Originally published at: Can I make money if I join an MLM? – Personal Finance Club
If you don’t know what an MLM is, you should. Because you need to know to avoid them. It stands for “Multi-Level Marketing” scheme. They’ll approach you like a wolf in sheep’s clothing. A DM from a friend you haven’t heard from for a while. “Hey girl! I am looking for ___ for my new ___ and I thought you would be perfect!” Don’t be flattered. Your acquaintance is looking to line her pockets at your expense. It might be malicious, or she might be naively sucked into a corrupt system. Either way you should avoid it like the plague.
Anything where you’re doing “direct selling” and the sales from people who you recruit benefit you is an MLM.
The Federal Trade Commission (FTC) released a 40 page report on MLM companies. It found that 99.6% of participants lose money. Only 1 in 250 actually make money (as shown in this graphic). The report contains gems like this:
“The odds of profiting from a classic 8-ball no-product pyramid scheme (close to 10% depending on how many continue) is in the range of ten to 100 times as great as the likelihood of profiting from a typical MLM program (less than 1%). MLM is the worst of all classes of pyramid schemes by any measure – loss rate, aggregate losses, or number of victims.”
These MLM companies see the profit potential of a pyramid scheme, but know that it’s illegal. So they pair (a usually sub-par product) with a pyramid scheme to make it barely legal and created a monster that’s even worse. If you’re in an MLM, yes, yours qualifies too. When you look at your own sales, don’t forget to count all of your costs. What you paid to join, your membership fees, cost of goods, marketing costs, costs to host parties, etc. When MLM participants count all of their expenses, 996 out of 1,000 lose money. That’s not even considering the cost of their time. It’s like going to work every day, then on pay day you write your employer a check. Don’t do that.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.