed to conventional businesses, where the path to solvency is to sell sufficient product to consumers.

The problem is that in a recruiting-driven MLM, there is no upper bound save the market population itself, and the bottom rung of distributors makes no money at all except from sales. This ensures a fierce scramble among distributors to sign up their own downline ([[Amway]] in particular is notoriously aggressive about this) so they can move up the ladder, often to the exclusion of product sales, and also ensuring market saturation — most distributors wind up selling only to themselves and perhaps a few friends, with only the most driven (and often least principled) making any money at all.

Another common practice is "channel stuffing," requiring distributors to buy large minimums of company product, ostensibly for retail sale or for "personal use," which serves to inflate sales numbers to give the appearance that an MLM is more sales-driven than it really is. However, the only support materials usually provided by their recruiter(s) are ones that promote the signing on of more new distributors. As a result, many a person out there has a closet full of Mary Kay cosmetics or Lularoe clothes that they don't need and can't sell. Type the name of any well-known MLM into eBay or Craigslist and you'll see evidence of what becomes of that "investment" of "just a few hundred dollars" made in order to achieve new wealth and prosperity in ten hours a week from home.

A few MLMs (Mary Kay, Avon) are significantly more sales-driven, with a larger customer base, and offer more added value to customers. They are still definitely not without controversy or criticism, however — no MLM is.<ref>[http://www.pinktruth.com Pink Truth]</ref>

==Direct selling==
MLM has its origins in '''direct selling,''' which developed in the rural United States, where supply lines were limited and retail options were scarce. In the olden days, this meant the Avon lady going door-to-door, or the woman down the street holding a Tupperware party, but in the modern era, direct selling can more broadly refer to any retail business that is conducted person-to-person (including electronically) rather than at a retail store.

Direct selling does not necessarily incorporate the endless chain of recruiting that makes MLM so controversial, and is not necessarily unethical. However, the modern direct selling industry is utterly dominated by MLMs. According to the {{strikethrough|Deceptive}} Direct Selling Association (DSA), the industry's trade association and lobbying arm, 97% of its members are MLMs as of 2017.<ref>[https://www.dsa.org/benefits/dsadirectory Direct Selling Association: Member Directory]</ref> The distinction between direct selling and network marketing, which many MLMs hide behind to maintain their legitimacy, is therefore essentially meaningless today.

==Two-for-one scam==
In a classic and severe case of [[crank magnetism]], MLMs are notorious for specializing in products of [[woo|dubious value]] ([[Dietary supplements|supplements]], [[essential oil]]s, [[laundry ball]]s) and making [[Pseudoscience|pseudoscientific]], questionable, or outright false claims.
*Nu Skin, a cosmetics MLM, has accumulated more than $48 million in civil penalties since 1994 for exaggerating the effectiveness of its products, which include baldness treatments, wrinkle lotions, burn creams, and others, and for making bogus claims regarding chromium picolinate and L-carnitine, key ingredients in several of their supplements.<ref>[https://www.ftc.gov/news-events/press-releases/1997/08/nu-skin-pay-15-million-penalty-resolve-ftc-charges-over-fat-loss Nu Skin To Pay $1.5 Million Penalty To Resolve FTC Charges over Fat-Loss Claims for Supplements]</ref>
*Dynamic Essentials was an MLM promoting "Royal Tongan Limu," a seaweed extract. The company was dissolved by its parent after it was ordered to pay $2 million in fines and destroy almost $3 million in unsold inventory for falsely claiming the product could cure cancer, arthritis, and attention deficit disorder (ADD), among other ailments.<ref>[https://www.ncahf.org/digest03/03-44.html Royal Tongan Limu destroyed]</ref>
*Metabolife was an MLM founded by convicted [[meth]] cooks<ref name="salon">{{cite news |publisher = Salon.com|last = Brownlee|first = Shannon|title = Swallowing Ephedra|url = http://www.salon.com/2000/06/07/ephedra/|date = 2000-06-07|accessdate = 2008-10-07}}</ref><ref name="little-pill">{{cite news |publisher = ''San Diego Union-Tribune''|title = Little Pill, Big Trouble|last = Crabtree|first = Penni|url = http://legacy.utsandiego.com/news/business/20030720-9999_mz1b20metabo.html|date = 2003-07-20|accessdate = 2008-10-07}}</ref> that sold primarily supplements containing [[ephedra]], which can cause serious adverse cardiac effects.<ref>{{cite journal |author=Wolfe SM |title=Medicine. Ephedra--scientific evidence versus money/politics |journal=Science |volume=300 |issue=5618 |pages=437 |date=April 2003 |pmid=12702860}}</ref> Ephedra was banned in 2004 after several high-profile deaths, and the company folded; its founder was later found guilty of tax evasion and lying to the public and the FDA regarding ephedra's safety.<ref>{{cite news | url=https://www.usatoday.com/news/health/2002-08-15-ephedra_x.htm | title = Criminal investigation sought for diet supplement seller | publisher = ''USA Today'' | date = 2002-08-15| accessdate = 2007-04-11}}</ref><ref>{{cite news | url = http://www.signonsandiego.com/news/business/20050806-9999-1b6metabo.html | title = Metabolife will plead guilty, end tax probe | first = David | last = Washburn | publisher = ''San Diego Union-Tribune'' | date = 2005-08-06| accessdate = 2007-04-11}}</ref>
*BioPerformance was an MLM that sold "gas pills" claimed to improve fuel economy when added to an [[Automobile#Car woo|automobile]]'s gas tank; the product was found to have no effect whatsoever on car fuel economy, and in 2006 Texas' Attorney General shut down BioPerformance for being an illegal pyramid scheme.<ref>{{cite web |url=https://web.archive.org/web/20070402211346/http://www.oag.state.tx.us/oagNews/release.php?id=1906 |date=April 2, 2007 |title=Attorney General Abbott Shuts Down Pyramid Scheme That Marketed Bogus Fuel Pill}}</ref>
*In 2012, an affiliate of Medifast, a nutrition/weight loss MLM, paid nearly $4 million in a civil penalty for false advertising.<ref>{{cite web|title =Medifast unit settles false ad claims for $3.7 million | author = David Ingram | publisher = Reuters| date = September 7, 2012 | url = https://www.reuters.com/article/2012/09/07/us-usa-medifast-settlement-idUSBRE8860X720120907 |accessdate = 2012-09-09}}</ref><ref>{{cite news|last1=Lewis|first1=Truman|title=Medifast Subsidiary Agrees to $3.7 Million Penalty|url=http://www.consumeraffairs.com/news04/2012/09/medifast-subsidiary-agrees-to-37-million-penalty.html|accessdate=July 16, 2015|work=ConsumerAffairs.com|date=September 10, 2012}}</ref>
*[[Herbalife]] distributors continue to make false and misleading claims about the health benefits of its products, despite investigations, a court battle, and a $200 million fine.<ref>[http://abcnews.go.com/US/investigative-unit-2014-undercover-herbalife/story?id=27811094 ABC Investigative Unit: Going Undercover in Herbalife]</ref>
*In 2014, two MLM companies selling essential oils, [[Young Living]] and doTerra, were issued warnings by the FDA for falsely claiming their products could protect against [[Ebola]], [[autism]], Parkinson's Disease, and other illnesses and conditions.<ref name=WaPo>{{cite web|url=https://www.washingtonpost.com/news/to-your-health/wp/2014/09/24/fda-warns-three-companies-against-marketing-their-products-as-ebola-treatments-or-cures/|title=FDA warns three companies against marketing their products as Ebola treatments or cures|last=Ohlheiser|first=Abby|date=September 24, 2014|publisher=[[Washington Post]]|accessdate=September 26, 2014}}</ref><ref name=Beast>{{cite web|last1=Sepkowitz|first1=Kent|title=Honey Boo Boo, Snake Oil, and Ebola: The Weird World of Young Living Essential Oils|url=http://www.thedailybeast.com/articles/2014/12/05/honey-boo-boo-snake-oil-and-ebola-the-weird-world-of-young-living-essential-oils.html|publisher=Daily Beast|accessdate=January 16, 2015|date=December 5, 2014}}</ref><ref name=WaPo092414>{{cite web|url=https://www.washingtonpost.com/news/to-your-health/wp/2014/09/24/fda-warns-three-companies-against-marketing-their-products-as-ebola-treatments-or-cures/|title=FDA warns three companies against marketing their products as Ebola treatments or cures|last=Ohlheiser|first=Abby|date=24 September 2014|publisher=Washington Post|accessdate=26 September 2014}}</ref><ref name=Vowell>{{cite news|last1=Vowell|first1=Nicole|title=2 Utah companies respond to FDA warning over health claims|url=http://www.deseretnews.com/article/865611752/2-Utah-companies-respond-to-FDA-warning-over-health-claims.html?pg=all|accessdate=26 October 2014|publisher=Deseret News|date=September 25, 2014}}</ref><ref name=FDA1>{{cite web|last1=Mitchell|first1=LaTonya M|title=Warning letter to dōTERRA International, LLC|url=http://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2014/ucm415809.htm|publisher=US Food and Drug Administration, Public Health Service|accessdate=8 November 2014|date=22 September 2014}}</ref>
*Mannatech, a dietary supplement MLM notable for featuring future US Presidential Candidate [[Ben Carson]] as a spokesperson, later accumulated more than $15 million in fines and settlements for falsely claiming their products could cure cancer, diabetes, autism, AIDS, and other diseases and disabilities.<ref name="titleNobel Prize winners say sites falsely cite research">{{cite news | title=Nobel Prize winners say sites falsely cite research | author=Danny Robbins|work=Fort Worth Star-Telegram | date=September 10, 2006 |url = http://www.dfw.com/mld/dfw/news/nation/15486298.htm|archiveurl = https://web.archive.org/web/20061206191858/http://www.dfw.com/mld/dfw/news/nation/15486298.htm|archivedate=2006-12-06}}</ref><ref name="titleHealth Claims by Sales Force Boost Supplement Firm">{{cite news | last=Sataline | first=Suzanne | title=Health Claims by Sales Force Boost Supplement Firm; Mannatech's Products Attract the Gravely Ill; Disclaimers on Labels | work=The Wall Street Journal | url=https://online.wsj.com/news/articles/SB117884606430799400 | date=May 11, 2007 | accessdate=July 8, 2007}}</ref> Autism is an issue of the way the brain is wired, and thus Carson, as the world's greatest neurosurgeon, '''''really''''' should've known better than to claim it could be cured with a pill.

==Typical characteristics of an MLM==
MLMs and related schemes are remarkably uniform in their structure and business model, the appearance/writing style of their promotional materials, and the behavior of their members. [[Bullshit|They'll deny it]], which sometimes makes them difficult to spot, but the similarities reveal themselves with even the smallest amount of due diligence and research, and are surprisingly consistent.

A business is likely to be an MLM or related scheme if it exhibits one or more of the following traits. Many of these traits are, of course, red flags in general — not just warning signs of an MLM.

[[File:Typical scam.jpeg|200px|thumb|right|Seems legit, right?]]
*Participants who approach strangers in public places, or electronically, or who hand out literature
*Participants who distribute vague posters/flyers/classified ads that do not mention their origin, like the image to the right
*Participants who aggressively sell to family, friends, coworkers, and community members, often inappropriately, and often to the point that they damage relationships
*Participants who maintain a substantial [[social media]] presence, entirely devoted to praising the company and its products
*Holding motivational "seminars," often very large and elaborately produced
*A compensation structure in which a large portion (typically 60-99%) of participants make little to no money or lose money
*Extremely complex commission structures (i.e., each product has one or more "point values" that determine commission)
*[[Pyramid scheme|An emphasis on recruiting over selling products]]
*"Pay-to-play" clauses which make receiving commissions/rewards contingent on recruitment or orders
*Promoting products or pseudo-products of dubious or very low intrinsic worth ([[supplements]], cosmetics, financial products, [[Bitcoin]],<ref>[https://www.businessforhome.org/2017/11/randy-gage-speaks-out-against-cryptocurrency-network-marketing-companies/ Randy Gage Speaks Out Against Cryptocurrency Network Marketing Compaies]</ref> videos/seminars, software, subscriptions, coupons/discounts, [[NFT]]s) at very large markups, with low profit margins (often less than 1%) for the "distributor"
*Unusual amount/density of [[fine print]] (especially the [[Quack Miranda Warning]]) anywhere on their website, product, or promotional materials
*"Channel stuffing:" requiring participants to place substantial bulk orders of products with their own money to join or remain in good standing
[[File:Cash.jpg|thumb|right|200px|Unlimited CASH!]]
*Promotional materials that emphasize wealth and material possessions (photographs of cash, large houses, expensive cars, boats, vacations)
*Promotional materials that disparage conventional jobs and businesses
*Targeting vulnerable, gullible, or disadvantaged groups ([[Mormon]]s,<ref>[https://religionnews.com/2017/06/20/10-reasons-mormons-dominate-multi-level-marketing-companies/ 10 reasons Mormons dominate multi-level marketing companies], Jana Reiss, ''Religion News'' 20 June 2017</ref> ethnic minorities, recent immigrants, non-English speakers, ex-cons, recovering addicts, poor communities, high school/college students, recent college graduates, people with no knowledge of economics, military veterans), often accompanied by [[love bombing]]
*Use of invented [[jargon]] and euphemisms, which has led to a predictably hilarious [[euphemism treadmill]] (i.e., "network marketing," "referral marketing", "affiliate marketing", "home-based business franchising", "Independent Business Owner", "boss baby", "reverse funnel scheme")
*Promotional materials that overemphasizes attractive buzzwords such as "financial independence" and "entrepreneurship" (If you work for an MLM, you are ''not'' an entrepreneur, you are a commission-only sales agent).
*Extensive use of [[deceit]]: denying that they are an MLM when asked, use of [[front group|front groups]], using whatever little claim to legitimacy the firm may have (Herbalife has long sponsored the LA Galaxy Soccer Team!), claims of great potential wealth and success from joining, claims of utter failure if you don't join or if you leave, going to great lengths to hide or de-emphasize their compensation structure (if they reveal it at all)
**Making dubious or false claims about their product ("Our knives NEVER NEED TO BE SHARPENED" meaning they will rust out first, "Our product cleans up in a quick rinse" since it isn't dishwasher-friendly, "Our makeup uses a tested European formulation" meaning it is legal to sell in the EU) 
*An extensive legal history (fines from regulators, lawsuits from former members, use of the legal system to silence critics)
*A [[cult of personality]] surrounding the founder & high-level members
*Numerous founders and/or high-level members who were involved in previous pyramid schemes, legal or not (pyramid scheme perpetrators have a recidivism rate of nearly 100%)
*Being headquartered in [[Utah]]<ref>[http://kutv.com/news/local/follow-the-profit-how-mormon-culture-made-utah-a-hotbed-for-multi-level-marketers Follow the profit: How Mormon culture made Utah a hotbed for multi-level marketers]</ref><ref>{{cite web|url=https://www.heraldextra.com/business/local/successful-multi-level-marketing-companies-based-in-utah-county/collection_8720a5f3-7203-5b55-864a-f0f3323a2551.html|title=13 successful multi-level marketing companies based in Utah County
|last=|first=|date=May 11, 2017|publisher=Provo Daily Herald|accessdate=25 March 2018}}</ref><ref>[https://www.businessforhome.org/2017/06/network-marketing-the-second-biggest-industry-in-utah-with-8-5-billion-in-revenue/ Network marketing is the second-biggest industry in Utah]</ref><ref>[https://www.businessforhome.org/2017/06/network-marketing-the-second-biggest-industry-in-utah-with-8-5-billion-in-revenue/ Multi-Level Mecca: Utah’s MLMs are big business, but few make money]</ref><ref>[http://www.mlm-thetruth.com/markets/utah-haven-mlm-activity/ Utah: A Haven for MLM Activity]</ref>

==The C-word==
The only word that makes [[Kool-Aid drinker | drinkers of MLM Kool-Aid]] bristle quicker than ''pyramid'' is '''''cult.''''' It's a bold accusation, one not to be trotted out lightly, but there's simply no other way to describe the techniques MLMs use to attract and retain recruits.

MLM culture feels unmistakably [[totalitarian]]. The organization is tightly controlled by the top 0.1% of the pyramid, and absolute loyalty to one's upline is strictly enforced. Open criticism of the company or its leadership is discouraged. Members denigrate non-MLM employment and belittle non-MLM jobs. MLM gatherings, often referred to as "seminars" or "conventions" or "business retreats," look nothing like any of these things; instead, they feature [[Brainwashing |chanting, ecstatic speeches, testimonials, and highly-produced audiovisuals, often for hours on end]].<ref name="dreamsinc"/>

The most cult-like thing about MLM is that it manipulates members' existing beliefs and desires and tricks them into believing they are exercising [[free will]]. MLMs are able to coerce people into willful and compliant self-destruction on a staggering scale: we're talking quitting or getting fired from a six-figure full-time job due to an MLM, alienating everyone you know with your constant sales-pitches, investing your own or someone else's life savings into an MLM, ruining your credit or losing collateral by borrowing heavily to fund an MLM addiction, and even theft to support an MLM habit.<ref>[http://www.fox9.com/news/woman-sentenced-for-stealing-funds-for-eastview-senior-class-party KMSP Fox News: Woman sentenced for stealing funds from Eastview senior class party]</ref> [[Suicide]]s related to MLM have been reported.<ref>[http://www.mlm-thetruth.com/wp-content/uploads/2015/07/MLM-TTUpdate-12-28-11.pdf MLM Sometimes Gets Ugly with Bankruptcies, Divorces and Even Suicides and Murders]</ref>

===Extreme cases===
*[[NXIVM]], a self-described MLM specializing in [[Large group awareness training |LGAT]],<ref>{{cite web|title= Women say they were branded and traumatized by secret group's doctors |url= https://www.cbsnews.com/news/nxivm-women-say-they-were-branded-traumatized-group-doctors/ |website= CBSNews.com|publisher= CBS|accessdate= 13 November 2017}}</ref><ref>{{cite web|last1= Odato|first1=James|title=Lawyer attacks NXIVM 'scheme'|url=http://www.timesunion.com/local/article/Lawyer-attacks-NXIVM-scheme-1032548.php|website=TimesUnion.com|publisher=The Hearst Corporation|accessdate=November 13, 2017}}</ref><ref name="nation">{{Cite news|url= http://www.thenation.com/article/190881/how-strange-secretive-cult-company-waging-legal-war-against-journalists|title=How a Strange, Secretive, Cult-like Company Is Waging Legal War Against Journalists|last=Cohan|first=William D.|date=November 18, 2014|work=[[The Nation]] |access-date=May 27, 2015}}</ref> turned into an abusive sex-cult in the mid- to late-2010s, with members signing themselves into sexual slavery and getting branded with the founder's initials.<ref name="NYT18Oct">{{Cite news|url= https://www.nytimes.com/2017/10/17/nyregion/nxivm-women-branded-albany.html?pagewanted=all|title= Inside a Secretive Group Where Women Are Branded|last=Meier|first=Barry|work=NY Times|access-date=October 18, 2017}}</ref><ref name="auto">{{cite web|url=http://abcnews.go.com/US/nxivm-member-invited-secret-sorority-branded/story?id=51617201|title=Former NXIVM member says she was invited into a secret sorority, then branded|first= A. B. C.|last= News|date= December 16, 2017|website= ABC News|accessdate= February 10, 2018}}</ref>

==Why MLM is fundamentally flawed==
As a means of moving capital from the bottom of the pyramid to the top, MLMs are very effective; their chief promoters and high-level members aren't lying when they boast of the money they've made from the scheme. However, as a ''business model'' (i.e., a means of creating and capturing capital), MLMs are hilariously ineffective, like a toddler imagining what it's like to start a business. Here are just a few of the reasons why.

===It creates its own competition===
MLMs blur the line between "contractor" and "customer." That's because participants aren't just required to sell products; they're required to recruit other people, presumably in the same general geographic area, who also sell the same products. When you recruit someone, you've just created a competitor, which will decrease your own sales. What you gain from recruiting that person (i.e. the cut from their sales) is never enough to offset the loss of your own sales, and thus your own income.

MLMs often teach their participants to recruit their best customers. What kind of normal business turns one of its best assets into a liability? 

Imagine if the local Starbucks started encouraging all its best customers to open up their own Starbucks, where all the customers would, in turn, be encouraged to buy some equipment and a "starter package" of coffee grounds and syrups, so they may open up ''their'' own Starbucks. There may be plenty of takers, but eventually, they stop coming to you. How long before there are too many Starbucks joints and no paying customers left? Which brings us to point #2...

===It depresses its own sales===
The main pitch of most MLMs is ''passive income'': the promise of being able to sit back and relax while someone else does all the work. But if everybody wants to "let someone else sell the products," who will actually do the selling?

{{quotebox|'''Example:''' Let's say I sell $10,000 of widgets every month, and my profit margin, after accounting for all expenses, is 10% — $1,000 per month. Let's say I decide to start an MLM business and I recruit another distributor, who takes over all my leads. We'll make a REALLY generous assumption that my distributor's profit margin is 5% — many MLM products don't even scrape 1%.

So now, I'm making $500/month without doing anything. That's only half my previous income, so I still need to sell widgets to maintain the same income as before. But I no longer have my old leads, since I just created my own competitor. Let's make another EXTREMELY generous assumption that my new distributor has found some new customers and increased sales by 10%. Total sales are now $11,000, but the money is now split between two people, so each of us sells $5,500 in widgets and pockets $550, and the upline (me) pockets an additional $275 as commission (5%). So I now make $825 per month.

What if I recruit more distributors? Then can I stop selling? Assume each new guy manages to expand the business by 10% — again, EXTREMELY generous. With two sellers, total sales are $12,000 so I make $600 doing nothing, and each distributor in my downline makes $600 in direct profit. Even if each distributor increases sales by 10%, I'd still have to recruit at least 10 people and DOUBLE my total sales in order to profit at least as much as before while doing nothing. With ten distributors and me at the top, total sales are $20,000. I make my $1,000, and they each make $200 (10% profit).}}

The choice is pretty clear: why would I work my butt off every month selling widgets to make $1,000, when I can make the same money by recruiting ten other people to sell, and then do nothing? And when the distributors under me see me kicking back and relaxing, what motivation is there for them to do all the work and make a fifth of what I make?

''In a normal business, the purpose of commissions is to encourage sales; in an MLM, the purpose of sales is to encourage commissions.'' Everyone wants to be at the top (earning commissions), and nobody wants to be on the bottom (selling). The fatal flaw of pyramid schemes (and MLM, by extension) is that there ''has'' to be a bottom somewhere. If everybody recruits and nobody sells, that's a pyramid scheme in all but name.

And again, this example scenario makes all kinds of assumptions (the profitability of the product, the availability of new recruits and new customers) that are absurd and completely unrealistic, which leads us to point #3...

===It's divorced from economic reality===
The MLM "business model" can only be successful in an environment where there is:
*'''infinite demand for the product''' — sales must always be increasing to accommodate recruits
*'''[[Pyramid scheme|an endless chain of new customers/distributors]]''' — recruits must build their own downline in order to make money
*'''no competition/market saturation''' — customers must be willing to refuse all substitutes for the product
*'''no hidden costs and 100% customer satisfaction''' — the product sells itself and customers don't ask to return damaged/defective/unwanted products

None of these conditions exist anywhere in the real world. Markets change, trends come and go, customers are fickle and demanding, and competitors constantly enter/exit the market. There isn't an endless supply of people willing to serve as self-appointed salespeople in any market, anywhere; some of us have better things to do than sell overpriced supplements to our friends on Facebook. And there are almost always plenty of competitive alternatives to every consumer product. So what inevitably follows is point #4...

===It's inefficient and redundant===
Buying products from a network marketing company isn't cheaper, faster, or more pleasant than buying them on the open market, and it's often considerably worse in all three of these categories. That's because unlike normal retail business, where the supply chain is direct and logical (from manufacturer, to wholesaler, to retailer, to customer), in MLMs the supply chain follows the customer's upline, accumulating markups and compounding inefficiencies at each level of the pyramid. The result is higher prices, frequent unexplained delays, and products that are constantly "on back-order."<ref name="dreamsinc">[https://thebaffler.com/salvos/dreams-incorporated Dreams Incorporated]</ref> MLMs will often try to artificially suppress competition by claiming their product is unique or superior to all others — sometimes even claiming that their competitors' products are poisonous or even [[Satanism|Satanic]]<ref>{{cite news | title = Avon's Suit Cites Accusations | work = The Fresno Bee | date = February 23, 1973 | url = }}
</ref><ref>[https://www.cbsnews.com/news/procter-gamble-wins-satanic-civil-suit/ Procter & Gamble Wins Satanic Civil Suit]</ref> — but equivalent products are always available from normal retail outlets, often at a fraction of the cost.

Even in the digital age, the brick-and-mortar retail experience is preferable to MLM: it's more convenient and does not open people up to accusations of conning their friends with substandard products or high prices. Internet and catalog shopping and reliable shipping services have long since obviated the need for a tightly-knit distributor network serving remote areas; in urban areas, where retail shopping has always been fairly available, MLMs were never important to begin with.<ref>Ogunjobi, Timi (2008). ''SCAMS - and how to protect yourself from them.'' Tee Publishing. pp. 13–19.</ref>

So-called "direct selling" and its bastard child, MLM, seem quaint and irrelevant — like print newspapers, typewriters or vinyl records. That's not to say there isn't a market for all these things; there is. But niche markets can never sustain the kind of infinite, boundless growth that's necessary for an MLM distributor to make the kind of money that's often advertised ([[Pyramid scheme|unless they're at the top of the pyramid]]). Speaking of boundless growth, there's point #5...

===It creates the opposite of a meritocracy===
In a normal sales business, you are hired and promoted based on a holistic assessment of a variety of factors: one's character, temperament, and contribution to the company and its profitability. In an MLM, there are no qualifications to join and you advance based on one factor alone: recruitment. The problem is that as the market saturates at an exponential rate, the pool of potential new recruits rapidly dries up, and new distributors must sink lower and lower and engage in steadily shadier and more desperate practices to build their downline. Far from being the behavior of "just a few bad apples," as the MLM industry would have you believe, this practice is encouraged and rewarded by a system that prioritizes raw recruitment numbers above all else. This virtually guarantees that the ones who make the most money in MLM are the ones with the fewest scruples — which is unsurprising, given point #6...

===The whole thing is predicated on a lie===
The loss rates for those at the bottom 99% of an MLM more closely resemble a casino game than a business:

*''The Times'': "The Government investigation claims to have revealed that just 10% of Amway's agents in Britain make any profit, with less than one in ten selling a single item of the group's products."
*Scheibeler, a high level "Emerald" Amway member: "UK Justice Norris found in 2008 that out of an IBO [Independent Business Owners] population of 33,000, 'only about 90 made sufficient incomes to cover the costs of actively building their business.' That's a 99.7 percent loss rate for investors."
*''Newsweek'': based on [[MonaVie|Mona Vie]]'s own 2007 income disclosure statement "fewer than 1 percent qualified for commissions and of those, only 10 percent made more than $100 a week."
*Business Students Focus on Ethics: "In the USA, the average annual income from MLM for 90% MLM members is no more than US $5,000, which is far from being a sufficient means of making a living (San Lian Life Weekly 1998)"
*''USA Today'' has had several articles:
:*"While earning potential varies by company and sales ability, the DSA says the median annual income for those in direct sales is $2,400."
:*In an October 15, 2010 article, it was stated that documents of an MLM called Fortune reveal that 30 percent of its representatives make no money and 54 percent of the remaining 70 percent only make $93 a month. The article also states Fortune is under investigation by the Attorneys General of Texas, Kentucky, North Dakota, and North Carolina with Missouri, South Carolina, Illinois, and Florida following up complaints against the company. In 2013, the FTC's court-appointed receiver determined that Fortune was nothing but an illegal recruitment MLM and that at least 88 % of the members did not even recoup their enrollment fees and that more than 98% had lost more money than they ever made.<ref>[https://www.ftc.gov/news-events/press-releases/2013/01/ftc-action-leads-court-halt-alleged-pyramid-scheme FTC (Jan 28, 2013) "FTC Action Leads Court to Halt Alleged Pyramid Scheme"]</ref><ref>[https://www.ftc.gov/news-events/press-releases/2014/05/ftc-settlement-bans-pyramid-scheme-operators-multi-level FTC (May 13, 2014) "FTC Settlement Bans Pyramid Scheme Operators From Multi-Level Marketing" ]</ref> Refund checks mailed out totaled over $3.7 million.<ref>[https://www.ftc.gov/news-events/press-releases/2016/11/ftc-returns-more-37-million-people-harmed-pyramid-scheme FTC (Nov 8, 2016) "FTC Returns More Than $3.7 Million to People Harmed by Pyramid Scheme" ]</ref>
:*A February 10, 2011 article stated, "It can be very difficult, if not impossible, for most individuals to make a lot of money through the direct sale of products to consumers. And big money is what recruiters often allude to in their pitches."

To represent MLM distributorship as a "business opportunity" or "additional income stream" or "side hustle" — let alone claiming that it's a way to get rich — is manifestly deceptive and a complete misrepresentation. To succeed in an MLM, you must essentially [[Scam|con]] your downline into buying tickets for a plane that has already taken off.

==See also==
*[[Pyramid scheme]]
*[[Herbalife]]
*[[Market America]]
*[[Scentura]]
*[[Vemma]]

==External links==
*[https://www.youtube.com/watch?v=s6MwGeOm8iI Multilevel Marketing: Last Week Tonight with John Oliver]
*[http://skepdic.com/mlm.html Multi-level marketing at the Skeptic's Dictionary]
*[http://www.vandruff.com/mlm.html What's wrong with multi-level marketing?] <small>Web 1.0 at its finest. Seriously, there's something so beautiful about that web design that it makes me want to cry.</small>
*[http://talkingpointsmemo.com/theslice/mormon-utah-valley-multilevel-marketing-thrive-doterra How Utah Became a Bizarre, Blissful Epicenter for Get-Rich-Quick Schemes]
*[https://www.mlmwatch.org/01General/mlm_unmasked_2017.pdf MLM Unmasked by Jon M. Taylor] — a searing and readable critique
*Jon M. Taylor, MBA, Ph.D. "[https://www.ftc.gov/sites/default/files/documents/public_comments/trade-regulation-rule-disclosure-requirements-and-prohibitions-concerning-business-opportunities-ftc.r511993-00004%C2%A0/00004-57286.pdf Appendix 7E: MLM Profit and loss rates vs. various income options]"
*[https://www.youtube.com/watch?v=VeDHHt26ibQ This Is Why MLMs Get Called Cults]

==References==
{{reflist|2|80%}}

[[Category:Advertising]]
[[Category:Business]]
[[Category:Cults]]
[[Category:Deceit]]
[[Category:Financial fraud]]
[[Category:Multilevel marketing|*]]
[[Category:Scams]]
[[Category:Self help]]

Categories: Advertising, Business, Cults, Deceit, Financial fraud, Multilevel marketing, Scams, Self help