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What is an MLM? 

Blocks say MLM.

Chances are, if you’re a mom, then you’ve heard of an MLM. You might not know what “MLM” stands for or exactly how an MLM business works but, I bet they’re on your radar.

Whether it’s your co-worker trying to sell you doTerra essential oils because, you know, they’re “essential,” or your sister-in-law trying to convince you that Beatycounter will save your skin, we’ve all been exposed to an MLM or multilevel marketing company.

These are home-based “jobs” and it’s easy to see why a home-based business would appeal to moms. But selling MLM products may not be the dream situations it’s often presented as.

I don’t know about you, but before I knew any details about MLMs, even the mere mention of them left me with a bad taste in my mouth and a feeling of suspicion. What is it about MLMs that feel so gross for some and so appealing for others? Why do so many moms join MLMs? How do you even make money with an MLM? Are multilevel marketing companies a pyramid scheme?

Ahhh, so many questions.

Let’s try to answer some of them here.

What is a multilevel marketing (MLM) company?

A multilevel marketing company, known as an MLM or direct sales or network marketing, is a company that operates by selling products using person-to-person sales (direct selling). In other words, products are sold by “distributors” directly to their family, friends, co-workers, and anyone else they can get to make a purchase.

It’s a business model used by many marketing companies that make most of their money from selling to their sales reps, not those reps actually making sales. If that happens, that’s great, but, in many cases, the compensation plan that these MLM or marketing companies offer require that you make purchases and recruit others into the MLM industry to work under you (hence the term pyramid scheme).

Not every MLM is a scam, but many are and don’t really care if the company’s products go to consumers or their own workforce.

How do you make money in an MLM?

There are two main ways that people make money through an MLM:

Sell products and collect a commission: If you sell a Cutco knife to your mom or best friend, then you receive a commission.

Recruit other distributors: You can also make money by convincing your friends and family that they too should become distributors. Anyone you sign up is considered to be a part of your “downline.” (Upline is the person who recruited you.) You also make a commission based on what the people in your downline buy and what they sell to their customers (1).

Is an MLM considered a pyramid scheme? 

MLMs and pyramid schemes are not always one and the same. Some MLMs are legitimate, whereas pyramid schemes are considered fraudulent.

The difference between a legitimate MLM and a pyramid scheme is that a real MLM is focused on selling the company’s products. In a pyramid scheme, the focus is on recruiting other people to join the program (though some multilevel marketing companies do both and are not exactly scams but not exactly legit).

If you’re trying to discern a legitimate MLM from a pyramid scheme, the Federal Trade Commission has some warning signs of what to look for. (Be a little wary of any MLM that directs you to the Direct Selling Association. That’s an industry association, which is going to take a kinder view than a federal agency.)

It’s probably a pyramid scheme if…

It makes extravagant claims about potential earnings. If it sounds too good to be true…

If the “promoter” (the person trying to recruit you) tells you that the real way to make money is by getting as many other people to sign up as possible, this is a red flag. In legit MLMs, you can make money just by selling the product.

If the recruiter makes you feel uncomfortable by using different sales tactics like, “act fast, you don’t want to miss this opportunity,” trust your gut and walk away.

If you have to buy and stock a significant amount of inventory, consider this another red flag.

Is an MLM a small business? 

The answer to this question depends on who you ask but, based on many characteristics of what is considered a “small business,” it looks like the answer is no. An MLM does not qualify as a small business.

When you’re part of an MLM you are typically considered to be an independent contractor and not a small business. As an MLM distributor, you are not responsible for choosing the products you want to sell or setting the pricing of said products — things that you would be in control of if you were a small business owner.

It’s a home-based business but selling MLM products or working for an MLM business does not give you many of the advantages you would get as a typical small business owner.

Additionally, small businesses are eligible for government funding and, according to the Small Business Administration, multi-sales distribution (a.k.a MLMs) is considered ineligible for government funding.

Reasons MLMs can be a bad idea 

Before you decide to take on an MLM as your next side hustle, make sure you do your homework. There are a number of reasons that MLMs can be a bad idea.

You can lose money

At the very least multilevel marketing can be dangerous because you can lose a lot of money.

According to a comprehensive study conducted by Jon M Taylor (MBA, Ph.D.) for the Federal Trade Commission, less than 1% of MLM participants make a profit. In other words, 99% of MLM participants don’t make any money. These aren’t good odds, especially when the main reason for joining an MLM is to make money.

The products you sell can be dangerous 

The Federal Trade Commission warns that some MLMs sell “goods that are overpriced, have questionable benefits, or are downright unsafe to use.” If you feel like a claim being made about the MLM’s product sounds too good to be true or too far-fetched, just walk away.

MLMs are annoying

There, I said it. I think MLMs are annoying. Please quit trying to sell me something I didn’t ask to be sold. Please quit littering my social media feed with your sales pitches and posts about how great Young Living products really are.

This is hard to say because when your friends are selling something you feel compelled to support them. You feel like you have to sit through their sales pitch and then buy their product in the name of being a good friend. But, on the other hand, I want you to be a good friend and stop making people feel uncomfortable when you constantly push your products.

Who do MLMs target?

Based on my social media feeds, it appears that most MLMs target women. Stats from the Direct Sellers Association confirm this with 75% of MLM participants identifying as female.

Anecdotally, since the people in my network started having kids, the number of new moms affiliated with some sort of MLM has skyrocketed. This comes as no surprise as many MLMs promise a flexible work schedule for a home-based business, which allows more time to spend with your family while also contributing to the household income.

I was surprised to learn that many of my female co-workers were part of an MLM. These are smart, educated, professional women who make a good salary — and they’re not alone. A survey by AARP found that one in 13 U.S. adults 18 years or older has participated in at least one MLM.

Alternatives to joining an MLM company

If you are looking for a job that will provide you with more flexibility or the ability to stay at home with your kids, there are other options — you don’t have to opt in to an MLM. There are a ton of opportunities that allow you to work online and based on your schedule and your specific skills.

Jobs like freelance writing or virtual assisting have a low barrier to entry, permit you to start making money quickly, and your odds of actually making money are exponentially higher than with an MLM (hello, 99% fail rate).

If you are still interested in joining an MLM be sure to do your homework. If something feels off, trust your instincts and walk away.

–By Jessica Martel

SmartCents Mom