iStock / Getty Images
Have your Facebook friends bombarded you recently with sales pitches for vitamins, kitchen utensils or dietary supplements?
Very likely, yes, judging by a recent discussion in my HerMoney Facebook group about multilevel marketing (MLM) companies —Amway, Avon, Herbalife and others that use independent sellers to hawk their goods and recruit other distributors. Several group members said they noticed an uptick in online product pitches or recruiting activity by MLM participants. “I've actually had to hide all posts from one friend who was posting product promotion daily,” wrote Chicagoan Resa Hoeller.
Multilevel Marketing at a Glance
Illustrations by Sam Island
You sign on as a distributor and buy products from the company.
You try selling products to family, friends and strangers.
Make a sale? Part of it is pocketed by the person who recruited you … and the person who recruited that person.
You try recruiting more distributors. If you succeed, they start back at step 1. And so on.
If you're unemployed or under-employed, MLM (also known as network marketing) might look like a good way to raise cash. But the reality usually doesn't match the promise. One in 13 U.S. adults have tried multilevel marketing at some point, according to a 2018 AARP study. Only one-quarter of those participants, however, made a profit. Nearly half of the distributors lost money; about one-quarter broke even. Of those who came out ahead, more than half earned less than $5,000. And since April, the Federal Trade Commission (FTC) has chastised 12 MLM companies over claims that they or their representatives have made about seller income during the COVID-19 crisis.
Still interested in MLM? Before you join, figure out if a company is legitimate, advises Kati Daffan, assistant director of the FTC's marketing practices division. Among the red flags are promises of over-the-top earnings potential and an emphasis on recruiting more distributors, rather than selling products, to make money. Look for reports that sellers have to buy more merchandise than they want to use or can resell, she says. And check whether the items to be sold are available elsewhere for a similar price or less.
Finally, consider whether you want to be a salesperson. Do you have a solid sales plan plus a network of people who could be repeat customers?
Many people realize that they don't. The most common reason for giving up, AARP found, was awkwardness in selling to family and friends — who perhaps are facing their own financial difficulties right now. “The social media part is frustrating to me,” Hoeller posted. “I'd like to see family pics and stuff, but not the products.”
Every MLM company should disclose distributors’ average earnings. That average, though, may obscure typical results. “Many of these companies have costs associated with them. And they can be significant,” Daffan points out. Figures including all distributors are more realistic than those including only currently active ones.
So, if you're an unwilling target of friends’ pitches, what should you do? When they approach you with a business opportunity, “they're reframing the situation,” says Chris MacDonald, who teaches business ethics at Ryerson University in Toronto. “Once they put you in a situation where they're talking business, you have every right to be businesslike in response.” That means it's OK to answer “No, thank you.” And if they persist? “They are demonstrating that they aren't valuing your friendship but treating you as a profit source,” he says.
Save 25% when you join AARP and enroll in Automatic Renewal for first year. Get instant access to discounts, programs, services, and the information you need to benefit every area of your life.
In that case, take a page from HerMoney member Julie Curtis, who noted that a friend's constant selling got to be too much. “I chose to snooze her posts for 30 days,” she wrote, “just to take a breather from her advertisements.
— With additional reporting by Rebecca Cohen