Table of Contents
Understanding Multilevel Marketing
If you've ever wondered why your neighbor suddenly started selling essential oils or why your college roommate keeps inviting you to join 'exciting' business opportunities, you need to know about multilevel marketing, or MLM. I'm here to break it down for you: it's a controversial industry valued at least in the tens of billions annually, sometimes hundreds, where terms like 'cult,' 'scheme,' and 'scam' get thrown around, even for those operating legally.
Companies like Amway, Herbalife, and Mary Kay have millions of distributors worldwide. But you have to ask: is MLM a real path to entrepreneurship, or is it predatory, targeting vulnerable people? In this piece, I'll show you how to spot legitimate MLMs from the ones you should avoid.
Key Takeaways on MLM
MLM is an industry where independent distributors sell products directly and recruit others, earning from their own sales and their network's. FTC data indicates at least 99% of participants lose money or make very little. Legitimate ones emphasize product sales to real customers, with low startup costs and clear income info. The questionable ones push recruitment and demand big purchases to stay active—steer clear of those.
What Is Multilevel Marketing?
MLM, also called network marketing or direct selling, lets independent distributors sell products or services straight to consumers while building a network of recruits. You earn from your personal sales and commissions on your downline's sales. This setup creates multiple earning levels, which is why people often mix it up with pyramid schemes. In 2023, about 13 million Americans were involved, and studies show one in 13 adults has tried it at some point.
A 2024 FTC report on 70 MLM income statements revealed most participants make under $1,000 a year, and that's before expenses, which often exceed earnings. Many disclosures are misleading—they exclude low earners, ignore costs, hype top earners, present confusing data, hide key info, make unclear claims, and show many with no or limited income.
Warning on Legitimate vs. Illegitimate MLMs
The main difference is that legitimate MLMs focus on selling real products to end users, while illegitimate ones are basically pyramid schemes obsessed with recruitment over actual sales.
How Multilevel Marketing Works
MLMs build a network of independent distributors who sell and recruit. The company creates products and a compensation plan rewarding sales and recruitment. You join by buying a starter kit or inventory, paying fees, and often committing to regular buys to stay active. Earnings come from direct sales commissions and bonuses from your downline's sales.
You advance ranks like 'silver' or 'diamond' based on your sales and network performance. Upline members train you on products and recruitment, with companies offering events and materials. Compensation is complex, and FTC findings show big income usually requires a huge downline, not just selling.
Tip for Potential Participants
Before jumping in, check specific MLMs with the FTC and Better Business Bureau for red flags. If something feels off, walk away—there are better ways to invest your time and money.
Examples of Multilevel Marketing Companies
Tupperware, which went bankrupt in 2024, is famous for plastic containers sold via home parties where consultants demo products and build teams, earning on sales and networks. Amway, started in 1959, is huge with $1.5 billion in revenue, selling health and home products; its independent owners buy wholesale, resell, and recruit for downline earnings.
LuLaRoe, a clothing MLM, faced lawsuits and settled for $4.75 million in 2019 after pyramid scheme claims, agreeing to business changes. Herbalife uses nutrition clubs for sales and recruitment; in 2016, it paid $200 million and restructured to base pay on retail sales, not just recruitment, per FTC settlement.
Tip on MLM Adaptability
MLMs adapt like viruses to regulations, achieving surface compliance. A study compared them to the indestructible Jason from horror movies—they always come back, no matter what.
How To Identify Problem MLMs
To spot bad MLMs, evaluate carefully. Watch if they stress recruitment over sales to real customers. Be skeptical of big income promises—FTC says 99% earn little, averaging under $84 monthly. Avoid those requiring big purchases to stay active, regardless of demand.
Check for transparent income disclosures including all participants and expenses. High startup costs or pricey kits can lead to debt fast. See if products are competitively priced; overpriced ones signal issues. Training should focus on sales, not mostly recruitment. Always research via FTC and BBB, review disclosures, and note high failure rates.
The Bottom Line
MLM can be legitimate, with distributors selling and recruiting. But FTC data shows most make under $84 monthly, and many lose money after costs. Before joining, scrutinize the compensation, products, and your own skills in selling and recruiting.
Other articles for you
The Qualified Special Representative Agreement (QSR) enables broker-dealers to clear trades directly without using the Nasdaq ACT system, offering efficiency and cost benefits.
Market saturation happens when a product's demand peaks, forcing companies to innovate or compete aggressively to maintain growth.
Non-cash charges are accounting expenses that reduce earnings without involving cash payments.
The Working Tax Credit is a UK benefit for low-income workers who meet specific eligibility criteria, including receiving Child Tax Credit.
The Money Flow Index (MFI) is a technical indicator that combines price and volume to identify market overbought/oversold conditions and potential reversals.
The Home Mortgage Disclosure Act (HMDA) is a federal law requiring mortgage lenders to report data on their lending practices to promote transparency and fairness in housing.
Discontinued operations are company segments sold or shut down, reported separately on income statements to distinguish from ongoing activities.
A market correction is a 10% or greater decline in asset prices from their recent peak, offering both risks and opportunities for investors.
Net asset value (NAV) represents the value of an investment fund calculated by subtracting liabilities from assets, often expressed per share for pricing and trading purposes.
3C1 is an exemption under the Investment Company Act of 1940 that allows certain private funds to avoid SEC regulations if they meet specific investor limits and no public offering plans.