Multi-level marketing (MLM) has been the subject of much controversy, with some claiming it is in fact a pyramid scheme. This is because the business model inevitably requires constant recruitment for sellers to make money. By design, the people at the bottom, who have no one else left to recruit (I mean, there are only so many people you can manipulate into joining) are the ones who are most vulnerable. A report from the Consumer Awareness Institute found that 99 per cent of people either don’t make money or actually lose money from MLMs. Before diving into the twisted world of MLMs, let’s quickly define MLM and pyramid schemes.
MLM is a marketing strategy where companies use a network of independent distributors (referred to as a “downline”) to sell products to customers. These distributors are compensated for selling the company’s products as well as the sales of the distributors they recruit into the company. This creates a system: people who have built the biggest downlines earn the most money because they’re profiting from selling the product themselves but also from the sales of everyone beneath them. According to the Government of Canada, “Pyramid selling focuses on generating profits by recruiting others and not primarily from the sale of products. Thus, even when these schemes offer products, the products may have very little value, or few incentives for their sale.”
If these two business models sound similar, that’s because they are. The line between them is thin, and many MLM companies—including Amway and Herbalife—have been taken to court for this exact reason (among others). Some people argue that MLM is a legitimate method of marketing because they are selling a product and the added incentive for recruiting new sellers is just a bonus. However, the top sellers in MLMs only reach that status by recruitment. You simply can’t make that much money on product sales alone. Hence, if sellers want to be successful, they have to recruit people to join their downlines.
MLMs typically prey on vulnerable people including stay-at-home parents, students, or people simply trying to make ends meet by exaggerating potential earnings and promising them the ability to “work from anywhere” or “become their own boss.” Looking at statistics, we know most people lose money from joining MLMs, leaving them worse off financially than they started out. This exploitative practice is harming society, relationships, and families. When sellers realize they’re at risk of losing money, they may feel pressured to recruit people—this is what they’re taught by their mentors, or “uplines.” Many people involved in MLMs end up ruining relationships with their family and friends by asking them to buy overpriced products or join a scheme that will cost them even more money.
Now that you’re probably terrified of MLMs, you’re likely wondering if affiliate marketing is the same as MLM. Affiliate marketing involves promoting a company’s products or services in exchange for a commission on sales or referrals. You’ve probably seen those “share this with a friend and you’ll both get $5 off” links on certain websites—that’s affiliate marketing. What makes this different than MLMs from a business model perspective is that when your friend, whom you referred, refers more people to the product or service, you don’t get a cut of their earnings. There’s no reward beyond the initial financial incentive of saving $5. You’re also not recruiting anyone. Of course, don’t spam your friends with those referral links. That’ll annoy anyone.
Finally, I want to leave you with some tips to keep yourself safe from these predatory, harmful schemes. Be wary when a business opportunity emphasizes “recruitment,” this often implies there is an upline and downline, which are key indicators of an MLM. Promises of high returns in a short period of time or a simple way to make easy money are also sale tactics used by those in MLMs. Finally, be cautious of complex commission structures. If someone feels compelled to prove why they are not in an MLM, then chances are they are in one indeed.
Staff Writer (Volume 49) — Hannah is a third-year student double majoring in Communications, Culture, Information and Technology and Professional Writing and Communications. In her spare time, Hannah can be found running her sticker shop The Aesthetics Studio and listening to true crime podcasts while drawing. Hannah’s previous publications include UTM's Professional Writing and Communication official journal of creative non-fiction Mindwaves Vol. 15 and research in Compass Vol. 9. Hannah was also an associate editor for Compass Vol. 9. Find Hannah on Instagram and LinkedIn.