What is a Multi-Level Marketing (MLM) Business?

By:   Lynn M. McKeel, Fall 2017 IAC Student Intern

You’ve seen them everywhere: a high school friend on Facebook posting about her amazing new wardrobe; a church member’s great new cookware; your neighbor’s quality makeup products; a gym partner’s healthy new shake. Everywhere you turn, acquaintances are turning relationships into a business opportunity. If you’ve been to a makeup party or sat through a Facebook Live “flash sale” you’ve seen a Multi-Level Marketing (MLM) business in action.

MLMs present themselves as an opportunity to make additional income by selling products and recruiting new distributors, referred to as your “downline”. Revenue is generated off sales commissions and usually the commission generated by the sales of your downline. This usually starts with a party, meeting, or live social media stream. A friendly acquaintance, family member, or neighbor has a new product for you to try. To give the MLMs some credit, these products are seemingly high quality and fresh. These new products are enticing for their uniqueness and also because someone you know is selling them. By the end of the party or presentation, the sales person has given you some kind of hint of their new lifestyle. At some point following the party, the seller has convinced a client to sign up as a distributor. This is how the “downline” begins. Now the original seller will earn commissions off his or her sales and also commissions off the new distributor’s sales. Similarly, the new distributor is encouraged to recruit his or her own downline.

Society has mixed feelings toward MLMs. On one hand you hear stories of total life transformations. Stories of stay at home moms becoming the primary earner of the family or a down on his luck bartender earning a six-figure salary. Enticing claims of being your own boss, setting your own schedule, and becoming financially independent and prosperous. In a capitalist society, where self-sufficiency and independent financial growth are king, this model is very alluring.

Unfortunately, reality rarely reflects the lush life styles. While exact numbers vary and consistent statistics are hard to come by a 2011 report by the Federal Trade Commission reported 99% of recruits lose money in MLM businesses. Some reports claim the average recruit only earns about $13  a week in commission. A tough pill to swallow when these recruits usually front $2,000-$10,000 just to buy into the opportunity.

In this series, I will help clarify the distinction between a MLM and a pyramid scheme, as well as tips for determining whether joining a “legitimate” MLM is the right decision for you and your family. I will also explain some of those complicated contract clauses that bind recruits to their MLM business as well as important tips and considerations future MLM founders should consider when starting an ethical, legal, and moral multi-level business.