Origin Stories: How I got sucked into an MLM

Part 1/3. The brief history of my time as a multi-level marketing distributor, and how it crashed and burned in a flaming ball of ash that almost cost us everything.

My issues with money were ingrained from childhood. But there was another major adulthood experience that introduced several facets of an unhealthy relationship to money and stuff, and that was after I joined an MLM in 2011.

Photo by PNW Production

The Balance (Money) defines multi-level marketing (MLM) as “a company that sells products through a network of independent distributors, who are rewarded both for sales and for recruiting more distributors.”

If you’ve never dipped your toe in, I’m sure you know of someone who has. Or, you’ve at least heard of companies like Mary Kay, Avon, Herbalife, The Body Shop, Amway, Pure Romance, about the LuLaRoe scandal (maybe),¹ and the list goes on.

I’m also certain, if you’ve heard of even a few of these, that you’re aware of MLMs often being called pyramid schemes. Investopedia describes a pyramid scheme as “a sketchy…business model, where a few top-level members recruit newer members. Those members pay upfront costs up the chain to those who enrolled them.” Furthermore, Investopedia added:

A pyramid scheme is a fraudulent and unsustainable investment pitch that relies on promising unrealistic returns from imaginary investments. The early investors actually get paid those big returns, which leads them to recommend the scheme to others. Investors' returns are paid out of the new money flowing in. Eventually, no new investors can be found and the pyramid collapses.

In a variation of the pyramid scheme, investors at each level charge initiation fees that are paid by the next layer of investors. A portion of those fees is paid on to those in the top layers of the pyramid. Eventually, no one is left to recruit. The pyramid collapses.

Although MLMs aren’t automatically considered pyramid schemes in the eyes of the Federal Trade Commission (FTC), the label is often interchangeably used by any given person.

Information about MLMs is widely available now, with plenty of websites,² individuals in forums,³ and more on social media⁴⁵⁶ sharing “horror” stories and offering warnings to potential victims—recruits and customers, alike. But still, somehow, these companies remain. SkinProsac adds to the definitive breadth by stating, “While this business strategy may not appear to be problematic at first, there are several reasons why MLM businesses are considered controversial. Predatory recruiting techniques and unpaid labor of its sales representatives are two of the most common causes. As previously stated, MLM businesses are hierarchical, so if a sales representative at the bottom of the hierarchy makes a sale, everyone above them also earns a portion of the income. MLM sales representatives are not paid hourly but receive structured commissions at all levels.”

Formerly (arguably) “legit” companies like Maskcara—now called Seint—didn’t earn a profit on their own. So, they transitioned to an MLM to cut costs and increase the likeliness of becoming profitable. By becoming an MLM, they essentially get people (distributors) to not only advertise for them for free, but the distributors pay the company for products (inventory) which then inflates their profit margin. Distributors then must do the leg-work (make the sales) of those products to recover their costs while the company’s sales numbers reflect an artificial inflation due to distributor investment.

Besides the risk to the company’s reputation,⁷ it’s a lower-risk move for the company itself, laying the bulk of risk on the distributor who sinks money into said company, which couldn’t float the running cost of business without the distributor.

But, these exploitative companies can only go so far before they run out of potential customers and recruits.⁸

Over the years, I’ve shared a little bit about my attempt at career-building as a Mary Kay distributor. Of course, it crashed and burned. But not because “I didn’t work hard enough” or because “I wasn’t good enough at it.”

It crashed and burned because the business model doesn’t work for the bulk of people. The MLM type doesn’t necessarily matter here, although ones in the health arena tend to fare best. Only around 1% of distributors actually earn a profit, and only 0.5% "admitted" they made a salary of $100,000 or more .⁹