The Reality of Multi-Level Marketing
Discussions surrounding multi-level marketing (MLM) businesses often ignite passionate debates, especially among mothers. Many advocates passionately defend their ventures and achievements, while skeptics are quick to deem these opportunities as scams. A glance at the comments section of any article about MLMs reveals a heated exchange.
However, the statistics regarding MLMs and their success rates are stark. The grim reality is that 99% of women who embark on this journey end up losing money. This statistic isn’t just a product of disgruntled former consultants but comes from a report prepared for the Federal Trade Commission (FTC) by Jon M. Taylor, MBA, Ph.D., of the Consumer Awareness Institute.
What’s particularly infuriating is the deceptive tactics often used to attract new consultants. MLM leaders frequently cite misleading figures to downplay the risk of failure. “MLM promoters often claim that the failure rate of small businesses is between 90-95%,” Taylor’s report states. However, organizations like the Small Business Administration (SBA) reveal a much more favorable picture: 44% of small businesses survive at least four years, and 31% endure for at least seven years.
In fact, according to the National Federation of Independent Business (NFIB), around 39% of businesses are profitable over their lifetime. In contrast, the loss rate for MLMs stands at a staggering 99%, meaning that fewer than one in 100 MLM participants actually turn a profit. As Taylor notes, even your chances of having a good night’s sleep with newborn triplets are greater than succeeding in an MLM.
The Personal Cost of Joining MLMs
The financial burden of MLM participation can be significant. For instance, individuals joining companies like LuLaRoe typically invest around $5,000 initially, and they must purchase a minimum of 33 items monthly to stay active. As reported in Quartz, it can take several months of selling to simply break even. One former consultant recounted her experience, stating, “I’m now burdened with over $7,000 in debt and a surplus of inventory that even fellow consultants won’t buy.”
Desperation drives many women to take out credit cards or even start GoFundMe campaigns to finance their initial orders. This troubling trend highlights how companies exploit the financial vulnerability of their consultants, who are eager to find a means to support their families while the MLM profits soar.
The Competitive Landscape
As more individuals enter the MLM sphere, competition becomes fierce. Sarah Thompson, a stay-at-home mom from Florida, began her LuLaRoe journey in March 2016, drawn in by a friend’s glowing recommendation. Initially, she enjoyed substantial sales, earning between $18,000 and $24,000 monthly. However, as the number of consultants skyrocketed to over 80,000 by early 2017, her sales dwindled, leaving her with $20,000 in unsold inventory.
Ultimately, Sarah realized the reality of the market: too many consultants and not enough customers. Another former consultant, Lisa, echoed her sentiments, stating, “The market is saturated; everyone is stressed out and competing against each other.”
It’s important to note that this isn’t solely about LuLaRoe; it reflects a broader issue of MLM businesses that have exploited women’s aspirations and financial needs throughout history. As noted by Quartz, “This isn’t a story about leggings or LuLaRoe. It’s about the disenfranchisement faced by many women in rural and suburban areas seeking a better life.”
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Summary
Despite the overwhelming evidence that 99% of MLM participants lose money, many women continue to join these businesses, often sinking significant funds into them. The allure of financial freedom, coupled with misleading statistics and a competitive market, traps many in a cycle of debt and unsold inventory. Ultimately, MLMs exploit the vulnerabilities of those seeking financial stability, presenting a facade of success while leaving the majority of participants in the red.