The truth is, a business model that’s built on recruiting distributors makes it extremely difficult for most people to make much money at all. One highly-circulated report from the Consumer Awareness Institute puts that number at closer to 99%. One study by AARP found that 73% of sellers either don’t earn a dime or actually lose money from the venture. Yet according to independent analyses, the financial prospects for MLM participants are much grimmer. There were approximately 6.8 million distributors during that period, and the DSA claims they earned an annual average of $5,176. It accounted for $35.2 billion in retail sales in 2019, according to the most recent data available from the Direct Selling Association, an MLM lobbying group.
The Federal Trade Commission (FTC) has even said flat out that “some MLMs are illegal pyramid schemes." Even so, the MLM industry is far from defeated. The subreddit r/antiMLM currently has more than 700,000 followers - and is laden with horror stories from former sellers who say they went into debt, and wasted years of their lives, chasing an impossible dream. In 2020, TikTok became the first social media platform to ban MLM content and users who violate its anti "frauds and scams" guidelines. MLMs have existed for decades, but a wave of recent documentaries ( Betting on Zero) and podcasts ( The Dream) have brought the practice to the public eye. Hawaii Alaska Florida South Carolina Georgia Alabama North Carolina Tennessee RI Rhode Island CT Connecticut MA Massachusetts Maine NH New Hampshire VT Vermont New York NJ New Jersey DE Delaware MD Maryland West Virginia Ohio Michigan Arizona Nevada Utah Colorado New Mexico South Dakota Iowa Indiana Illinois Minnesota Wisconsin Missouri Louisiana Virginia DC Washington DC Idaho California North Dakota Washington Oregon Montana Wyoming Nebraska Kansas Oklahoma Pennsylvania Kentucky Mississippi Arkansas Texas Get Started MLM vs pyramid scheme So how, exactly, is this legal? A combination of murky laws, lack of resources and a whole lot of lobbying power.
(Every company cited in this story either did not respond to a request for comment or declined to provide a response.) But in some circles, joining an MLM is more popular than ever, thanks to the coronavirus pandemic, and the resulting economic fallout that prompted people to look for new ways of earning an income. MLMs have long been accused of operating as thinly-veiled pyramid schemes that employ predatory business tactics. These distributors, who are provided lofty titles like “independent consultant” or “wellness advocate,” are often encouraged to recruit others to join their “downlines” in order to earn commissions on their sales - and the more new people they bring in, the more money they stand to earn themselves. MLM companies like LuLaRoe (clothing), doTerra (essential oils) and Monat (haircare) recruit independent contractors - usually women - to sell products to the people they know. This practice is known as multi-level marketing (MLM for short), also referred to as network marketing or direct sales. Maybe they want to offer you the “amazing business opportunity” of joining their team and becoming a seller too. At some point, you’ve probably been contacted by a family member, friend or Facebook acquaintance who fancies themselves a budding entrepreneur.
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