You’ve just signed up to sell nutritional supplements and weight-loss shakes through Herbalife. Or maybe you’re considering selling women’s leggings through LuLaRoe or spatulas and knives through Pampered Chef. You dream of earning enough money to pay off your credit card bills, take that long-awaited cruise and maybe, if you work hard enough, build up your savings.
But the odds are far higher that instead of accomplishing any of these goals, you’ll instead lose money when you sell these products.
Companies like Avon, Tastefully Simple and Scentsy – and many more – are known as multi-level marketing firms. Instead of selling their products through stores, these companies rely on a growing army of independent consultants to market them directly to customers.
These consultants pay an initial fee – often from $1,000 to $5,000 – to join the firms and receive an initial shipment of product to sell. When, or if, they sell through that first batch of product, they must purchase replacement items to sell. The products they don’t sell? The consultant takes a loss on them.
And that’s the problem. It’s far easier to take this loss than it is to earn any profits when participating in a multi-level market business.
Not Much Money
Earlier this year, Rachel May, president of Moose May Digital Marketing Solutions in Detroit, joined Monat Global, a multi-level marketing company focusing on hair-care products. Like most, she hasn’t made much money.
But that doesn’t bother May. She says she joined the company mostly for the 30% discount on Monat hair-care products. If she could earn any money through it? That would be a bonus.
May says that in her short time with the company, she’s learned some important truths.
“A ton of people show interest, but very few purchase,” May says. “A lot of the people in the MLM industry can be very pushy and want you to be pushy, too. You make a lot less than you would opening a company with a skill you already possess.”
May also owns her own t-shirt company in the Detroit area. She says that this business makes more money than her Monat business, even though she puts equal time into both.
“The difference is, I can reach more people [with the t-shirt business], and there aren’t people selling my exact same product out there as part of my team and competition,” she says.
This isn’t to say that it’s impossible to make money through multi-level marketing. Robyn Mancell, co-founder of Girls Gone Forex, an online education company that teaches women how to trade in the Forex market, also has experience in the world of multi-level marketing.
The difference? She’s found multi-level marketing to be extremely lucrative.
Mancell says that she became a top earner with a multi-level marketing company that sold travel memberships. During a two-year period, she began making $7,000 – $10,000 a month through the company, she says. She remained with that business for six years.
Mancell says that there wasn’t any secret to success. She just worked hard, and treated the company like a business instead of a hobby.
“You are selling a product or service, just like if you sold insurance, copiers or cars,” she says. “To make money, you need to sell and get a team of distributors selling with you. It works if you put in the time and effort.”
A 2011 report published by the Federal Trade Commission studied 350 multi-level marketing firms. The Commission found that only 1% of the people who join these companies actually earn a profit. Yes, that means that 99% lost money
Selling products, though, isn’t the only way consultants can earn money through a multi-level marketing firm. They can also sign up their own consultants. Then, when these consultants make sales, the person who signed them up earn a percentage of these transactions.
Still, though, earning profits this way is tough. It’s not easy to recruit consultants. And when people do? They are often merely creating competition for themselves. The new consultants they sign up might be marketing the company’s products to the same group of consumers.
The challenges of multi-level marketing haven’t stopped people from signing up. The Direct Selling Association reported that in 2016, a record 20.5 million people in the United States were involved in direct selling. That’s a jump of 1.5% from just one year prior.
Of this number, 800,000 work their multi-level marketing firms as full-time businesses, while 4.5 million are part-time. The majority, 15.2 million, use the discounts they receive to buy multi-level marketing products for themselves.
Looking at these statistics, it’s easy to see why only 1% of multi-level marketing participants earn a profit: To do this, you must treat selling these products as a real business, and you must work real-business-type hours.
This means that you can’t expect to earn any money from multi-level marketing if you treat it as a hobby. Do this, and the odds are high that you’ll simply end up with unsold boxes of supplements, kitchen utensils or makeup in your basement.
The people selling these products are usually women – 74%, according to the Direct Selling Association. They are also mostly white, with 84.5% of sellers considering themselves white or Caucasian.
Brian MacFarland, publisher of the LazyManandMoney.com personal-finance blog, says that it’s possible to make money through multi-level marketing programs. But the odds are so low, that attempting to do so is usually a waste of time, he adds.
“I’ve been covering MLMs for more than a decade. I can tell you that it is possible to make money. But it’s very similar to asking whether it’s possible making money playing the lottery,” MacFarland says. “The answers to both are technically ‘yes,’ but the odds are infinitesimal.”
Do you have a multi-level marketing business? What are the pros and cons that you’ve dealt with? Let us know in the comments below!
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