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Please share everything you know about MLMs I love learning things

Thank you for asking! I’ll start with a TL:DR for everyone: Never join an MLM. Over 99% of participants LOSE money (and time! And friends!).

A Multi-Level Marketing Company (MLM), also sometimes called Direct Selling, is essentially a barely-legal pyramid scheme. Sales reps can either make money by selling a product or by recruitment of new sales reps.

MLMs make money off of people joining the MLM, even if those sales reps never sell anything, because the sales reps have to buy the product from the company before they can re-sell it. Therefore, they focus a LOT on recruitment (pyramid scheme).

Some famous MLMs you may have heard of: Amway, Mary Kay, Herbalife, Avon

We can prove the 99% Lose Money number pretty easily. If you are to only learn one fact to teach others, then look up Amway (the biggest MLM)’s Income Disclosure statement, which they publish themselves, on their own website. Screencap below:

This is PRE-business expenses that sales reps pay out of pocket, and still the average annual GROSS income made by the TOP 10% of the company is LESS than minimum wage. After expenses, you can see yourself how almost everybody loses money. (The money people lose goes to the ppl at the VERY top of the company; it’s not like when a normal small business fails.)

Below the cut is a lot more info, although not close to all I have collected.

Screencap summary of Amway's Income Disclosure:

Half of the TOP 1% made less than 55K pre-expense; studies show even they generally LOST money, or made very very little after expense (the top 0.5% actually makes any money, and the 0.05% make a LOT of money)

The TOP 10% earns, on average, LESS THAN MINIMUM WAGE ($15K), with less than half of the TOP 10% making over $4.6K PRE-EXPENSES

Less than half of the TOP 50% makes more than $631 A YEAR. PRE-EXPENSE.

(Also, they cut the bottom 1/3 out entirely, so the 50% referenced is 50% OF the top 2/3. I’m actually OK with this, as long as it’s acknowledged, for better reporting. The bottom 1/3 were “inactive” and possibly not trying to participate in sales. The top 2/3 still sucks.)

I made a very sloppy visual to restate the data, in case it helps anyone:

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Another example is the Mary Kay public income disclosure [for Canada] (another very popular MLM).

Again, pre-expense, though also pre-retail sales (more in paragraph below)

The top 0.05%(!) makes average commissions of $124K

The level below that, Independent Sales Director, only 1.7% of the company, makes less than Canadian Minimum wage in commissions

98% of the company, very clearly, makes anywhere from $0 per year, to at most an average of $206 DOLLARS A YEAR (pre-expense, pre-sale)

Mary Kay works a little differently than Amway, where once you purchase a product, MK truly does not know or care what happens to it at all. If all of these people actually sold all the products they bought, it’s possible they made supplemental income, but data shows that most LOSE money on actual sales.

Let’s focus on Mary Kay for a moment, because their structure means the ONLY money the company ever receives was given to them BY their sales reps. So they’re easy to follow.

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Why do sales reps lose money on sales?

The market is oversaturated. They have 3.5 MILLION reps trying to sell the same product* - meaning they either can’t sell, or they have to greatly discount the product

Many MLM products are more expensive than the same product elsewhere

They constantly refresh their line of products, so the inventory reps already have is now worth less and harder to sell

Sales reps must buy a minimum amount of new product each month to keep certain perks, even if they haven’t yet sold their old product (min $225, with much higher amounts sometimes necessary to keep status)

*What makes MLMs legal (thanks to lobbying, mostly) is that they HAVE a product, which sales reps buy from the company. I’m careful not to call these people employees, as they are technically independent consultants, and thus don’t receive employee benefits... like a guaranteed income, or healthcare, or anything. If you google “Mary Kay employees”, you will find data on their ACTUAL employees, who do actually make money. This is clearly not the case for their sales reps (table above). Mary Kay has about 5K ACTUAL employees, and 3.5 MILLION sales reps.

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So how do sales reps make ANY commissions?

If you convince people to join Mary Kay, MK will give you a cut (commission) of what they spend at the company on product

Since this is the main way to make money, reps are incentivized to recruit as much as possible

They are also incentivized to LIE about how much money they’re making, so people will stay with the company. I’ve read stories of reps renting a fancy car from time to time to convince the people below them that they’re making money

Clearly, thanks to the income disclosure, we can see that they aren't making much money on commissions, either

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How are sales reps buying more product if they lose money being in an MLM?

Reps are encouraged to dip into their savings, with the promise of a greater payout later. If they don’t have any, they can open Mary Kay CHASE VISA card, and charge all the products they will never re-sell to it

Many people end up in heavy debt

Unfortunately, a lot of people don’t track what they’re spending vs earning until it’s far too late

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What else do reps lose?

Time: Selling is actually a very small part of the business. A lot of time is spent FINDING people to sell to, organizing classes, restocking inventory, recruiting new members, traveling, going to conferences, and more.

Mary Kay’s motto is, “God First, Family Second, Job Third”, to imply that this is something you can pick up part-time, but that’s simply not true

Relationships: Most people try to sell to and/or recruit their friends and family first, which can put a strain on relationships. Additionally, due to debt and/or need to borrow money to buy more products, many have damaged relationships with those close to them, including their spouses, who share the debt.

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How else does Mary Kay make money?Don’t worry, it’s not all from sales reps buying their products! (Sarcasm. Please worry.)

Website + ability to process credit cards: This is essentially an annual membership fee - to access the MK website to buy their products (to re-sell), or to take credit cards as payment, you pay an annual amount to Mary Kay

Business Cards: More petty costs

Conferences: Sales reps are greatly encouraged to pay to attend sales conferences to learn more about how to be a great salesperson. (BONUS: you will encounter many cult-like tactics here, to keep you IN the MLM)

Jackets: Congrats! You’ve been promoted and you are now permitted to wear the Red Jacket! It costs $100. If you get promoted to NSD(?), you get to wear a fancy suit that changes every year and costs $1,000 each year!

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How else does Amway make money? Bonus because they are egregious

Sales Reps replacing everything they own: Amway sells a LOT of different things. How can you sell anything if you haven’t tried it? If you really want to succeed at Amway, get rid of EVERYTHING you own that Amway also sells. Make sure everything you own is sold by Amway (people do actually follow these instructions! Cult-like tactics are used)

Training Materials: They make a lot of money off of selling training materials to their sales reps. Aren’t making money? It’s because you don’t WANT to succeed, clearly, if you aren’t buying all the training materials you can get your hands on

Haha maybe more than you've bargained for. I wrote this all at once late at night, but I'll look it over later to check for any potential errors and link more sources.

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