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Last Updated on June 16, 2020 by Daniella
When you start thinking about side hustling or looking for side hustle ideas, MLMs are waiting to suck your money up from around the corner.
Multi-Level Marketing or “MLM” companies are all over the place. Some of the common MLM company names you might’ve come across are Herbalife, Mary Kay, Avon, Thirty-One, LimeLife, Amway, LuLaRoe, Beachbody Coaches, etc.
And with Instagram these days, they are just a scroll away. Seriously, I get harassed more about MLMs on Instagram than I ever have from anyone in person. Actually, I’ve never been asked about joining an MLM in person from anyone in my life. It’s only been through Instagram.
Instagram has completely changed the game for MLMs by giving them a platform that is perfect for them to recruit people with.
Chances are if you haven’t been a part of an MLM before or aren’t currently, one of your friends or family members probably are or have.
Let’s say you have been before but didn’t even know it? Or maybe you are a part of one now and don’t know it (or maybe do but are having a hard time leaving)?
Don’t worry and don’t be ashamed. I’ve been approached before about many different MLM opportunities and almost fell into a few in my own past.
It happens to the best of us, especially when the freedom to work from anywhere you want, financial abundance and everlasting prosperity is promised within the pitch. (Sounds a lot similar to many beginner blogging and online business webinars and courses too, doesn’t it? Well, that discussion is for another time and another article.)
Are all Multi-Level Marketing companies and opportunities scams? In my opinion, yes. Some people might disagree with this and I am sure they have their reasons.
However, the important point I want to touch on with MLMs is that I don’t agree they are legitimate business opportunities. They are “economic cults” and their tactics are far from legit.
I want to help you as much as I can to avoid falling into one of these scams. So bear with me, this might be a long one.
In this article, we will go through the following:
- How to spot MLM scams
- Various MLM horror stories from a mix of my own readers and other online publishers in my network
- What actions you can take if you or someone you know has fallen victim to one of these scams
What is Multi-Level Marketing?
Multi-Level Marketing is a business model and/or marketing strategy that direct selling companies use to get existing distributors to recruit new distributors. These distributors sell the company’s product(s) but most of the company’s revenue comes from the recruitment side of the house. When they recruit their distributors or sellers, they make the sellers purchase as much as thousands of dollars worth of product upfront before anything else.
Those distributors’ income consists of their own sales (if any), a percentage of the sales from the group(s) they recruit and any referral bonuses they receive from the recruiting. As the levels go up the “pyramid”, the more money those people at a higher level are making. But there is no way they will ever let you in that level. At least not without forking over thousands of dollars first (or even tens of thousands of dollars).
It’s a damn pyramid scheme.
What is a pyramid scheme?
The actual dictionary definition of a pyramid scheme is (as quoted directly from the dictionary):
“A form of investment (illegal in the US and elsewhere) in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones.”
Is it just me or does that definition look almost identical to what an MLM is?
No..it isn’t just me. A study done by AARP found that 73% of people who participate in MLMs either don’t make any money at all or worse, they lose money.
Most of them also lose many friends and/or family member relationships in the process.
Those people might agree that this is some bullshit.
Why aren’t MLMs called pyramid schemes (because then they would be illegal)?
MLM scams should be illegal with them being so similar to pyramid schemes. At least you would think so.
However, in my own digging, I found various reasons why they are still legal.
According to the Federal Trade Commission (FTC), the main difference between the two models is that MLMs have a hierarchical commission set up on product sales while pyramid schemes pay out solely on enrollments and have no inventory.
MLMs have inventory and pyramid schemes don’t. Hmm… I beg to differ.
When you click that article linked in that previous paragraph, please try to contain yourself (because I can hardly contain myself). That FTC article will most likely enrage you in the pyramid scheme section when you also read the horror stories below.
5 Warning Signs a Business is an MLM Scam
As I spoke to many people who formerly worked for MLMs or had an experience with them in one form or another, a pattern emerged.
There are a couple of tell-tale signs and red flags you can look out for in the pitches to identify when something is legit versus a straight-up scam.
1. Crazy Sales Tactics
MLM reps will sell you the opportunity like it will be the best thing that will ever happen to you. They are trained to spam social media with positive statuses and lie about how much they are making.
MLM reps may also lie to you about the title of their position, often referring to being brand ambassadors to make the opportunity sound more legit. When the offer sounds way too good to be true, that is when you need to start questioning things.
Watch if the representative makes any effort they possibly can to prevent you from researching the company in any way. This is a huge red flag that should tell you to run in the other direction.
2. Weirdly Urgent/Annoying Recruiting Strategies
It wasn’t until Instagram became such a huge thing in everyone’s lives that I started to see MLMs seep through that new platform (in addition to many other social media networks).
Oh, do they slip through like the good ole friendly “girlfriends” that they are. And they are quite resilient with their efforts through Instagram direct messaging people they don’t even know.
I get messages to my Instagram periodically from many different people I have never known nor met, trying to pitch me to join their “business”. The vast majority of them are Beachbody coaches. I screenshotted one of the threads below so you can spot when it happens to you.
Some of them I respond to, and some of them I just flat out ignore.
If you get similar messages, look for “Boss Babe” or any sign of the words “coach”, “consultant”, etc in their profile and also click through to the link in their profile. Then research the company that is on the link (google the company name + the word “scam” or “mlm” and you will find your answer).
3. Bad BBB Rating
If you think a company you heard an opportunity about recently sounds suspicious, turn to the Better Business Bureau. They always got your back.
For example, I searched for Herbalife in BBB. The search results showed me an alert before anything else, immediately letting me know this company had a government action against them that was recently resolved.
You can either click to read more about the government action and how it was resolved or go straight to the good stuff – the customer reviews.
That is where all the good stuff is. Or in this case, the bad stuff. If you have to dig for just one good review for one of these companies, what are you doing!? Stop, it’s not worth it.
BBB also has tips on the companies that have a multi-level marketing model that say BBB Tip: Multilevel Marketing so you’ll know exactly what they are.
4. Low-Quality Product and Outrageous Product Claims
Have you ever heard of the Rodan and Fields Pore Cleansing Tool? It’s a little handheld tool you can use on your face to remove blackheads. Sounds like a fair product right?
Well, not for $260 bucks when you can get the same exact thing at Target or Amazon for $20.
This is an unsettling trend among all multi-level companies. They sell products that you can get anywhere with probably better quality and a much lower price. But they will sell it to you like it is the only one on the planet and tell you how much the product has changed their life.
And once again, we are back to the tone of “life-changing” circumstances. Pay attention to how much they push this narrative!
5. The pressure to Buy Inventory and Pricey “Training”
All MLMs will have some sort of startup costs. Because of these outrageous upfront costs, participants lose money that they may never make back.
The most common startup costs are:
- Starter kits
- “Fast Track” training programs
- Useless conferences
- Expenses for parties
As an example, we will use LuLaRoe. The initial buy-in for LuLaRoe was $5,000 and now, it is $2,500. When you buy products to start selling, you can’t even pick the items yourself. It is a complete mystery box.
There is one good thing that came out recently with these scammy practices from MLM businesses. Thanks to a new law, MLMs are now required to buy back inventory from their consultants.
There are LuLaRoe consultants still waiting to get their payouts after 1 year of selling back their unsold inventory.
6 MLM Horror Stories
I’ve listened to The Dream in the past and heard all the crazy stories they presented on the podcast (including the one they actually tried on the show with Limelife). I also knew a couple of people before who worked for MLMs but I had no idea what they were actually going through.
Even though I don’t have my own horror story to share, I do have some stories to share with you from other people. Let’s give a huge thanks to my readers and fellow online publishers who were willing to share (and letting me publish) theirs!
These are people, not numbers (like they are to MLMs). So we will refer to each story with their name.
I was contacted out of the blue by a random stranger after he read my success story about getting out of debt and the fact that I wanted to help others.
He pitched Primerica to me. His basic pitch was that I could help others with their money, and make money doing so. I was interested because I want to help others, and if I could do that and increase my income, why not.
After having to pay an initial sign up free, I was thrown into a life insurance class to get my life insurance license to be able to sell policies. Primerica explained this was their first step. I should have thought something was fishy when the instructor teaching the class, also administered the exam to become licensed. Let’s just say he was very liberal with his scoring of the test.
Once you passed and became licensed, there was pressure to call all family and friends to sell them policies. It’s not something I was comfortable with. Then the pressure shifted to recruit your family and friends too. Primerica is set up like a pure pyramid. Anytime you sold a policy, the person who recruited you made a percentage of your earnings. If you recruited someone, they would be under you, and the same would apply. The bigger you grew your network, the more money that could be made.
Each month a regional vice president that your network would fall under would hold a meeting. There was a $10 fee to attend. I attend one such meeting, and there were 200 people in attendance. The VP earned $2,000 just for hosting a meeting, and there was no food or drinks or anything. Just a big rally to help you get excited about selling Primerica.
The final straw was when the immediate Primerica manger I rolled up to, asked that his team come and paint his office one weekend.
I spent about $500 overall, with no return between sign up fees, materials, etc. Also, my time was lost with unnecessary time spent in class, attending meetings and so on.
Brian is the creator of Debt Discipline where he helps others to budget better, save more and live free.
I actually worked for two different multi-level marketing schemes. The first time, I was young and dumb and actually took out an unsecured loan for $1800 at a steep 18% fixed interest rate to purchase Mary Kay inventory. I quickly decided I would never sell that much makeup, and I ended up shipping the product back to the company for a 50% refund.
Then, after my husband and I relocated our family out of state, we had no friends, no circle, no community or church. So I felt very lonely. I reached out to my sister-in-law for information on a Beachbody program and before you know it, I was drinking the kool-aid (or Shakeology, rather).
With Mary Kay, I earned about $300 but with expenses (even after the 50% refund), I lost about $600-800 including interest paid. With Beachbody, I didn’t lose money, but I literally made $0. Everything I earned, I reinvested in the company.
Melissa has a great YouTube channel where she shares more on her experience as well as comments from other former coaches on why they quit.
Melissa also blogs at Perfection Hangover where she talks about the sober truth of money, blogging and business.
I was working in a small non-profits arts company where we were all overworked and underpaid. My friend from work hosted an MLM party for another friend of hers that worked for them. Sure enough, after this party, 3 of my co-workers signed up to work for the company after being promised this opportunity could double the income they were currently making.
Over the next few years, I was invited to and declined at least one party a month. I watched as my 3 coworkers spent more and more of their own money buying candles and home decor that they didn’t need and probably couldn’t afford. I didn’t realize how bad it had gotten for my friend until she finally convinced me to attend her last MLM party. She showed me the boxes upon boxes of merchandise she had bought herself to meet her “targets” but couldn’t sell – which she estimated cost over $10,000. She sold what she could at a loss, and has slowly been giving away the rest as gifts.
It’s been 6 years since she quit the MLM and she still has several boxes of brand new merchandise in her basement.
Of the dozens of people that I know that have tried working for an MLM company, only ONE person has made any money from it. But it’s not the thousands per month that they promise. She’s been working for this company for years, spends about 10 hours a week on it, and is lucky to make $2,000 a year. In other words, she is paid less than $4 an hour. Isn’t your time worth more than that?
Amanda blogs at My Life I Guess and talks about money, mistakes and more.
I worked for several MLM companies when I was between the ages of 17 – 19, I can’t remember the name of all of them but the last one was with Tahitian Noni selling the Noni Juice.
I spent a ton of time trying to convince everyone I met that there was a business opportunity available.
My horror story is that I actually lost several friends because I felt they weren’t supportive of me; however, now that I think about it, I could have avoided losing these friendships.
There was a ton of talk about not being around people who don’t believe in your business, but there wasn’t any training to make sure you had a viable business structure.
The meetings were just huge pep rallies and people talking about success but absolutely no one talking about training or becoming better.
I lost hundreds of dollars on auto-ship programs, which automatically took money out monthly.
Sa El is the Co-Founder of Simply Insurance, where you can buy insurance online.
While I’ve worked with a few MLMs in the past, my horror story was being recruited into one. One of my financial planning clients set up a meeting in my office which I thought was to review her accounts.
Turns out it was actually to pitch me an MLM she just joined. To make it even more awkward she brought in the guy who recruited her to join the program who was a former financial professional in the insurance space. I’m sure she thought this would help win me over.
I was gracious and listened to the entire pitch but after I declined, my client got angry. She was shocked that I wasn’t interested in joining especially since she was my client. I kept my cool and thanked her for the information. Unfortunately, it didn’t stop there.
Later that week she called me again to make sure I wasn’t interested. When I again politely declined she became angry again and tried to make me feel guilty for not helping her. I once again kept my cool and reminded her that me joining wasn’t about her, I just didn’t have the time or interest in signing up.
Did I miss out on an amazing opportunity? Less than 90 days after that meeting in my office she was longer working for that MLM.
If all they talk about all the money they are making then have them show proof. Ask to see their bank deposits.
There are a ton of better ideas to make money that don’t require you to peer pressure your network of friends and family to sign up.
Jeff Rose, CFP® is the founder of GoodFinancialCents.com® where he inspires you to take charge of your money.
I was encouraged to join this MLM by a family member because I’ve always loved talking about money. This company claimed to help repair credit but all they did was send my clients to a third party. I thought I was going to learn to help myself. I also was strongly encouraged to purchase a $2,500 unlimited training package that really only ended up being how to recruit more people. I later saw that this company was sued for misleading practices!
Tremaine is the founder of Mind Over Money and is passionate about helping the community reach financial goals and close the wealth gap.
Finding Resources as a Victim of an MLM Scam
If you are someone you know has fallen victim to an MLM scam or pyramid scheme, don’t worry. There are options and actionable steps you can take.
Here is what you can do:
- Report the company to the U.S. Securities and Exchange Commission
- File a complaint with the FTC
- Check to see if there are any current class-action lawsuits being filed on behalf of other former distributors at the company. You can see this on ClassAction.org or google the company’s name + “lawsuit”. If there are any pending, you could add your name to those.
Conclusion: Where to Go From Here
If you have never been a part of a multi-level marketing company or pyramid scheme before and really don’t relate to anyone who has, you might be just reading this as a form of entertainment. Remember this is happening to millions of people every single day.
And it has ruined a large number of those peoples’ lives; Financially, emotionally and relationally.
If you or anyone you know is stuck in a scam (mlm or otherwise), I urge you to follow the actionable steps above. Silence is a big problem. We have to speak up and take action when we see a problem and innocent people taken for granted.
Even if we are the person being taken for granted. It might be humiliating to realize and walk away from, especially after you’ve invested so much of your time and energy. But you aren’t alone in this.
Talk to others in the same position and let them know what you are feeling. Reach out to others online who have left in the past and took action to get more support. For this, I came across a wonderful Facebook group called Sounds Like MLM but ok with over 100,000 members who talk to each other every day about their experiences. This antiMLM subreddit is another great resource.
Of course, I have to mention and link to The Dream again because it is such a damn good podcast and resource for discussing the weird world of MLMs.
You got this and you can rise from this!
And the next time someone slips into your Instagram DMs saying “Hey Gf, you would make a great coach!”, don’t indulge them.
Have you ever been a part of an MLM or know someone who has? Leave us a comment below!
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Daniella is the creator and author of iliketodabble.com. When her wife Alexandra and her aren’t globetrotting or playing with their 7+ animals, they are hustling and working towards a future of financial freedom.