Are You a Small Business Owner If You Join an MLM?

“Become an entrepreneur.”

“Build an international business.”

“Be your own boss.”

These are the promises that multi-level marketing (MLM) companies such as Monat and Arbonne advertise on their website and are a key part of the language around joining this type of businesses model.₁,₂ The pitch is less about joining a company, rather it’s about starting one’s own. But do MLM consultants actually own their own business?

First, we need to define what an MLM consultant is. An MLM consultant is an individual who has signed up to be a distributor for an already existing MLM company. They agree to the terms of the company and receive commissions, bonuses, or other payments based on the company’s compensation plan depending on their sales, personal purchases, and the recruitment of more consultants.

Legally, an MLM consultant is an independent contractor. According to Investopedia, an independent contractor is “a self-employed person or entity contracted to perform work for — or provide services to — another entity as a non-employee.”₃ In the case of consultants, they are not direct employees of the MLM company: they are self-employed, independent contractors.

This is where the definitions can get a bit murky. The terms freelancer, self-employed, and business owner, though they can have different colloquial definitions, describe the same legal designation.₄ So, let’s look at an example in another profession to create a clearer explanation.

Another person who is self-employed is a freelance graphic designer. Instead of working for one employer at a fixed salary, they negotiate and contract with clients as they see fit to make an income. A freelance graphic designer could define what they do as owning a small business, they are a design studio of one. In the example of a graphic designer, their business is separate from that of their clients. Creating a contract with a restaurant as an independent contractor to do design work doesn’t mean the restaurant is now a part of the designer’s business, they are simply a client.

Now back to MLM consultants. MLM consultants are self-employed and glean income from a contractual agreement, thus they are business owners.

But what business do they actually own?

Do Monat consultants own a Monat business? Do Arbonne consultants own an Arbonne business? Simply put, no. As in the case of a freelance graphic designer offering design services to clients, MLM consultants offer marketing, sales, and recruitment services to their MLM company, their client.

This is an important distinction because an MLM consultant’s lack of ownership means a lot is at risk. MLM consultants don’t have a say in the products, the prices, the compensation plan, or any other aspect of the MLM they join. “Building a team” in an MLM company isn’t adding assets to the distributors’ legal business entity, it’s simply signing up more independent contractors to work for the MLM company. The MLM company’s actual owner reserves the right to change any aspect of the business without notifying the consultants, including firing the consultant, shutting the company down, or reverting to a different business model. The consultant can’t continue to sell the product or use the company’s branding without their permission as it is not their intellectual property.

The client’s business is not the consultant’s business.

So, why might an MLM company decide to pitch their program as an opportunity to own a business?

Claiming the consultants are starting a business is a way to convince them to spend money. Most people understand that starting a business can be expensive and carries a certain amount of risk in order to benefit in the future from a successful venture. MLM companies utilize the idea of investment to convince consultants to purchase start-up kits, additional products, back office fees, conference tickets, and in some instances, inventory. While these fees are unusual for a client relationship, under the guise of entrepreneurship MLM companies are able to make a profit.

The idea of business ownership also shifts the blame away from the MLM company when a consultant isn’t making money or chooses to leave. A business owner makes the big decisions in a company and is thus responsible for what happens because of those decisions. If an MLM consultant is considered by other consultants to own their business, they are considered to be responsible for the success or failure of that business. This is a dangerous idea that can prevent people from understanding the flaws in the multi-level marketing business model as they are told to blame the individuals and not the MLM industry as a whole when consultants lose money.

MLM companies try to present themselves as an easy way to start a business, but when it comes to entrepreneurship, there are no shortcuts. If you are interested in starting a business, create one that you actually own.