Multi-level Marketing: Climbing a Pyramid or Building a Business?
Originally posted at Christian Post July 29, 2016.
I’ve read your book The Worst Financial Mistakes in the Bible, and heard you speak when you visited my church in Brazil. I’ve come across a situation that made me wonder what you and the Bible might think of Multi-level Marketing (MLM or network marketing). Several friends have approached me with opportunities, but so far I have declined. My wife and I have read about it a lot more since we were first approached. We’ve even read Robert Kiyosaki’s The Business of the 21st Century where he recommends MLM, but what do you think? I really would appreciate any advice you can provide.
Friends in Brazil
Greetings from America, and thank you for reaching out with such a great question. The answer is complex and my honest answer runs the risk of offending some people, but in my experience, not all MLM opportunities are created equal, and that comes directly from the U.S. Government. In fact, I find many of the MLM opportunities very troubling.
Consider this: according to the Federal Trade Commission:
“In multilevel or network marketing, individuals sell products to the public — often by word of mouth and direct sales. Typically, distributors earn commissions, not only for their own sales, but also for sales made by the people they recruit. Not all multilevel marketing plans are legitimate. 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. It could be a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money. If you’re considering buying into a multilevel marketing plan, get the details.”
Many people are engaged in MLM businesses these days, selling everything from cosmetics, health boosters, books, home décor, clothes, candles, hand bags and almost every kind of product you can imagine. And I know that I am not the only one whose family has been invited to home parties of all kinds to look over the products or recruited to join a sales team network.
Trying to build a network of people under you, who pay to join the team and pay you a percentage of their sales is what can make such businesses a pyramid scheme, but not in all cases. The warning sign is when the person at the top is primarily getting a percentage of the fees paid by new members who join, while the people at the bottom pay to play for the hope of future team members who will join. That is illegal and frankly immoral because eventually there are no new people who can enter, and so many receive no benefit. This is more of a recruiting model than a true sales model.
When the top earners make their money primarily by sponsoring new people who buy overpriced products, without any sort of requirement for retail sales, it can also lead to a high failure rate. High failure rates can lead to a lot of people losing a lot of money. When MLM’s operate with a bad mix of owners, product and reward systems, the financial impact can be tremendous. Bottom line: If you find a company with a product you love, it’s a good sign. Just be sure the sales culture is a healthy one.
Are the friends who are trying to recruit you being honest about what they sell and how they make money? The Crown team and I discussed our various experiences when we had each been approached to join MLM networks.
One of our staff and her husband had been invited to a party, only to find that it was a training session for the business and they were not allowed to leave until it was over – a virtual kidnapping, she joked. Everyone had at least one story to tell about being lied to about the nature of a business they had been asked to join, including one whose family member was ostracized and attacked viciously on social media when expressing doubt about the health benefits of a product, so much so that the post on social media had to be shut down.
Years ago, I was invited to a friend’s home for dinner. He said he wanted to “offer me a job, working for his company.” He was a successful homebuilder and lived in a beautiful neighborhood. Following our nice dinner, he and his wife aggressively recruited me to join his multi-level marketing network. I felt he deceived me to get me to come to his home. I lost trust in his sincerity and integrity.
If a person is lying in their sales pitch, it’s a problem. One of my concerns with MLM business models is that too often, that seems to be integral in how new people are brought into a room.
There are subtle ways to lie as well, such as pretending to be interested in a friendship with someone and seeking them out only until they either join your team or have given a firm no. Clearly, in sales, a pleasant demeanor is important, but some network marketing companies try to teach people how to draw others in by faking a desire for friendship.
The Bible says they will know we are Christians by our love – and that love should be genuine and not ended if a sale is not in the works.
To me, you can tell something about the quality of the business and the character of a person when you say no. Every sales person knows the law of large numbers – the fact that to make a sale, you make a lot of calls, hearing many no’s before that important yes.
I don’t fault anyone for making the recruitment pitch. A person who invites you to consider their products or join their team may have the best of intentions and a great item for sale. But if you are not interested, hopefully they also have the grace and maturity to move on without anger, without ending the friendship.
Have you looked into what others report about a product or company? There are good MLM companies and bad ones. Are they members of the DSA (Direct Selling Association)? Do your due diligence and look into what is said about any company you are thinking of joining, any products you are thinking of selling and any person you are thinking of working with or for, and be very skeptical about rosy projections of huge income potential. All companies are required to provide an income disclosure statement that shows the income earned by members of their organization at the various levels. Those who enter an MLM business because they love the product and enjoy the association do fine. Those who enter to build a business with income potential need to realize that just like any business it is very difficult and can require years of hard work. If you enter thinking this is a “get rich quick” idea you will be disappointed. The Bible warns against being motivated by or eager to “get rich”. You should only consider joining if you like the people and can sincerely sell the product to the public.
It is easy to spend money and generally hard to make it, and frankly, the Bible makes that clear, noting in Proverbs 13:11, “Dishonest money dwindles away, but whoever gathers money little by little makes it grow.”
I would also encourage you to take a free MoneyLife Indicator assessment to better understand your attitudes toward money and how you use it, and to compare that with what God recommends in scripture. When our goals are to use resources as God commands and to give an honest day’s work, an MLM business could be a good thing. But take your time and do your homework before saying yes.