Financial Scams to Avoid - MLMs

Have you ever known someone or been someone who was a victim of a financial scam? Ever tried to get rich quick and found yourself with even less cash than before? If you haven’t known someone or been someone in this situation, you’re among a small few. Scams are extremely commonplace, and while they’ve evolved through the years, they’ve always been around.

Financial Scams to Avoid: #1 MLMs

Today we’re going to discuss one of the trickiest financial scams out there: multi-level marketing. And first, a personal story.

When I was in college, I worked for a national retailer. I loved my job and my coworkers, but when I was passed up for a promotion once, I found myself reacting emotionally, hastily hunting for another workplace. During the search I stumbled upon a company that boasted $13 an hour and flexible work. Back in the early 2000s, that was a lot of money for a college kid working part-time, but I couldn’t quite figure out what it was I’d be doing at this job. The company had a generic-sounding name, “Vector Marketing.” Marketing was my undergrad focus, so it seemed like a good fit. In fact, it seemed a bit too good to be true. Without a single google search, I applied online and got a call for an interview almost immediately.

I went to the office for the interview and found myself in a group of several candidates. We all sat around a table together while the “interviewer” introduced us to the product we’d be selling — kitchen knives. We spent the bulk of the “interview” listening to the sales pitch and being told that the product sells itself, all we’d have to do is set up parties and then the great products would do the rest. We’d each be running our own business. Promotions and commissions were inevitable if we sold enough knives and recruited enough friends to do the same. Without much interviewing at all, I was given an offer letter and told that I’d need to come in for an unpaid training that Saturday. When I shared that I was working all day Saturday, the hiring manager insisted that I get someone to cover my shift at my current job to “invest in myself and my career” with Vector. “Okay, that makes sense I guess,” and I sauntered off to rearrange my work schedule. But something felt fishy.

So I called my dad to discuss. Ever the coach, never the preacher, my dad kindly and patiently asked me thoughtful questions to help me see the truth. I realized that the $13 per hour would only be paid for the time at parties, not for the set-up or organizing time. And that would be a lot of unpaid working time. Did I really want to hustle my friends and family to buy stuff from me? No, I sure didn’t. And the kicker was the fact that I’d have to put down a deposit for the party inventory — a full set of expensive knives — and the company had not yet revealed how much that would be, which was not a good sign.

By the end of the conversation with my dad, I realized that this job was not for me. In fact it wasn’t even a job. This was a pyramid scheme, (now called an “MLM,” or multi-level marketing company). I called Vector the same day and told them I would not be there Saturday. Or ever.

While there were a few red flags about Vector — the interview that felt more like a sales pitch, unpaid inflexible training, an upfront investment — when I was young and inexperienced, those signs were harder to see on my own. Turns out, this particular MLM preys on college students, boasting high pay and no cold calling, while putting all the financial risk and work onto the employee.

Since that day twenty years ago, I’ve been fascinated and disgusted by MLMs. Here’s some basic info I’ve learned through my research.

The basics:

MLMs operate with a pyramid-like structure, where participants earn money primarily by recruiting others rather than selling products. While MLM companies claim to be legitimate direct sales businesses the emphasis on recruiting means that most earning flow to those at the top, leaving the majority of participants with little or nothing.

Examples:

Amway, Herbalife, doTerra, Mary Kay, and LuLaRoe are just a few examples of companies that operate with the MLM business model. And y’all remember NXIVM? Yep. MLM. “MLM” has become a dirty word, so they’re often disguised with other euphemisms like “Direct Selling.” “Referral Marketing.” and “Network Marketing.” If you hear or see those words, run.

Stats:

Check this out: Research shows that at least 99% of people who join MLMs lose money. A 2018 study by the AARP Foundation found that of the tiny number of people who did profit, most earned less than $5,000 per year. Yikes and yikes.

Mechanics:

Why do these ventures fail? Hefty up-front costs put participants in the red immediately and the commissions are not enough to see a profit for a long time — if ever. And most people are working with a limited market base of just friends and family. What happens when you’ve run your pitch through your entire social circle? Well, then I suppose you’re cold calling or folding up — without a vast number of willing consumers, you have yourself an unsustainable marketing model.

Psychological effects:

MLM participants often experience stress, damaged relationships, and feelings of failure. Many are encouraged to push sales onto friends and family members, leading to tension and social isolation. When they inevitably struggle to make sales goals, MLM culture often shifts the blame onto the participant, suggesting they didn’t work hard enough or didn’t have the right mindset.

Alternatives:

Don’t fall for MLMs. They’re a scam, and you will almost definitely not make you money. If you’re looking for flexible work or financial independence on a flexible schedule, consider the following alternatives instead:

Freelancing — Use your skills in writing, graphic design, or marketing to earn money independently.

Start a small business — Sell handmade products, digital goods, or services without the MLM structure.

Part time work — Explore gig economy jobs, tutoring, or consulting

Investing in your Skills — Taking a course or learning a trade can provide long-term earning potential

Bottom line:

MLMs may sound appealing on the surface, but the stats don’t lie. Most people lose money, and the few who succeed do so at the expense of others. If financial independence and autonomy is your goal, there are far better ways to achieve it than joining an MLM. Be wary of any opportunity that requires you to buy in, recruit others, and operate under intense pressure.

Have you ever been involved with or considered participating in an MLM? Let’s discuss! No shame, just learning.