When Donald Trump and Republican leaders wanted a “small business owner” to address the GOP convention, they chose Floridian Michelle Van Etten. Republican convention information touted her as running “an international multi-million dollar network marketing business.” Sounds great. But is Van Etten really a small business owner?
Van Etten participates in a multi-level marketing program (MLM) selling nutritional supplements and other products, recruiting others to sell too.
Multi-level marketing programs may be called by many names: network marketing, direct selling, referral selling, matrix selling. There are MLM programs for just about every kind of product or service, including nutritional supplements, household products, cosmetics, diets, telecommunication services. Individual MLM programs are often under scrutiny by the Federal Trade Commission and state attorney generals for deceptive practices and operating as pyramid schemes.
You’ve probably received dozens of offers from friends who participate in MLMs to “make money in your spare time” and “own your own business.” I’m willing to bet these friends are filling up your Facebook and Instagram feeds touting the astonishing success of their products.
It’s annoying. But are they right? Will you own your own business? Make money in your spare time?
MLM programs work by having participants recruit other participants. In normal – or “single-level” – sales, I make money off sales I make to my customers. It’s straightforward.
In multi-level sales, I make money off my sales and also the sales of those I recruit to become salespeople. Theoretically, this should bring me much greater income. For instance, in a single-level situation, if Chris sells $1000 worth of products and gets 20% commission, Chris makes $200. In an MLM scheme, however, if Chris recruits Brianna to become a salesperson and Brianna makes $1000 worth of sales, Brianna would make $200, and Chris gets a small commission of Brianna’s sales too, perhaps 5% or $50. If Brianna recruits Lisa, both she and Chris make small commissions off Lisa’s sales. And on and on.
Sounds great, right? But in every case, the participants are either required or encouraged to spend most of their time recruiting others rather than making sales. And everyone is pressured to buy lots of products, marketing materials, sales training, and more.
You can see why this is a great business model for the parent company. Owners of parent MLM companies often get fabulously rich. Forbes listed Richard deVos, founder of Amway, as the 84th wealthiest man in America, worth $5.7 billion, and estimated Katie Rodan and Kathy Fields, founders of Rodan & Fields, to be worth $550 million each.
But that doesn’t mean you – or the average MLM participant – is going to get rich. Far from it.
The likelihood of you making more money than you spend is very small. In Canada, companies are required to disclose how much average active salespeople earn from MLM programs. Their conclusion: “Most participants in MLM plans make less than $2,000 per year.” And those are Canadian dollars – or about $1500 in the US. Between buying products and training and marketing materials, you’re likely to spend much more than that.
Don’t tell yourself you’re going to be different. Here’s why:
- You recruit your competition: There are only so many people in your church, family, or Facebook friends, eventually all selling to the same prospect base.
- You pay to be a customer: Overwhelmingly, buyers of MLM company products are MLM salespeople.
- Your products are priced too high: You’re almost certainly able to find similar products cheaper. All those layers of salespeople and commissions means higher prices.
- You’ll buy other stuff: Expect to be required or pressured to buy samples, marketing materials, training courses, pay for websites, and so on.
- You’ll offend your family and friends: MLM programs typically suggest you sell to – and recruit – people you know well. Expect to be blocked on Facebook.
Before investing your time and money in a multi-level marketing program, do your homework. Look at websites and reviews from people who’ve left your particular MLM program. You might also check out www.pyramidschemealert.org.
If you sign up for one of these schemes, you may be called a number of things: small business owner, distributor, consultant, team leader, home-based business owner. But, remember, what you are – first and foremost – is a CUSTOMER.
Copyright, Rhonda Abrams, 2016
This article originally ran in USA Today on July 20, 2016