Mothers Love MLM's—But do Profit-Promising Pyramid Schemes Payoff?
Multi-level marketing gigs have become a hit in the motherhood economy because of their promise for flexibility and making big profits from home. But are they really worth it?
Meghan Barrett practically lives in her workout clothes. So when a friend from high school mentioned repping Zyia Active, an online activewear brand, and making a little extra cash on the side, it caught Meghan’s attention.
“I really wasn't looking to work for an MLM (multi-level marketing plan),” said Meghan, who lives in Raleigh, NC, with her husband and 15-month-old son. But with her interest piqued, she decided to check out the activewear company’s mission, which is to “uplift and inspire” by making activity a fun part of everyday life. “It really stuck with me,” Megan said. And so, she took the bait.
Eager to uplift and inspire others (and help herself in the process), Meghan signed up to be a consultant with Zyia. To start the process, she first had to choose between a $450 or $780 starter kit. Then, she was required to sell $200 worth of merchandise from her website each month before she could actually qualify as a rep and earn commission. No prior experience in sales or activewear or anything, really, are necessary to join the team. But, perhaps to her advantage, Meghan had some.
Before turning to direct sales, Meghan worked as a CrossFit coach, gym manager, and health coach. Selling activewear seemed to work with that background, and it’s possible she had a built-in client base from her time working in fitness.
Like so many other mothers who have taken the leap into similar multi-level-marketing gigs, Meghan appreciated that the role gave her the flexibility to spend more time with her family while having a project of her own to work on. Six weeks into her new business venture, Meghan was happy with her choice.
Only time will tell if she beats the odds and manages to turn her MLM venture into a money-making business.
The MLM business model works by encouraging contractors to act as their own sales reps.
An MLM company uses non-salaried workers to sell products or services. MLM distributors earn commissions on their own sales but also when the people they recruit make sales—or simply buy inventory or a startup kit.
MLMs are often referred to as “pyramid schemes” because participants make more money as their recruits make sales and bring in new participants. The higher up the pyramid, the more money you make. An MLM is legitimate in the eyes of the FTC if a consultant can make money on sales to the public and not just by attracting new consultants. People will tell you that they’ve made a killing in this space, working on their own time and terms. But there are other accounts that don’t paint such a rosy picture.
Recently, the podcast The Dream took a deep dive into MLMs and the dark sides of this business model. It looked at the origins of the industry, which began in large part with Tupperware, and found that the corporate MLM lobby has powerful political connections that insulate corporate owners from investigations into predatory business practices. The podcast also examined the personal impact of becoming an MLM consultant, which include strains on marriages and relationships with friends and family, who are often targeted as potential customers.
The critical Subreddit /AntiMLM keeps a list of MLMs, which currently totals 562 brands. The companies sell everything from financial services to essential oils, and many of the products appeal to women. Some popular MLMs you may have heard of include: LuLaRoe (leggings and clothes) BeautyCounter (clean cosmetics), or LimeLife (makeup), and classic beauty brands like Avon and Mary Kay. The subreddit is a place to vent about acquaintances who try to sell you their goods, warn others about new schemes, or share cautionary tales about life as an MLM consultant. There’s a good dose of memes too.
Unlike franchises, MLMs typically don’t restrict the number of brand reps who sell their products in a certain area, which can lead to market saturation and make it hard to compete, with a flood of product sometimes being sold at discounted rates. Consultants are encouraged to sell their product to friends and family, either by promoting it on social media or by hosting parties. Some brands, like LuLaRoe, require consultants to purchase and store all the inventory they sell. While others, like Zyia, allow reps to sell through a personal website that ships directly from the company. In that case, reps simply collect a commission on the sales.
When I spoke to Meghan, she had been a consultant for six weeks and had made money in her first month, although she declined to say how much exactly.
According to research, however, it’s tough to make MLMs a winning long-term business proposition. A 2011 report authored by Jon M. Taylor, MBA, PhD, head of the Consumer Awareness Institute, found that 99 percent of MLM businesses lose money. He wrote, “Failure and loss rates for MLMs are not comparable with legitimate small businesses, which have been found to be profitable for 39 percent over the lifetime of the business; whereas less than 1 percent of MLM participants profit.”
He concluded that the MLM scheme makes gambling look like a safe bet in comparison. Taylor notes that MLMs promote an endless chain or pyramid of selling activity as a business opportunity, when in fact they lead to “almost certain loss for all but the founders and primary promoters (who are enriched from the purchases of victims/recruits).” He wrote that MLM consultants are actually the primary customers and that the entire industry is “flawed, unfair, and deceptive.” The FTC also has a web page asking consumers to be leery of MLM opportunities.
I asked Meghan if she considered research about about how most MLM business owners lose money. She told me: “Yes, I researched prior. I knew that if I was going into it, I would have to work to make money. It was up to me how much I would get out of it.”
MLM’s appeal to mothers because of the flexibility and remote nature of gigs.
For women like Meghan, it’s not just about the money. “I have so much fun with it and get to meet some great women. It's also given me something that is just mine. It’s not my kid's or husband's, and it’s something tangible to work towards.”
That’s perhaps the biggest point. MLMs are filling a void for women who have been told they can “have it all,” but don’t have the desire or ability to climb the corporate ladder while raising a family.
Unlike traditional jobs, direct sales gives them control over their time, and theoretically there’s no glass ceiling or gender bias holding them back. These women, many of whom are stay-at-home moms for financial and personal reasons, still want to have an identity outside of their families. They want to be productive and build something. They also value flexibility. “You make your own hours, and you don't have to ask for time off because of kids’ activities and just life,” Meghan told me.
Many MLMs have headquarters in Utah or are founded by members of the Church of Latter Day Saints (Mormons), which places an emphasis on family. According to a local news report, direct sales is the second-biggest industry in Utah behind tourism. In the article, Ann Dalton, CEO of the beauty product direct-seller Perfectly Posh, noted that young Mormons with missionary experience make for a solid international sales force. “They’re connecting with their friends, they know the languages, they’re tech-savvy,” she explained. There is also a high number of stay-at-home moms ready to take on another project. The New York Times found that in one area of Utah County, 46 percent of prime-age women are not formally employed, compared to only 8 percent of men.
Meghan said she considered other business opportunities and had owned her own health coaching business in the past. But not all MLM hopefuls come to the business with experience working for themselves. Many turn to MLMs as a last hope to solve their problems. While technically not supported by the company, GoFundMe has numerous campaigns launched by women hoping to raise the $6,000 in startup funds needed to become a LuLaRoe consultant. One campaign reads like this:
For the past year or so, we have been living off of barely enough money to get by. Just enough to feed us all the bare minimum, keep a roof over our heads, diapers, formula, baby food, etc. The father of my youngest son has been taking care of all of us with just his serving job. The father of my first two has stopped helping financially (no court orders). So I am at a tipping point where I need to figure out a way to provide for my children. I haven't had a real job in over 4 years and don't have much experience or a college degree, and really would rather be home with my boys while they are young than out at a full time job....
I recently learned about the clothing company, LuLaRoe, that started about 3 years ago and was designed to help stay-at-home moms just like me make a living from home! I have several friends who have already become successful consultants, and there is only room for expansion and growth! I know this is the perfect opportunity for my family! I have already taken the steps to sign up to become a consultant and am on the waiting list to onboard. My first task while waiting is to raise the funds needed to pay for my initial investment/ inventory. Some apply for credit cards but I have been denied due to very little credit history, others use savings or family support, and some might sell valuable items around the house.
Another startup campaign, which managed to pull in $2,635 of the $6,000 goal, was created by a LuLaRoe consultant for a client whose husband had lost his job before Christmas. In addition, one of her three children has terminal systemic juvenile arthritis and is blind in one eye. Many comments pointed out that the woman behind the GoFundMe page would benefit from getting the vulnerable mom to sign up as a consultant and that the money would be better used to pay medical bills instead of investing in an MLM business that might lead to more debt.
Financial security and independence are the goals, but not often the results.
While many women hope that starting an MLM will provide them financial and personal independence, it doesn’t always turn out that way.
Julie Ryan worked as a LuLaRoe consultant in Tacoma, WA from November 2016 to July 2017. “At first, I could make a profit, though very rarely did a piece sell at full retail,” she told me. “I could sell a dress for $30, and since I only paid $17 for it wholesale, it was still profit.” But soon, Julie said, customers were asking for wholesale prices since other consultants were trying to liquidate their inventory. “LuLaRoe never seemed to care that we were struggling,” she said, adding: “Our complaints and frustrations were met with encouragement to trust in the product and buy more inventory. Consultants who quit were ‘miserable cows’ according to Mark [Stidham, a cofounder]. It was just awful to be a part of, so I ran out.”
Julie isn’t a mom herself, but she said a lot of the consultants she met were stay-at-home moms. “The appeal is the ability to bring in money and care for your family at the same time. But, with LuLaRoe, it's not a reasonable goal. People contact you at all hours with questions that they want answered ASAP, and you drop everything to provide those answers because you are desperate for the sale.” In addition, she witnessed the company leadership give shocking advice to mothers. “I remember around the time I was leaving there was a huge uproar because Deanne [Brady], the founder, was telling women to drop all non-business functions if they wanted to make sales,” Julie explained. “She used the example of cooking and encouraged these mothers to feed their kids cereal for dinner to have more time to sell.”
Julie didn’t have kids to feed, but she still couldn’t make her sales. Because many convoluted MLM schemes lack transparency, it was hard for her to know exactly how much money she lost. She explained: “I invested about $10,000 in inventory. I sold a lot of it at a small profit and managed to stay afloat for the six months I didn't work a traditional job. However, when all was said and done I was down to about $1,000 in savings after starting with about $10,000 saved. I owed a business credit card $8,000 and had about $5,000 wholesale in product left. We ended up taking a home equity loan to pay off the business credit card and a few other debts. I was able to return $4,000 worth of merchandise and sold the remaining $1,000 worth for about $350 to a woman who gives it out as holiday gifts.”
Not every MLM makes you maintain inventory. Zyia Active, for example, has a start up cost around $500 and not $6,000, like LuLaRoe. While brands like Zyia don’t require inventory, they often make money off of monthly minimums ($200 in the case of Zyia). In a sense, they act like expensive subscription services, and subscribers are free to re-sell what they receive. Consultants also need inventory for parties or demonstrations, even if it’s not technically required, and many companies also require expensive trainings. In her case, Julie also spent $800 on two tickets to the LuLaRoe convention in 2017, along with money for flights, hotel, and eating out.
Julie decided to work on LuLaRoe fulltime after she was laid off. Once her experiment with direct sales ended, she found it hard to get back into the mainstream workforce. “No one wanted to hire me with a six-month gap on my resume. Direct sales didn't seem to work for work experience. I ended up taking an entry-level job counting inventory part time. I did that for 14 months and then managed to get a more stable full-time office job three months ago,” she said. Prior to LuLaRoe, Julie was making almost $40,000 a year. Today she makes $30,000 a year. “It will be a while before I can get back on the track I was on two years ago,” she admitted.
MLM believers will tell you all small business opportunities come with a risk. But with parent companies that make millions while only 1 percent of consultants make any money, it’s hard to put the MLM industry in the same category as an entrepreneurial start-up.
The women who sell these products—and the business proposition—to friends and family bear most of the risk and little of the reward. If we want to serve these women better, we should increase support and funding for women entrepreneurs to truly start their own businesses and make corporate life more friendly to parents.
Annie Gabillet is a freelance journalist and content strategist who lives in San Francisco with her husband and one-year-old daughter. When she's not working on lifestyle features, Annie writes about her passion for clean beauty on her website Safe Makeup Project.