Multi-level marketing, or MLM, is increasing in popularity all over the world, and the dramatic increase is a direct consequence of social media. Everywhere online, from Facebook to Twitter to even LinkedIn, people are marketing their ‘miracle’ products to their friends and family without any idea as to what the business model is, and how in many places it is illegal.
It’s seen all over; “make money from home today”, “fast way to earn £££”, and “this product changed my life”, but as the old saying goes, if it looks too good to be true, then it probably is. The product is the least important part of MLM, and can be anything at all. Most commonly, it’s a weight loss supplement, makeup, or even health foods. The mass appeal of these products is how these companies get their foot in the door.
Multi-level marketing is the recent way of defining a pyramid scheme. For those who don’t know, a pyramid scheme is where a person not only sells a product, but also gets their friends to sell the product as well. The more people who sell the product, the more money the person gets. For every person somebody signs up to sell a product, that person gets a % of the persons profits.
These scams are designed to prey on the vulnerable and those without critical thinking skills; to an unemployed person at home all day, this offer is too good to be true. Unfortunately, with the way the numbers work on the ‘down line’, only the <1% top sales people will actually be making a profit. For the rest, they end up losing money. The crux of the situation is that if you have to buy the materials from the company in order to start selling, then it's easy to lose money. And these products are not high quality expensive products, they are always cheap, rebranded, or knock off products which couldn't be sold otherwise.
An important note is that no company will ever advertise as being a MLM company. There is the same stigma attached to MLM that there is to pyramid or Ponzi schemes. These companies know that what they are doing is wrong or immoral, so they use one of many different classifications: network marketing, home-based business, affiliate marketing, referral marketing, concentric sales, inline marketing, and dozens more. All of these mean the same thing; a pyramid scheme with a product.
These businesses, while they last, are successful for the higher up creators. The mass appeal of the simple products means that even if only 1 in 100 people believe the product will help, then it will make money. Social media means that you can contact hundreds if not thousands of people every day in order to sell them on the idea of selling the product, if not buying it. With how easy it is to contact people online, it’s easy to see how these companies make a profit before they get shut down.
Depending on where you personally are located, there are multiple aspects to MLM that are illegal. The most prominent one is if a company offers you a discount for hiring new people; this is illegal all across the US and many other places, as it incentivises hiring people who are not suitable or capable of making such a decision.
As a final light-hearted note, the pyramid scheme nature of MLM is incredibly easy to recognise to anyone who has even briefly studied them. Any business which relies on you finding 2 or more new sellers of the product is likely a pyramid scheme, because it gets wider at the bottom while they get less profit, if any. A reverse funnel system is still a pyramid scheme.