A new friend on base invites you to their home for a small gathering. You're excited! At first, everything proceeds like a normal party – there are snacks, new people to chat with, and mildly awkward pauses in conversation. Then your new friend gives a short presentation about a business they've just started. Maybe it sounds tempting. The product they're selling seems cool, and your friend says they use it themselves (at a wholesale discount!). They get to be their own boss and set their own schedule. If you're interested in a little extra money, they can help you get started. You look up the company on the internet, and they seem legit. There doesn't seem to be a big commitment to get started. What could it hurt? Statistically, you. Best case, you make a few thousand bucks over the next year at well below minimum wage. More likely, you break even. Most likely, you lose money and time. This is multi-level marketing.
What is Multi-Level Marketing (MLM)?
Multi-level marketing (MLM) is a business model in which products or services are sold by a network of salespersons who don't receive a salary. Participants earn money through sales commissions and through the purchases of people they recruited for sales. Since the term MLM has developed a bad rap, companies also refer to this business model as:
- Direct sales / direct selling
- Network sales / network marketing
- Referral marketing
- Relationship marketing
MLMs sell all different kinds of things – dietary supplements, cosmetics, candles, jewelry, sex toys, and more. Some digital MLMs sell courses or access to information, rather than a physical product.
Why Are Direct Sales Opportunities Attractive to Military Spouses?
Millions of people enter into direct sales enterprises every year – it's a business model that's got broad appeal. However, the arguments that attract everyone else are extra appealing to military spouses because of their unique circumstances. For most people, the idea of flexible employment and being your own boss is attractive. For military spouses, it may feel like your only shot at a steady income. Frequent moves between remote locations mean that jobs are hard to come by. That's why military spouses are four times more likely to be unemployed than civilians. A shot at financial independence can sound like a dream, and if that opportunity is practically begging you to join in? It's a no-brainer. The social aspect of MLMs is also attractive for many – you sell products by throwing parties, and you build your network by working with friends and family. Being a military spouse is lonely and isolating. Direct selling representatives often emphasize the ability to make new friendships and strengthen community bonds.
Why is Multi-Level Marketing Bad?
Here's the problem: you almost certainly won't get the benefits you want from multi-level marketing. Multiple studies, surveys, and lawsuits bear that out. MLMs are bad news on multiple levels. Nearly everything they promise is a lie. Here's the reality.
You Won't Really Be Your Own Boss (or a Business Owner)
If you join a direct selling enterprise, you will be an independent contractor when you file your taxes. That means you'll get the privilege of paying both the employer and employee parts of federal taxes, you'll have to invest in your own inventory, and you're on the hook for all the risk. But that's where the similarities to being your own boss end. You'll have no control over:
- What you sell
- What you charge
- How much your "supplier" charges you
- How you advertise and what you say about the products
You won't have the type of control and independence that you're imagining. All the risk will be yours. All the control will be theirs.
You'll Almost Certainly LOSE Money
Multiple studies with different methodologies have come to one conclusion: the vast majority of MLM participants actually lose money during their tenure. Even if you make money, the earnings will be modest. One independent analysis of 350 MLMs found that overall, 99.6% of MLM participants lost money. Let that sink in. That's almost everyone. Now, when we say "make" or "lose," we're talking about your net income. As an independent contractor, you have expenses (including inventory in fixed costs at fixed quantities). It's not that 99.6% sold nothing, but their expenses outstripped their modest income. How modest? One survey of U.S. MLM participants found that earnings worked out to roughly 67¢ an hour BEFORE expenses. Of the participants:
- Almost 20% never made a single sale, even though they intended to
- Nearly 60% made less than $500, BEFORE expenses
- Median earnings before expenses were $18.18/mo
When the AARP conducted similar research, they found:
- Almost half lost money, while another quarter broke even
- Only 1 in 4 participants turned any kind of profit
- Of those that turned a profit, 53% made less than $5,000
- Only 7% earned more than $10,000
- 67% said they wouldn't join the same company again, knowing what they know
These companies have such complex compensation structures, it obscures how little you'll really make. Some companies will show you income reports that don't reflect these failures. That's because they cherry-pick who counts as an "active" participant. If you're actively trying to make money and failing, your data isn't counted.
You'll Make Someone Else Rich
If 75 to 99% of participants make no money at all, where does all that cash go? To the top of the pyramid. The promise of passive income is the big pitch in most MLMs – recruit other salespeople, build a network below you, and a portion of their efforts will flow to you. It's often pitched as "work smart, not hard." But the way these commissions work is that most of the money is passed upward indefinitely, so the passive income they promise you ends up enriching just a few. One study found that at least half of the company payout goes to less than 1% of participants (and in many cases, it's a fraction of 1%). Everyone else earned less than $14 a month from their "downline" (the people they recruited, their recruits' recruits, etc). That's not going to support the lounge-by-the-pool lifestyle they promise.
You'll Do More Buying Than Selling
Some MLMs have a mandatory initial buy-in. In other cases, inventory purchasing is technically optional, but they incentivize and pressure you to purchase. For example, you won't be eligible to earn those (mostly imaginary) commissions without a qualifying purchase. And you'll be pushed to buy more inventory on a regular basis, even if you haven't sold a thing. That's because your "uplines" – the person that recruited you and everyone above them – have a vested interest in pushing you to buy inventory. Making YOU buy inventory is the only way they can make money because ultimately, nobody wants the product. Amway/Quixtar, the oldest and largest MLM, has freely disclosed that less than 20% of its products are purchased by someone outside their own sales structure. Some direct sales companies promise to buy back unused inventory, which can set your mind at ease. Unfortunately, most MLM participants either miss the sell-back deadline or are too embarrassed by their own "failure" to ask for their money back.
You'll Alienate Your Community
According to a survey, 26% of participants have fought with family or friends because of an MLM, and one in 8 lost a friend as a result. Far from helping you make friends, direct selling might cost you some. Network marketing can lead to tension in a few ways:
- Someone buys the product from you at an inflated price (set by the MLM) based on an exaggerated claim (prescribed by the MLM) and is upset when the product doesn't perform as promised
- Someone joins the MLM at your urging, and they lose money directly as a result of exaggerated claims and the pressure tactics you're forced to use if you want that passive income
- Someone gets tired of you trying to sell them product or recruit them as a participant.
By encouraging you to make exaggerated promises and pitch to your "existing network" (ie, friends and family), an MLM is asking you to pester and lie to the people closest to you. At the very least, many will stop answering your calls for a while. The chance of making new friends this way is similarly slim. And military communities are so saturated with direct sales representatives from virtually every company, finding someone new to sell to and recruit quickly becomes an impossible task.
A Better Road to Success for Military Spouses
You'll almost certainly regret getting involved in multi-level marketing. You'll probably lose money, you might lose relationships, and you'll definitely lose the opportunity to find real, fulfilling work. We know it's hard to find a job as a military spouse (and find one again and again time you PCS). So does the DOD – that's why they offer scholarship money for military spouses to train in high-demand, "portable" professions. Some of these portable jobs get you out of the house and are abundant near bases. Others are remote, so they can go with you when you move. Either way, they offer real, reliable money that you can start to earn in two years or less. Check out our catalog of MyCAA-eligible careers and start securing your future today!