If you ask just about anyone around you – friends, colleagues, family members, a stranger on the train – if they’ve ever lost someone in their life to the cult of multi-level marketing, there’s a pretty high chance they will answer “yes”.
Also known as direct selling or network marketing, MLM companies have been around for decades (think: Avon, Tupperware, Thermomix and Amway to name just a few). Though they’re often confused for pyramid schemes because of their recruitment structures, MLMs are perfectly legal in Australia because – unlike pyramid schemes, where money is taken in exchange for an unguaranteed promise – MLMs involve the exchange of tangible products or services for money.
Tupperware, Thermomix and Amway are all popular MLMs.Credit: AFR
But unlike the majority of other forms of employment, MLMs often require would-be consultants to front up thousands of dollars before they’re on the payroll (purchasing display sets, testers or starter kits, for example), and wages are 100 per cent commission-based.
Most people who have experienced the MLM friend will tell you that it starts innocently enough. A conversation about how they’re finding their new job, or perhaps how much better their skin is feeling since they started using some new products that were recommended to them.
Then comes the suggestion that you should buy whatever it is they’re selling, that you should spread the word of how great whatever it is among your own network. This then escalates to “friendly check-ins” and “recommendations” that start to feel more like low-level harassment.
Your inbox becomes flooded, and your social media feed is awash with invitations, Facebook Live parties, and posts in which their life appears a little too good to be true. But, they tell you in their captions, it’s all thanks to insert-MLM-company-name-here.
No workplace should have structures so confusing that employees don’t entirely understand how much they will earn as a base salary.
As shown in the 2021 documentary LulaRich, which tracks the rise and downfall of the American leggings empire LuLaRoe, the chances are also high that the people promoting the MLM life are women.
That’s in part because the most common products sold via these companies are popular with women (homewares and appliances, skincare and makeup, hair care, essential oils, cleaning goods and clothing), and because the casual structure of this kind of work is highly appealing to women with domestic responsibilities such as caring for young children or older family members.
Direct Selling Australia, the national trade association, estimates that between 77 and 95 per cent of consultants working for MLMs are women.
By now, you can probably sense that I’m not the biggest fan of multi-level marketing. That’s not because I don’t like the categories of products listed above, don’t support women gaining financial independence or want to see more women in the workforce. It’s because I don’t love the story painted by research, data, countless lawsuits and testimonies from people who have left predatory MLMs.
LuLaRoe co-founder Mark Stidham is on the record as saying the model of having women work for unguaranteed salaries is literally the basis of his riches, or in his words: “If you want to create incredible wealth, identify an underutilised resource. And there’s an underutilised resource of stay-at-home mums.”
According to the documentary, in 2017, LuLaRoe had about 80,000 consultants and generated roughly $US2 billion revenue. But the buy-in for consultants was between $US5000 and $US10,000, and the median monthly take-home profit was estimated to be just $US120.
At the same time, Stidham and his wife (fellow co-founder DeAnne Stidham) were seen flying around the world on private jets and living in multimillion-dollar luxury properties.
In Australia, the MLM industry is estimated to have a $1.4 billion turnover, and about 500,000 people work as sales people or consultants. While not all MLMs are the same and not all use the same tactics, the lack of transparency around structures, targets, incentives and actual take-home remuneration is enough to warrant criticism.
According to Associate Professor Deanna Grant-Smith, a researcher at the Queensland University of Technology, the majority of people working for MLMs generally have no experience in sales or the business sector before being recruited.
In a 2022 paper looking into the industry, Grant-Smith and other researchers found that MLM consultants fall into four groups: the Trusting Self-Doubter (39 per cent), the Self-Aware Inquirer (27 per cent), the Aspirational Devotee (18 per cent), and the Prudent Evaluator (16 per cent).
Per the research, the most common group among those joining MLMs – the Trusting Self-Doubters – do not have confidence in their financial literacy, and are unlikely to do research on an MLM before joining it.
Perhaps that’s why they are willing to accept a job where they literally pay to become an employee, and enter an industry where it’s estimated that only 1 per cent of consultants actually make a profit.
Earlier this year, the Rural Freedom Movement, an MLM selling machines that promise to electrolyse tap water, came under fire after former sales agents went public about their experience.
Tupperware parties were also a form of multi-level marketing.
In addition to selling a $6000 machine that isn’t backed by peer-reviewed scientific studies, sellers were required to buy their own model too. One former agent told the ABC that she was offered a loan to help her afford it, but it came with an interest rate of about 25 per cent.
When she began struggling to make sales, she was encouraged to spend more, this time to access “masterclasses” on self-promotion from other distributors within the same company (also known as colleagues).
Many MLMs also lure in customers with glitzy bonuses such as new cars or trips overseas for top performers, but rarely any transparency around just how much those top earners are making, or disclosures – say, for example, that the car is on a payment plan or that the holiday is actually a conference that the employee has paid to attend.
Call me crazy, but no workplace should have structures so confusing that employees don’t entirely understand how much they will earn as a base salary.
While losing someone to the cult of an MLM can be the death of your friendship or put a serious strain on your family, any criticism should be saved squarely for those at the top.
These people doggedly encourage others to monetise their personal relationships, all so they can get rich. Even when the products are good, that’s enough to turn most people off.
Victoria Devine is an award-winning retired financial adviser, best-selling author and host of Australia’s No.1 finance podcast, She’s on the Money. Victoria is also founder and co-director of Zella Money.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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