MONEY
06/27/2019 11:52 EDT | Updated 07/05/2019 12:39 EDT

MLMs Are A Nightmare For Women And Everyone They Know

Multilevel marketing companies sell women on the dream of being their own boss, yet as many as 99% may end up losing money.

Damon Scheleur / HuffPost
75% of direct sellers for network marketing companies are women.

As a stay-at-home mom of three, Angela was eager to find an excuse to get out of the house. Having no one to talk to except her kids all day was a lonely existence, and a Tupperware party hosted by a new neighbor in her Reno, Nevada, community seemed like a great way to socialize.

The fact that her neighbor’s sister, the one selling the Tupperware, was raising funds to pay for fertility treatments was an added incentive to participate. “I thought, OK, I’ll sign up just to help you, but I’m not going to sell anything,” Angela said.

However, Angela was quickly roped into becoming a Tupperware seller, too. She began attending the weekly rallies that sales teams were expected to attend. Rallies were a mix of fun games with prizes and high-pressure tactics meant to get sellers to buy more and sell more products. Each salesperson was also pushed to bring a certain number of guests with them each week.

Despite the aggressive sales requirements, Angela said it felt like she suddenly had a new group of best friends. “They’ll call you and check on you,” she said. “But after a few weeks, it becomes 'You’re not selling enough. You’re not recruiting. You need to recruit, recruit, recruit.’”

Angela was able to sign up many new salespeople to work underneath her and moved up the chain quickly. But when her mother was diagnosed with advanced cancer, she began to rethink her involvement with the company. “They said, ‘You need to use your mom’s cancer as your sales pitch,’” she explained. “‘You need to turn it into a party and ask everyone that cares about you and your mom to help you sell Tupperware.’” Her mother’s cancer was even used by other sellers as a pitch during rallies.

At that point, Angela decided to leave the company with nothing to show for it. “On paper, it looked like I made a lot of money. But I lost a lot of money,” Angela said. “Every month, they would have a sales catalog and you had to buy samples to show at the parties. You also had kits that were always changing. So whenever a product would change, you’d have to buy more so you could have it at the party.”

One major financial consideration that Angela was never warned about was the tax implication of her business. The discounts she received on products were considered taxable income, as were the various prizes she won, including a two-night stay in a hotel that she was never even able to book. “On my 1099, it looked like I made thousands of dollars, when in reality, most of that money went to buy samples, catalogs, items for the parties and things like that,” she said.

Unfortunately, Angela’s story is all too common for those who become involved with multilevel marketing companies, especially women. Often, they’re enticed with promises of flexible work hours, unlimited earning potential and the opportunity to be their own bosses. But these expectations rarely match up to reality, and almost everyone ends up losing money — and sometimes friends — in the end. In fact, nearly all of the sources who spoke to HuffPost for this story requested that their real names not be used, out of concern that it could jeopardize relationships with family and friends.

What Is Multilevel Marketing?

A multilevel marketing or network marketing business uses its distributors ― also called representatives or recruiters ― to sell products. They use word-of-mouth to get these recruiters to bring on additional people who can then distribute to a wider audience.

Recruiters are compensated with kickbacks for the sales made by their “downline,” or the people they recruited underneath them. The idea behind this multilevel (some might say pyramid-like) structure is that in addition to selling products, each recruiter can also earn money off of every sale made by recruits below them, and earn even more as they recruit more people.

MLMs are big business. According to the Direct Selling Association, a lobbying group for MLMs, the industry produced $35.4 billion in retail sales in 2018. 

What is not emphasized is that only a handful of recruiters are successful; one study by AARP found 73% percent of participants either don’t make money or lose money. That number could be as high as 99%, according to a report by a longtime consumer advocate who studied MLMs.

Considering how these companies are structured, you might think they sound a lot like pyramid schemes. Despite the similarities, most die-hard direct sellers will be quick (nay, eager) to point out that these companies are notpyramid schemes. After all, pyramid schemes are illegal. But in practice, the distinction is murky.

The main difference between a pyramid scheme and an MLM is that pyramid schemes focus solely on recruiting; they make their profits from roping recruiters into a perceived opportunity rather than selling an actual product, according to Rochelle Burnside, a content management specialist who manages the MLM section for business review site BestCompany. The Federal Trade Commission points out two telltale signs that a product is being used to hide a true pyramid scheme: inventory loading (requiring sellers to purchase more inventory than they could realistically sell, at inflated prices), and a lack of retail sales (products are sold to existing and new recruits within the pyramid rather than external consumers).

Still, the FTC advises people to be wary of MLMs. Just because pyramid schemes are illegal doesn’t mean they aren’t out there masquerading as MLMs. A prime example is the company Herbalife, which in 2016 settled with the FTC by restructuring its business model and paying out $200 million to people who lost money due to shady business practices.

Moms, Mormons, Military: The Perfect Prey For MLMs

“Direct selling ― which is what MLM sprung from ― has always been associated with women,” Burnside said. Since the 19th century, she explained, network marketing companies such as Avon depended on women in rural communities to distribute their products to consumers who would otherwise have no access to them. “Avon recognized women for the marketing assets they were; women often endorse products to friends, creating a wildfire of word-of-mouth marketing.”

Since women at that time had limited opportunity to work outside the home, this was an attractive chance to make side income and gain some independence.

Today, it’s the same game as decades ago, but the playing field looks much different. Instead of going door to door with product samples and in-person demonstrations, sellers now promote via private social media groups, Facebook live presentations and Instagram posts to make sales and garner attendees for “parties.”

And while old-school MLMs such as Tupperware, Mary Kay and Avon are still alive and well, a host of new companies have sprung up in recent years. Among the most popular are makeup and skincare brands Younique and Arbonne, diet and wellness companies Plexus and Beachbody, essential oils sellers DoTerra and Young Living, and the fashion company known for its myriad printed leggings, LuLaRoe. Perhaps you’ve been contacted by an old high school friend or distant cousin on Facebook who wants you to try the latest keto supplement or skincare products from Rodan + Fields, Lip Sense or Nu Skin

Three-quarters of direct sellers happen to be women, according to the Direct Selling Association. And that’s not by accident.

To start, many of these companies sell products that women would want, which is how many become interested in the first place. “They market products that women would want a discount on, because they want to purchase them themselves,” Burnside said. “And one of the incentives of becoming a recruiter is that you can receive a discount on the products you sell.”

They also take marketing cues from online resources for moms, such as mommy blogs, as well as Pinterest boards and Instagram images. The websites, marketing materials and training documents often feature pastels and calligraphic fonts. “They’re much more colorful than your average corporate training manual,” Burnside said.

The aesthetic and ethos behind many of these brands appeal to a wide range of women, from millennials looking to make it big in the gig economy to established career women.

Take 55-year-old Houston resident Sandra, who, after battling breast cancer in 2015 and then being laid off from her high-paying position in the instructional design industry, decided she no longer wanted to be a cog in corporate America. She desired the ability to build her own business while maintaining enough flexibility to join her husband, a professional sommelier, on international trips. “I wanted to be my own boss,” she said.

A neighbor seemed to be raking it in as a Beachbody coach, and as a fitness enthusiast, Sandra saw it as a fun opportunity to change career paths. As a bonus, it cost less than $20 to get started.

However, there was little training provided about the products and how to market them, and her upline ― the person one level up who recruited her ― was of little help. “Your upline isn’t really going to help you unless you’re building a team and making sales,” Sandra said. So, she resorted to Google and YouTube to figure out how to get people to buy Beachbody products. 

“It was nothing but a bunch of stress. They make you feel like there’s something wrong with you, and if you just keep doing what they tell you to do, it’s eventually going to work,” she said.

But nobody was biting. Sandra didn’t have a nice warm market of leads ― she didn’t pick her kids up from school every day, she wasn’t in a sorority in college, she didn’t have a huge network of friends. After a long while of getting nowhere, Sandra saw an ad for a customer relationship management system and decided to put the $4,000 on a credit card to get a pool of leads. It only resulted in 20.

She also spent about $1,000 in Facebook ads to get people to like her page and build a community of people who would buy from her. “That didn’t happen,” she said. She stuck with it for about two years, working 60 to 80 hours per week, and the most she ever earned in a year was $600. “I was working my ass off,” she said. 

Traci, a 28-year-old real estate agent living in rural Louisiana, saw an MLM as a potential opportunity to make good money on the side. She learned about LuLaRoe in 2015, when another woman in her community began selling it. She started off as a customer, but was soon enticed into becoming a consultant (today, LuLaRoe consultants are referred to as “independent fashion retailers”). Though she knew the company was an MLM and the startup cost would end up close to $8,000 for basic inventory, additional packages, racks, hangers and other miscellaneous needs, the profit margins on the clothes and the success of other consultants made the opportunity seem like a no-brainer.

When she started selling in August 2016, there were only a couple of other LuLaRoe consultants in the surrounding area. And Traci was killing it. In fact, she earned about $1,500 after her launch and an additional $20,000 that year. But once Thanksgiving rolled around, “it died,” she said. The number of sellers in her community grew to 40 and the market became oversaturated. By December, she could barely pull in $500.

Years later, Traci still has boxes of LuLaRoe sitting in her house worth about $6,000 wholesale, or $11,000 to $13,000 retail. “It was just not set up to be supportive of a long-term investment,” she said. “They have no sort of market control. They only care about signing people up.” And when she complained to her upline about the problems she was experiencing, “the answer was always either buy more clothes, or find new people to sell to.”

Though women of all backgrounds enter the MLM industry, there’s one clear demographic that these companies target heavily: stay-at-home moms.

“They talk a lot about how it can be a part-time opportunity to make side income, how you can do the business from your home, and how you can set your own hours, which are all things that are appealing to stay at home mothers because they don’t want to leave their kids,” Burnside said. “The most common battle cry of multilevel marketing companies is ‘You can do this job from home! This opportunity will require as much time as you’d like to put into it.’”

Kylene, a 28-year-old mother of two who lives in Mesa, Arizona, joined Younique shortly after her daughter was born in 2017 as a way to earn income while staying home with her baby. “I was stressed,” she said. “I wondered, how am I going to go back to work? Because I don’t trust anyone to babysit my kids ... there are too many horror stories about daycare for infants.”

When Kylene saw a Facebook live feature with a woman who claimed it was possible to achieve financial freedom and be a successful stay-at-home mom just by playing with makeup, she jumped at the opportunity. 

The startup cost was $99 for a kit, plus training, which she was promised she’d be able to double right away. What Kylene didn’t realize is that the woman on Facebook was financially successful because she had a massive downline.

“There was no training,” she said. “You get PDFs of product information and then your sponsor will basically give you copy-and-paste messages to send out to everyone in your Facebook messenger.” Kylene was encouraged to create a private “VIP” group and add all her connections so that she could sell products without violating Facebook’s terms of service. Then, she was instructed to cold-message everyone who joined. “I got unfriended as quickly as I was friended,” she said.

Despite her lack of sales, Kylene was encouraged to keep buying more products. The idea was that if friends saw her wearing these new products, they’d want to buy. Not knowing any better, she did as she was told. “I maxed out a credit card putting bills on it, because I used a good chunk of my husband’s paycheck to buy makeup,” she said. She estimated she spent about $2,500 on Younique products before finally giving up after about six months. “I was way into the red versus anything that I made back.”

Perhaps the most sinister marketing tactic MLMs can employ with stay-at-home mothers, according to Burnside, is preying off loneliness. It can feel isolating to be home with the kids all day, and MLMs promise an upline of sponsors who will support them as they launch their business. “Several corners of the internet have become devoted to connecting mothers with each other, and MLMs are tapping into these networks to make their sales and recruitment,” Burnside said.

These companies also stress the lack of financial investment and barrier to entry. In fact, other than LuLaRoe’s pricey buy-in requirement, most MLMs require $100 or less to get started. “For women who have no history investing or dealing with business finance, it’s comforting to hear you can run a business without immense startup cost,” Burnside said.

Another attraction is that no formal education and little training is required, unlike other career fields. “This is where you get the stereotype that the women who never left your hometown are now representatives for MLMs,” Burnside said. “Often, the poor and less formally educated are targeted by multilevel marketing.”

In fact, it’s for these reasons that the military spouse community is a hotbed of MLM recruiters.

Traci lives near the Fort Polk Army base, and about a third of her parish’s population is made up of military families. Many of the military spouses signed on to be LuLaRoe consultants to supplement the household income while being able to stay home with the kids. “I know what these soldiers’ families make. Most of them have the two and a half kids. And they don’t have thousands of dollars to be, as my dad says, pissing in the wind,” Traci said. 

She explained that the wives of servicemembers often sacrifice college educations and careers because they’re uprooted every two to four years. And it’s they who are being systematically victimized by MLMs, she said. “These are people that lost thousands of dollars and were just being told to go deeper into debt.”

There’s also a strong religious undertone to the messaging behind some MLMs.

Utah, home the Church of Jesus Christ of Latter-day Saints, is also the unofficial MLM and direct sales capital of the world. Utah has more MLMs than any other state per capita, and at least 15 MLMs are headquartered in Utah County alone.

MLMs fit well into Mormon culture, especially the emphasis on traditional family roles that encourage wives to remain in the home raising children, and maintaining a close-knit community. 

There’s nothing wrong with observing the Mormon faith or any other religion, but it’s evident that MLMs leverage ― maybe even exploit ― their religious customer base and its values to encourage more sales. At a Plexus convention in Las Vegas earlier this month, keynote speaker Bob Heilig told attendees, “So if you are a believer as I know many of you are, here’s what you have to realize: You have a responsibility to use the gifts that you’ve been given for something far bigger than yourself. Because your gifts are much bigger than you and you have a responsibility to share them with the world. And this, Plexus, is the best vehicle you will ever have in your lifetime to do that.”

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He added: “I believe that your Plexus business is an assignment from God to help you build your faith.”

Selling The #Bossbabe Fantasy

Ultimately, the women who buy into MLMs do so in order to achieve independence, whatever that might mean to them.

Marketing and training materials for MLMs are often littered with “fake it ’till you make it” mantras and platitudes like “decide today what you want to be tomorrow,” Burnside said. The key word “empowerment” is used in a lot of their training. “They’re connected with the feminist movement to make it feel like this is something that will empower women.” 

Indeed. Perform a quick search of social media posts by MLM companies and you’ll find posts emblazoned with phrases such as “boss babe” and “SheEO.” 

Even though a quarter of direct sellers are men, there doesn’t seem to be a male equivalent for these monikers. When was the last time you saw a male friend hawking products on social media with hashtags like #boyboss? The reality is that men are synonymous with leadership. Of course they’re their own bosses. It’s not special.

But a lady boss? Well, now, that deserves its own special label ― one that reminds these “babes” that they can’t celebrate their accomplishments without also acknowledging their weakness. And MLMs harness that double standard to make the women they’ve recruited feel as if these companies provided the tools and resources to accomplish a feat they surely couldn’t have done on their own.

In reality, these women aren’t their own bosses at all. They’re not creating their own products or providing their own services. They’re not setting their own hours or crafting their own business strategies. Often, they’re slaves to social media, sales quotas and the demands of their uplines, who happen to be the ones benefiting most from all their hard work.  

The Social Cost Of Network Marketing

Aside from the financial repercussions of getting involved in MLMs, women also find that it strains relationships, both online and offline. It’s easy to understand why so many women could fall for the promises made by MLMs, but the internet at large is less sympathetic.

If you look up “boss babe” in the Urban Dictionary, you’ll find the not-so-flattering definition:

A woman who pretends to be a business owner, an entrepreneur, or a sales woman. They are that annoying lady who never stops posting on Facebook about a “great new opportunity” related to MLM businesses (pyramid schemes). They tend to hawk poor products for exuberant prices. Posts will typically contain excessive emojis, hashtags, and has faux friendliness to it.

Often referred to as “huns” (as in “Hey Hun, just wanted to tell you about this new product I’m loving right now!”), the women hawking these products have garnered a reputation among social media connections as aggressive salespeople completely lacking self-awareness.

“These MLMs encourage women to market heavily to their existing social networks, under the guise of female empowerment. That makes it hard for others to say no to an invitation to ‘join the team,’” said Kathryn Hawkins, founder and managing director of marketing agency Eucalypt Media. “And because most friends are likely to purchase a product or two as a show of support, it gives women false hope about their business’ potential.”

After all, it’s hard to say no to attending a friend’s product party or leaving empty-handed. Otherwise, you risk looking self-centered. Uncaring. Bitchy.  “They exploit social etiquette,” Hawkins said.

Numerous Facebook groups and Reddit threads are dedicated to sharing the tactless ways that huns have attempted to rope friends, family and acquaintances into their downlines. And some can be particularlyegregious

Though Angela left Tupperware and the MLM world, she still has friends and social media acquaintances who push such products and reach out to reel her back in. In November, she developed a deep vein thrombosis, a dangerous blood clot that requires her to take blood thinners, and was inundated with messages from huns suggesting everything from Plexus drinks to essential oils to replace her medication. “If I go off my blood thinners, I could die,” she said.

A constant barrage of messages and invites from MLM sellers becomes exhausting, but these women are constantly pressured to keep pushing products and sign up new recruits. Often, they have to choose between maintaining social graces or making their money back, and it’s usually the latter that wins out.

As a result, women who are messaged nonstop and duped into pitch presentations under the guise of “catching up” grow resentful. They feel used and relationships suffer. “The key to quality relationships is about being known and understood. For some, [being sold] an unwanted product is a cue that ‘They don’t really get me,’ so we’re prone to rewrite our history with this person into one that paints the seller as unkind ... even if they’ve been a great friend in the past,” Shawn M. Davis, a therapist in Tampa, Florida, told InStyle.

Not all hun victims lose hope, though. A host of resources for saving friends from MLMs have cropped up in response to the issue.

Are All MLMs Scams?

One of the biggest problems with many MLMs is that they present an unrealistic idea of what the average person can accomplish by joining.

“They bring out these millionaires to conferences and put them in the spotlight to make it seem like anyone could do it,” Burnside said. 

Obviously, for MLMs to be successful legitimate businesses, people need to be making money. And there is a small portion of sellers who do earn six figures or more. But what’s rarely highlighted is the fact that these women (and men) have the financial means, time and skills to be successful. Not to mention, they’re often early adopters who were able to build huge downlines before the market became saturated.

“I think many women get discouraged by the lack of direction and by the information they are receiving from their own upline about marketing that essentially makes it impossible to become that millionaire,” Burnside said. “They were led into the business with false expectations.”

Even so, Burnside said that some MLMs present a better earning opportunity than others. However, anyone considering joining one should temper their expectations.

“Anyone who’s saying that you’re going to make a lot of money is not telling the truth,” said Joseph N. Mariano, president of the Direct Selling Association. “You can make a lot of money, but most people don’t.”

Part of the reason, he said, is that many people get into direct selling to generate a small amount of side income and aren’t interested in building a full-time business. Others enjoy the socialization and recognition that comes along with this type of sales. “If you think you’re going to go into this and make $100,000 a year ... that requires time, energy and a lot of commitment.”

Of course, for women who shared their stories here, and for many others, all the time and energy in the world probably wouldn’t have been enough to make their businesses take off. You can’t force people to buy products they don’t want. And MLMs, by design, require a foundation of low-level participants who support a successful few at the top.

“We are not blind to the concerns or criticisms of the industry, the perceptions of the industry, some of which are frankly misperceptions,” Mariano said. “When we have literally millions of people out there who are selling and are involved, somebody is probably going to cross the line in terms of something they say about a product or particularly, an earnings opportunity. And we have to be sensitive to that because the nature of our businesses is that we don’t absolutely control these independent contractors, but we still have to take responsibility for what they say.”

Mariano recommended that anyone who does encounter a business or individual who violates the direct selling code of ethics report them to the Direct Selling Self-Regulatory Council, an organization established to monitor the industry. Mariano said that if a company does not comply with directives of the council, it will be immediately referred to the FTC.

Of course, your best bet is probably to avoid getting tangled in an MLM in the first place. Unless you’re one of the very lucky few who make a successful living from direct sales, it’s likely not worth your time and money.

If gaining financial independence is a goal you really want to pursue, you’d be better off investing in the education and resources needed to grow a real career. As Traci summarized it: “If I had put 50% of the time and effort I put into selling one-off leggings and dresses back into my real estate business, I’d have made well over $100,000 that next year.”

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