Everyone, especially girls, with a social media account has received a message like this one:
Hey girl!! You seem like a really awesome gal, I love your page! I’ve got an amazing business opportunity that you would just make a killing at! Let me know if you’re ready to become a boss babe and own your own business!
‘Boss babe’ is the term that has been given to these people that reach out to advertise an ‘amazing business opportunity’, that opportunity being a place in an MLM. MLM stands for multi-level marketing, and these companies are everywhere. Herbalife. Mary Kay. Younique. Avon. Monet. LuLaRoe. BeachBody. I could go on. But, when you type ‘MLM’ into oh-so-useful Google, the words that also appear are ‘pyramid scheme’ and ‘scam’. The term ‘pyramid scheme’ is so often tossed around, yet few know what it actually means other than the fact that it’s illegal, and how it differentiates from multi-level marketing companies, which are legal. We’ll come back to the difference in a moment.
So, you may be asking yourself, how does one own their own business while in a company? The attraction of MLM’s for many, especially stay-at-home moms, is that you are able to set your own hours, and work when you choose, in the same way that owning your own business might work. But, that is where the similarities mostly end. Because, in an MLM, you do have someone above you. This is your upline, most likely the person that recruited you in the first place. In many cases, you are likely part of a ‘team’, which that person leads. Your job is to sell the product that the company sells, which could be anything. Herbalife sells supplements, BeachBody sells workout plans and associated products, Mary Kay and Younique sell cosmetics. When you become a ‘boss babe’ and make a sale, you earn commission off the sale. Your upline also makes a commission, as does their upline, and their upline, etc. But their commission doesn’t only come from your sales, it also comes from your purchases, as many of these companies require their salespeople to hold their own inventory. So you purchase your inventory which you then sell to the public, and your upline and their uplines make commission off it all.
However, you and all those uplines often must make a certain minimum of sales each month to be able to claim your commission to begin with. This is why the people at the top of MLM’s, and pyramid schemes, make so much money. This is also where the difference between an MLM and a pyramid scheme becomes apparent. The Federal Trade Commission writes: “If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s probably not.”
So, the question then becomes: is the majority of your profit, and the company’s profit, made from recruiting others? Or from direct sales?
But, the difference between the two is not the point of this article. Just because an MLM is legal, doesn’t mean that it’s the ‘amazing business opportunity’ the boss babes would have you believe. Dr. Jon Taylor of the Consumer Awareness Institute writes that less than 1% of people make a profit in MLM’s. His study relied on the findings of an investigation into Amway operations in Wisconsin. The investigation found that the average yearly income for this 1% was $12,500. However, to be able to continue to participate in an MLM, salespeople must continue to invest any profit they make back into ordering inventory to sell, because one cannot make a profit if they do not have inventory to sell. Furthermore, this is during the duration of one’s ‘employment’, when you are in the company.
Often, MLM’s will require that you ‘pay to play’, meaning that potential salespeople will have to purchase an onboarding package to be able to begin their work in the first place. Prices range from BeachBody’s $50 fee (plus $18 monthly), to LuLaRoe’s $9,000 fee (this is only one of the several onboarding packages they offer). When taking this investment and re-investment into account, the average yearly income for the 1% of people generating a profit in an MLM was $900 or less. This is well below what is considered to be low-level income, and is not a liveable wage by itself. Dr. Taylor also noted that MLM’s, ‘amazing business opportunities’, are notoriously hostile to publishing income statistics, though it is important to note that it is not a legal requirement to do so. That being said, many businesses will publish this information voluntarily. VICE created a documentary on YouTube focusing on three different women dealing with the fallout of having been in an MLM, entitled ‘Why Women Are Quitting Their Side Hustle’, which I highly recommend.
So, that’s the monetary side of MLM’s. But what about the people that they ‘employ’? MLM’s have often come under fire for misrepresentation: whether it be of the effects of the product they sell, or the income they claim their representatives rake in. This extends to the way the representatives are displayed. For example, when you hire a personal trainer at a gym, you expect that they have gone through the relevant training necessary to help you make a positive, healthy change. But personal trainers are expensive. So, it is not the least bit surprising that the less-expensive BeachBody has erupted over the last several years. Their ‘coaches’ also claim to possess the tools to help you make a positive, healthy change. But how would you feel putting your health in the hands of a BeachBody ‘coach’ if you knew that the only requirement to apply to be a coach is that one be a minimum of 18 years of age, and possess a SIN?
Our skin is the largest organ on our body, so it stands to reason that if you purchase cosmetics or skincare to put on it, you would want to purchase from someone with the knowledge to make knowledgeable, safe recommendations. Younique is an MLM that that sells makeup and skincare through their consultants. However, Younique does not require that consultants be trained makeup artists or estheticians, professions that teach not only the application of makeup and skincare but also the importance of sound hygiene.[1]Fueling our bodies is also a top priority for many. Supplement and nutrition MLM Herbalife, perhaps one of the most notorious MLM’s out there, does not require that its salespeople have a degree or any certification in nutrition[2].
With all this information in mind, you may be wondering how these companies continue to operate and destroy the lives of many. After all, the university student writing this in her bedroom at 1AM can’t be the only person who knows all these dismal facts. The news isn’t all bleak: prosecutors are beginning to move on MLM’s, and hold them accountable for taking advantage of people simply looking to make some extra income. Journalists are also taking action, drawing attention to the injustices of MLM practices.
In 2019, the Washington State Attorney General’s office filed a lawsuit against LuLaRoe, accusing them of being a pyramid scheme. Their clothing supplier has also sued them, claiming that bills have not been paid in close to a year and that the owners are hiding their assets in shell companies. The Better Business Bureau has assigned the company an F grade.
Following an FTC investigation beginning in 2014, in 2016 Herbalife was ordered to pay a $200 million settlement for violation of anti-pyramid scheme legislation, citing the company’s heads pushing the downlines to recruit more salespeople rather than sell Herbalife’s products. Compensation from the $200 million settlement was awarded to 350,000 consultants in the United States. Herbalife was also ordered to restructure their business model. A video targeting Herbalife posted by comedian John Oliver to YouTube also went viral this year. Herbalife has many Better Business Bureau webpages, however, the grades given to each page are not consistent.
In 2011, physician and medical journalist Dr. Harriet Hall published an article, debunking many of the claims supplement MLM Isagenix made about its products. She warned that the amounts of Vitamin A in some of the products were dangerously high. Australian consumer organization CHOICE reported that unqualified distributors were also giving medical advice to customers, despite not having the education or training to do so. It also drew attention to the fact that the claims Isagenix makes about its ‘detox’ products are not scientifically supported. Isagenix has several Better Business Bureau pages, most of which are relatively empty.
In 2018, the Philadelphia Enquirer published the results of an investigation into Beachbody, and found that the average yearly income for a BeachBody coach was $2,600, not accounting for mandatory expenses ($18 coaching fee per month, and a mandatory $130 per month shipment of Shakeology health shakes). The keynote speaker at this past year’s BeachBody Summit, Rachel Hollis, has been accused by Buzzfeed News and others of plagiarizing work, though it is important to note that these are not claims that have been taken up in court.
Anyway has also seen its fair share of legal trouble. In the 1990’s, several Amway distributors were involved in a lawsuit after committing defamation against the then-CEO of Proctor and Gamble. The distributors claimed that the CEO was a practicing Satanist and made regular donations to the Church of Satan, as well as claiming that the logo of Proctor and Gamble was a Satanic symbol. The case dragged on for years and was finally settled in 2008, with Proctor and Gamble being awarded a $19.25 million dollar settlement. In 2006, a class action lawsuit was filed against Dr. Phil, who at one point had had a supplement line within Amway, by individuals who claimed that the products did nothing to support their marketing claims. They were awarded a $4.5 million dollar settlement.
I want to end on a positive note. It is worth noting that not all leaders in MLM’s wish to take advantage of their salespeople and customers. Cosmetics and skincare company Beauty Counter has been making waves for breaking from the traditional MLM setup. There are two main differences between Beauty Counter and traditional MLM’s: the first is that salespeople are not required to make monthly purchases in order to receive their commission cheque. The second is that the products are available for purchase from the company’s website, meaning that consultants are not the only way a customer can purchase. I share this with you for encouragement: not all MLM’s are conniving, and there is nothing wrong with wanting to add to your income. As the main audience for this publication is students, you yourself may feel this need more than others. But, the age-old saying remains true: if something seems too good to be true, it likely is. Protect yourself (and your bank account), and do your research. No ‘amazing business opportunity’ is worth losing what you’ve already worked for.
Sources:
Federal Trade Commission’s page on pyramid schemes: https://www.ftc.gov/public-statements/1998/05/pyramid-schemes
Federal Trade Commission’s page on multi-level marketing companies: https://www.ftc.gov/tips-advice/business-center/guidance/multilevel-marketing
Dr. John Taylor’s work:
VICE’s ‘Why Women Are Quitting Their Side Hustle’: https://www.youtube.com/watch?v=L6eujSJ0-RU
The State of Washington v. LuLaRoe, Mark Stidham, Deanne Brady/Deanne Stidham, and Jordan Brady: https://www.truthinadvertising.org/wp-content/uploads/2019/01/Lularoe-WA-Pyramid-Complaint.pdf
FTC Investigation into Herbalife: https://www.ftc.gov/news-events/press-releases/2017/01/ftc-sends-checks-nearly-350000-victims-herbalifes-multi-level
May 2019 Update on the FTC Investigation into Herbalife: https://www.ftc.gov/enforcement/cases-proceedings/refunds/herbalife-refunds
Dr. Harriet Hall’s Article on Isagenix: http://junkfoodscience.blogspot.com/2006/11/can-you-really-cleanse-your-way-to.html
CHOICE’s Article on Isagenix: https://www.choice.com.au/health-and-body/diet-and-fitness/weight-loss/articles/isagenix
Philadelphia Enquirer Article on BeachBody: https://www.inquirer.com/philly/news/beachbody-shakeology-isagenix-instagram-pyramid-schemes-20180521.html
BuzzFeed News’s Claims about Rachel Hollis: https://www.buzzfeednews.com/article/stephaniemcneal/rachel-hollis-girl-wash-face-accused-plagiarizing-quotes
Result of Proctor and Gamble v Amway case: https://www.nytimes.com/2007/03/20/business/worldbusiness/20iht-satan.4966053.html
Result of Class Action Lawsuit against Phil McGraw, Amway/Nutrilite: https://www.latimes.com/archives/la-xpm-2006-sep-26-fi-drphil26-story.html
[1]Younique does have a training program for consultants centering on their products, after which they may be referred to as ‘Younique makeup artists’, however, this should not be confused with cosmetology school.
[2]Literature on Herbalife products is provided to consultants/salespeople, but this is not equivalent to a nutrition degree.
