Everyone has at least one friend from high school trying to sell them something. Whether it’s doTerra’s essential oils or LuLaRoe’s yoga pants, you’ve probably seen multiple ads from friends and family on social media.
Some may even have asked you if you’re interested in becoming a consultant for one of these companies and selling their products yourself. Before getting involved in these companies, however, you should learn a little bit more about them. Specifically, you should learn more about their business model as an MLM and what to do if someone wants you to be a consultant for them.
So what is MLM exactly?
MLM stands for multi-level marketing. It’s basically a pyramid scheme disguised as an entrepreneurial opportunity. A pyramid scheme is an illegal investment model that recruits members via a promise of payments for enrolling others into the scheme.
It may seem at first glance that MLMs are just companies that hire independent consultants to sell their products. While that is true, they are so much more than that.
The real money in an MLM comes from recruiting people under you as new consultants since you get a profit from their buy-in fees and performance. Most MLMs require you to buy a large stock of product before you can become an actual consultant for them. Many of the most successful MLM consultants barely sell any of the product. Instead, they focus on spreading their network of consultants so they can rake in money without risking any more of their own.
Spotting an MLM
MLMs are usually easy to spot for two reasons.
First, since everyone is looking to recruit people under them, they are often overhyped on social media.
Second, MLMs are a type of direct-selling where you can only buy products from consultants, instead of being able to get them on the web or in a retail store.
The only difference between the two main types of direct selling (multi-level marketing and single-level marketing), is that MLMs pay you for commission and recruitment. SLMs (single-level marketing) pay you a commission. This may seem like MLMs are better, but recruitment is far harder to get than commission, and MLMs incentivize recruitment much more.
While there are some MLMs that are decent quality (Tupperware is a good example of this), many MLMs are known to be deceptive in their product quality. LuLaRoe had to change their products after a class action lawsuit was filed due to the defective quality of their material. Essential oils are a common MLM product that faces frequent scrutiny. There are very few studies conducted on whether essential oils actually work or not. The authenticity of these products is often called into question because of it.
As a potential customer or consultant, it’s important for you to research an MLM before getting involved with their product.
Should you join?
No matter how good the product or the community a multi-level marketing company has, it is an incredibly risky business. In fact, it is often less risky to create your own business than to join an MLM. Creating your own business lets you decide the quality of your products, and can even be cheaper than the buy-in price that it costs to join an MLM. It costs between $5,000 and $6,000 to join LuLaRoe. Nearly all of that money goes toward buying your start-up inventory.
That being said MLMs give you the luxury of having a “reputable” name and an easy source for your products. That’s part of how they reel you into becoming a consultant. These perks make MLMs seem easy. However, you need to feel comfortable putting other people below you in debt. Even then, it is an incredibly high-risk venture. There are already so many consultants for each brand, and most people know that these companies are scams.
If you are going to try a direct-selling company, you should make sure they follow an SLM plan. These businesses are still risky to get involved in, but it is far easier for consultants to make a profit than MLM plans. Even then, we recommend you look into starting your own business if you’re looking for entrepreneurial experience since it’s far less risky.