Is Multi-Level Marketing a Good Opportunity to Earn Extra Income?

Multi-level marketing (MLM) is an industry that has been around for decades. It has shifted form throughout the years and now includes a wide variety of sectors such as beauty, fitness, apparel, books and even cryptocurrency. You might remember attending an at-home party with a Mary Kay rep in years past or perhaps you got a message on Instagram last week from someone you know asking you to “join” their business. You’ve likely been faced with the decision of whether or not to make a purchase from an MLM company or perhaps considered signing up to sell for one. At first glance joining these companies may seem like a good opportunity to earn extra income or build a career but is that the reality?

While the products they sell may be different, all of these companies utilize the same business model. Individuals are recruited to be distributors, to sell a product or service, and then “share the business” and recruit others to become distributors as well. MLM participants often reach out to friends and family or their greater social media following to find customers and new recruits. Once a distributor gains recruits, also known as a downline, they begin to earn money off of their recruits' sales and so on. This can happen through commissions, bonuses, or other payment plans depending on the MLM company. Every distributor in a multi-level marketing company is part of this structure. There are a few initial representatives at the top and everyone else is part of the mass of downlines.

Multi-level marketing companies advertise success for distributors through this model. While trying to recruit, distributors often claim the company offers time freedom and the ability to set one’s own schedule. They may claim that everyone is already making suggestions and recommending products, so why not get paid to share a great product that you love? Some distributors even equate joining their MLM company to starting a business and tout the income potential as that of entrepreneurs and CEOs.

However, according to the Consumer Awareness Institute, in a report linked on the Federal Trade Commission’s website, 99 percent of MLM sellers lose money.₁ So why does this business model fail for many consumers?

Imagine there’s a business in your neighborhood that’s just opened up. It’s a cute boutique store and they sell the latest clothing. The owner hires a couple of her friends to run the business with her, promising a commission off of each sale a friend facilitates. The boutique is gaining attention, everyone is excited about the new shirts being sold and sales are great. The owner of the store decides that she can service more customers if she has more salespeople. So, each of the friends is promised that if they recruit new salespeople they will get a cut of the profit of the sales their recruits make.

The friends tell about their success to some of their friends. They show off the clothing and soon they have each recruited additional salespeople underneath them. Soon, these new recruits decide they could also make more money if they begin to recruit new salespeople.

Let’s take a step back and look at the boutique. If there were three salespeople to start and each of those three have recruited three people and the additional ones also recruited three people, there are now 39 people working in the neighborhood boutique.

Each of the 39 people is trying to sell the clothes to the people in your neighborhood and recruit even more people to sell the clothes as well. As each new recruit is hired, there is a diminishing ratio of boutique employees to customers in your neighborhood. This will make it harder for new recruits to make sales. The last recruits will scramble to find the neighbors that haven’t yet heard of the company to make an occasional sale. But, let’s check back in with one of the initial friends. She recruited three people who also recruited three people. So while the new salespeople struggle to make sales, she is making commissions off of twelve people, nearly a third of the business.

This issue happens on a larger scale with multi-level marketing companies. Distributors are encouraged to invite more people to join the business. Any individuals recruited under one's own downline adds to their personal profit, but individuals recruited into other downlines become competitors. As the MLM company grows, the people at the top will make more money off of the larger scope of the company but the growing number of people at the bottom will struggle to find new customers for themselves and it will become nearly impossible for them to create their own downlines.

This may seem far off as MLM companies usually operate on a national or international scale, but even if the scheme may last longer, in a system of recruiting, there will eventually be no more people to recruit, no more new customers to bring in. Jon M. Taylor, an MLM researcher, discusses this in his report on the MLM industry.₂ In a structure where one person recruits two people, those two people recruit two people, etc. there could only be 32 iterations until the total number of recruits is greater than the total human population. And, as Dr. Taylor explains, at that point everyone would simply be selling to themselves. In fact, those in an MLM company would run into issues far sooner as the ratio of distributors to potentials continued to shrink.

So far, I’ve addressed how the growth of an MLM company cripples the income potential of new recruits, but it’s important to note that the Consumer Awareness Institute mentioned that the 99% percent of people in MLM companies don’t merely make little money, they actually end up losing money.

Unlike traditional jobs, MLM companies are pay-to-play. Distributors purchase a starter kit to begin their business and are often required to pay recurring fees or have a certain amount of personal purchases to continue working as distributors or receive their paychecks. MLM companies also encourage their distributors to “be a product of the product” and purchase new releases and offerings to try before they share with their customers. Some MLMs have annual conventions that distributors are encouraged to attend and of course, pay for their ticket, transportation, and/or lodging. These purchases are often seen as investments into an opportunity that will pay off in the end, but instead, the payments stack up and many distributors find they are unable to recuperate the loss in the wake of an increasingly competitive market.

While these companies may seem enticing from the outside, the reality is that this method of doing business leaves many people worse off due to unsustainable practices. If you are looking for a side-hustle, work-from-home job, or another income opportunity, this is not the industry to join.

1. Del Valle, Gaby. “Multilevel Marketing Companies Say They Can Make You Rich. Here’s How Much 7 Sellers Actually Earned.” VOX, 22 Oct. 2018.
2. Taylor, Jon M. “Chapter 3: MARKET SATURATION AND COLLAPSE.” The Case (for and) against Multi-Level Marketing, Jon M. Taylor, 2011, pp. 3–1-3–10.