Multi-level marketing (MLM) schemes reached a ‘record high’ in 2020, but are they truly profitable for those at the bottom?
Multi-level marketers make revenue in two ways: commission from selling products or by recruiting others and profiting from those sales, who then also go on to recruit others, known as ‘downlines’.
It might sound like an illegal pyramid scheme, but MLM businesses like Scentsy, FM World and Herbalife are legal, even though reports say you’re very likely to lose money. Research by the Federal Trade Commission (FTC) shows that you have a better chance of profiting from betting on a single number on a roulette wheel than joining an MLM.
Unfortunately, MLMs are on the rise. A January 2021 report from the Direct Selling Association (DSA) describes these companies as a ‘success during the pandemic’. The report continues, revealing that the number of businesses who experienced a positive impact in 2020 reached a ‘record high’.
Three out of five who join an MLM make no sales at all
We analysed 30 income disclosure reports from MLM companies and found that almost three in five sellers (57%) make no sales whatsoever. We found several MLM companies cost between $67 and $99 (£49 and £72) to join, asking you to invest before you even begin to sell, decreasing any annual profits even further.
Betting on a single number on a roulette wheel is more profitable than an MLM
The FTC research shows that after expenses, just 0.4% of people make a profit in product-based or recruitment-driven MLM schemes. That’s even less than gambling, where the same study revealed a 2.6% profit from betting on a single number on a roulette wheel in Las Vegas.
Those who make any sales earn just $411 (£299) a year, on average – but that’s pre-expenses and NOT profit
The majority of multi-level marketers (57%) will make nothing at all. After analysing the amount earned by those who do make any MLM sales, we found that the average seller will earn just $411 (£299) per year or $34.25 (£24.91) per month, on average. But it’s worth remembering that this is pre-expenses and shouldn’t be considered as profit.
One in 10 (10%) earn between $612 and $1,200 (£444 and £864) annually, on average, again which is pre-expenses. This is compared to the one in three (33.6%) who earn between $12-$600 (£12-£432) per year on average, again before expenses.
You would need to sell over 4,000 wax melt bars to make the median UK wage
We researched some of the bestselling products from MLM companies to see how many you would need to sell to earn the annual UK median wage. This doesn’t consider the fact that for many multi-level marketers, they may only receive a portion of their commission from product sales and may have expenses, so they could potentially need to sell even more.
If you’re with The Body Shop at Home, you would need to sell 6,292 tubes of their popular Hemp Hand Protector to earn the median UK salary of £31,461, according to the ONS. Or if you’re a Scentsy distributor, the UK wage is equivalent to selling 4,339 wax bars a year. Some MLM companies have higher-priced bestsellers, such as Arbonne, but even then, you’d need to sell 983 bottles of their Makeup Primer to earn £31k.
MLM companies admit that their sellers won’t make a profit
While some sellers might be able to earn some money through an MLM, this doesn’t necessarily equal profit. After investigating the fine print, we found several company reports admit that their figures aren’t representative of profit as they exclude business expenses.
One report said, ‘These figures do not represent a profit, as they do not consider expenses incurred by a Brand Affiliate in the promotion of his/her business. Common expenses may include, but are not limited to, travel, office supplies, license fees, insurance premiums, and legal or accounting fees.’ Another stated, ‘These figures do not represent profits, as they do not include expenses such as renewal fees, event registration, etc. incurred in the promotion of their businesses.’
Are you part of an MLM? See how much money you really make
If you’re part of an MLM or are thinking of joining one, we delved into their financial data and reports to reveal shocking statistics which may make you reconsider.
- Just 21% of Amway Retail Consultants earn any money at all; those who do earn money make an average of $59 (£43) per month.
- Of those who earn anything at all, 57% of Arbonne Independent Consultants earn just $715 (£519) a year. 8% make $14,584 (£10,591) annually, but it takes 20 months to get to that level, on average. Less than 2% of Independent Consultants achieve the ‘VIP Success Award,’ which gives the person cash towards financing a white Mercedes-Benz.
- Just 4.4% of Avon Representatives earn a wage of $30,000 (£21,786) and above. Commission earnings start at 20%, meaning you would need to sell $100 (£73) worth of products to earn $20 (£16).
- 50% of dōTERRA Distributors did not receive any earnings. The top 10% of earners made just $230 (£167) a month or more. Only 1% of Distributors received $860 (£625) per month or more.
- The first step of FM World’s Marketing Plan is to ‘Be your first customer. As a Business Partner, you can buy high quality FM WORLD Products… By using the products, you will consolidate your skills and knowledge.’ This means you need to buy products to gain ‘experience’. These can be sold at markup, but FM World’s example of profit on a $14 (£9.99) product is just $3 (£2). #
FM World also suggests you ‘build your own Group of independent Business Partners’ to earn more, showing this as a ‘properly built structure’, which you can find in the FM World Marketing Plan.
- 87% of Forever Living Business Owners did not receive any earnings. Of those who do make money, the majority earned $105 (£76) per month, on average.
- The top 1% of Herbalife earned more than $14,755 (£10,715) in a month, but it takes between five and eleven years to reach this level.
- 94% of Monat members make $119 (£86) annually, on average. Less than 1% earn $18,462 (£13,407) or more per year.
- 82% of NuSkin Active Brand Affiliates will earn nothing in sales compensation payments. 12% make $33 (£24) per month, before expenses.
- The average annual commission payment for a Scentsy Consultant is just $190 (£138). Half of Consultants earned less than the median annual commission, which is $69 (£50).
- The Body Shop at Home gives you 25-30% on sales, so if you sold $100 (£73) worth of products, you would earn a maximum of $30 (£22).
- Usborne Books Organisers can earn a maximum of 24% in commission, or around $24 (£18) on a $100 (£73 order). You can receive a 2% bonus if your sales exceed $1,652 (£1,200) in a month. Organisers must also pay the retail price of their Starter Kit if they do not earn $165 (£120) in the first three months.
‘I maxed out my credit card to keep my upline’s status’
Sadly, there’s no shortage of MLM horror stories online. Here are some of the more shocking accounts we found on Reddit.
‘I lost $4,800 (£3,455),’ says one Reddit user. ‘The primary goal was always to recruit. Recruit, recruit, recruit, they'd always say. Once you recruit someone, it's required for them to get a policy before we even start “training them”. Training, of course, meant calling up a list of people they knew so we could try to recruit them too.’
Another Reddit commenter said, ‘I maxed out my credit card because I thought my social media skills were savvy enough to sell and recruit. Turns out I still had to spend $140 (£101) per month to keep myself an active rep and uphold my upline’s status.’
8 tips to spot an MLM scheme
- MLM sellers normally post about the ‘opportunity’ on social media posts, but only reveal the company in a private message.
- Or you might receive a message about the ‘opportunity’ on social media out of the blue, either from a stranger, old acquaintance, distant relative, etc.
- A salesperson offers sample products or testers for a small cost before trying to recruit you.
- MLM sellers often refer to themselves as ‘business owners’ or the ‘CEO’ of the company.
- You are asked to pay a fee to join the business before you have earned any money or need to buy your own inventory upfront.
- MLM companies will advertise that you can work from home, entirely from your phone.
- You must report to an upline and are encouraged to recruit others to earn an income.
- No experience or qualifications are required to join the business.
Instead of joining an MLM, see our 10 easy side hustles and find ways to safely and legally top up your disposable income. Find more money-saving tips in the Ocean Finance blog, including our 100 saving hacks.
Ocean Finance studied the most recent income disclosure reports for 30 multi-level marketing companies to find the average income earned by the majority of sellers, plus the percentage of sellers which make no income at all.
All other statistics specific to each MLM company are sourced from their income disclosure reports.
We also compared the bestselling products by selecting the first product listed in the ‘bestseller’ category from each MLM company’s website to show how many of these items may need to be sold to earn the UK annual median wage, according to the latest ONS figures.
Data collected in Q2 2021. Conversions between USD and GBP made using Google Finance.
Disclaimer: All information and links are correct at the time of publishing.BACK TO BLOG HOME