**Edited 6/5 to exclude favorable comments about LuLaRoe after reviewing current, ongoing law suits and investigations into the legality of their structure.**
I'm a female momtrepreneur in my thirties. That means I am subjected to an endless barrage of Facebook invitations to sign up under other 30-something moms as part of their various Multi-Level Marking (MLM) businesses. If you're not familiar with this term, you're likely still familiar with the companies: Arbonne, Rodan and Fields, Young Living, doTerra, LuLaRoe and Amway are all examples.
If you are one such person, please know that in full sincerity, I've got nothing but love for you. I truly hope for your success! This post is intended for people considering whether or not to join, it's not intended to throw shade at anyone who is already participating. For realz.
A participant in one of my programs recently asked me whether or not I thought she should join one such MLM. I'd like to share the same advice with you that I shared with her.
These companies are very enticing if you're not happy in your current job, or you're looking for more cash on the side, but you need to look closely before jumping in.
What exactly IS a pyramid scheme.
Perhaps the most obvious critique of the MLM model is its striking similarity in outward appearance to a pyramid scheme. This term gets thrown around so often that many of them address it head on in corporate blog posts about "How you can know for sure that ________ is not a pyramid scheme."
In order to gain an independent understanding of the line between MLM and Pyramid Schemes, it's important to understand what a pyramid scheme is exactly. A pyramid scheme is a business model which promises compensation to participants for recruiting people underneath them rather than for the actual sale of goods and services.
The reason the line is so thin between this illegal practice and many MLM companies is represented by the exact way this blog post started. Remember the endless barrage of people trying to get me to sign up under them in their make up or essential oil businesses? Legitimate MLMs grow, in part, by each person getting "just 7 of their friends or family members to join" below them. When you make an org chart... it looks exactly like a pyramid.
HOW TO TELL THE DIFFERENCE
In order to know whether you're about to lose money in a SCAM, or potentially make some money with diligent hard work, you need an answer to the following question: Is the MLM you're talking with generating actual revenue from RETAIL SALES (meaning sales to actual customers) or are they primarily generating revenue from wholesale purchases of their product to the folks who have signed up for the company?
Do they have testimonials from people not selling the product? What percentage of the people selling the product make the amount of money you're hoping to make?
BUT PYRAMIDS ARE NOT THE ONLY PROBLEM.
If it's not a pyramid scheme, then what's your gripe, Andrea?
My gripes for non-scam MLMs include the following:
The numbers they show you often do not represent what you think they represent as JO informs you and as this blog post from The Finance Guy demonstrates.
Here's a snippet from his post that I think is noteworthy: "Only 1% (of all people who sell doTerra oils) are earning more than $200 a week in commission from doTERRA. Of the 15% of advocates who join to 'start a for profit business', 14/15, or 93.33% of them made less than $10,000 in 2015"
There are too many MLMs to site all of their numbers, but I've looked at many and they are extremely similar. Feel free to fact check this - if you look beyond the glitzy recruitment brochures, the factual statistics are grim.
While JO provides a worthwhile perspective about MLMs that definitely are pyramid schemes, I did a little research into an MLM that is definitely NOT a pyramid scheme. :) It's called Traveling Vineyard.
For review, how do I know it's not a pyramid scheme? Orders for wine are placed after a retail purchase so the company is not relying on folks who have joined to spend thousands of their own dollars to purchase bulk inventory purchased at a wholesale rate. They also sell a wine subscription service called ReWined. Therefore, while they do rely on sellers to recruit more sellers beneath them, they are actually selling a product and service to the outside world.
To give an example of my non-scam concerns, here is their commission structure:
Your commission starts out at 15% of your sales. Their average bottle of wine costs between $15 - $20. Let's say you were to sell $399 worth of product or ~20 bottles of wine. You've earned a little under $60.
For someone who is good at sales, selling 20 bottles of wine is not hard. If you're in the right group, 20 bottles of wine requires maybe only 2 or 3 customers! But if you're at someone's house party ("Wine Tasting"), and 4 of their friends came because they didn't want to be rude, you probably need a conversion rate of 100% in order to sell 20 bottles of wine. So you be the judge: is the effort you put into that event worth $60?
The highest commission is 35%, but you'd need to sell $4500 worth of product to earn that. So that means you've sold >200 bottles of wine. You've earned $1575.
That second number may sound enticing, but keep in mind that that's GROSS profit. In order to sell at that level and earn that kind of commission regularly, you'll need to be investing in marketing materials, driving to Wine Tastings and possibly covering venue rental fees (that depends on the host, and is purely a hypothetical). I'll say from personal experience that live, in-person events have a way of nickel and diming you!
Also, there is such a thing as market saturation. I don't have stats on this, to be clear, but if every 30-something woman is pestered on social media as much as I am to attend so-and-so's jewelry, skin care, stick on nail, sex toy, essential oil, vitamin supplement or tupperware party: WE'RE FREAKING TAPPED OUT, FOLKS.
I love you. I want you not to work at your crappy job. I want you to go on vacation and have a Mercedes and whatever else motivated you to join this company.
If you're thinking of joining, keep this anecdote in mind: Scanning for MLM content is now the first thing I do when I get a friend request on Facebook. If there's even ONE post about MLM, I hit "delete." This exact practice was a discussion at a women's entrepreneurship networking group I was at recently. We laughed about it, but it's worth understanding that social media is one of the primary ways individual MLM members find customers... and there's a good chance that many of your friends or would-be connections are sick to death of the MLM racket in their news feeds.
Key takeaway: You'll need to have the infrastructure of an actual business, not a "side hustle." Is this something you can realistically do?
All of this is to say, you need to fully understand the volume you would need to be selling in order to reach your target earnings. There's no convincing statistic in the recruitment brochure that can change the reality that you either like and succeed at selling or you don't. (This is said with love!) Just keep it real!
ASK THIS BEFORE YOU JOIN
If you've been approached about MLM, and you've read this far and you're still considering, please be sure to ask the following questions to your recruiter before you sign anything:
The most important thing is to be honest with your recruiter and with yourself about your expectations. There's totally a chance you can waste your time and money even without the company being a scam. I don't want that to happen to you, and you probably don't either!
ALTERNATIVE SIDE HUSTLES
If you are looking for money on the side while you figure out your full time job situation, here are several alternative options to consider (none of these are affiliate links, if that's something you worry about!):
--> Babysitting through care.com
--> Pet sitting or dog walking through rover.com
--> You can find a variety of freelance opportunities on Upwork
--> Driving for Uber or Lyft (I've driven for Lyft)
--> Delivering food through Grub Hub
--> Teaching english as a second language online to children in Asia (you can earn upwards of $22/hour doing this)
I've also done things like:
--> sign up to be in research studies (getting paid $50 - $200 for 1 hour of my time),
--> work part time at my local farmer's market (getting paid $10/hour... but plus whatever produce I wanted after each shift!)
--> Be a caregiver to an elderly person (drive them to the store and appointments, shovel their side walk, take them to lunch and listen to their stories, etc.)
MY OFFICIAL STANCE
As a career coach who works mostly with the same demographic often targeted by the MLM industry, it is my opinion that most people should avoid MLM. I've seen many people lose money and then double down into their negative self-story (Nothing can change. Adulting sucks. I'll be stuck in my job forever. The world is a stupid crap factory, etc etc.) after participating in MLM.
There are so many ways things can work out for you, but MLM is not likely to be one of them. The big goals that you have are ABSOLUTELY POSSIBLE, but I'm much happier to see you finding a side hustle on the above list of alternative options. Something straightforward that requires no initial investment and will ultimately provide you with actual dollars to pay your bills.