Why Students Shouldn’t Join Multi-Level Marketing Businesses

Aug 6

This post is a bit of a warning to students about a predatory business model that many people try to sign students up for.

Network marketing can also be called multi-level marketing (MLM), direct sales, or social selling. Some of these companies or their reps also refer to what they do as affiliate marketing, but it is not.

There are loads of anti-MLM resources out there, but most of them are U.S.-based, so I wanted to contribute a little piece of Canadian content.

What is Multi-Level Marketing?

I’m going to refer to this as MLM from here on.

MLM is a form of sales in which sales people receive commission (which is fine), and also receive financial incentives to create a sales team under them, which often includes commission from their downline.

You may be familiar with some of these businesses already. Amway, Avon, Mary Kay, Monat and Arbonne are just a few well-known MLM businesses.

But don’t just trust me! Competition Bureau Canada defines MLM as “A multilevel marketing plan promotes the supply of a product to participants in the plan. Participants earn compensation based on supplying products to other participants or customers. A legitimate multilevel marketing plan has three or more levels of participants.”

Some people (including myself) allege that MLM businesses are disguised pyramid schemes. What’s a pyramid scheme? It’s a scam where you are paid primarily for recruitment rathern than for any products (or when there are no products at all). In my opinion, most MLMs blur the lines because while there are products, you are often awarded more for recruitment than sales.

The Canadian Competition Act, section 55.1, outlines what tips an MLM into the category of Pyramid sales: focusing on recruitment rather than sales, forcing sales reps to buy product (other than a start-up kit that must be sold at cost), selling the products for an amount that is “commercially unreasonable,” not offering a buy-back program for products, or not informing sales reps of said buy-back program.

(Guess what, I’m not a lawyer. This is definitely not legal advice. Do your own research, too!)

Wait, Why Shouldn’t I Join?

I don’t believe in unpaid work, so my top reason to not join an MLM is that you will only make money if you make a sale and/or recruit someone, and it may take many hours, weeks or months of work for you to do that. Why would you want to work so much and then not get paid?

The only people who make a lot of money in these schemes are those at the very top. Unless you joined at the very beginning and created a huge downline, you’re unlikely to actually make very much at all. And that’s because of the pyramid-shaped commissions model.

These businesses rely on you pitching and selling to your family and friends to make sales and recruit a downline. And if you run out of family and friends, you have to start pitching to and recruiting strangers. Is that really something you want to do?

Sales reps for these businesses also allegedly use unethical tactics to make sales and recruit new sales reps, like targeting people’s vulnerabilities and dishonestly representing their own lifestyle and income (check out the resources I’ve listed below to learn more about this).

Additionally, because MLM sales reps are contractors and not employees, this means that you do not enjoy some of the perks that actual employees get. These include:

Paid time off (vacation, sick days, etc)
Payroll deductions (such as EI, CPP, and income tax - so you may be left with a bill when you file your taxes)
Minimum wage

How Much Will You Make?

Here’s the big question. If someone is trying to recruit you, they’re going to tell you that the possibilities are endless. They may have some convincing messaging about “getting in on the ground floor,” “endless possibilities,” “limitless earning potential” and more. But those are sales pitches. You should be looking for real data and making your assessment off of those.

Anyone who does make decent money in an MLM probably joined very early on. If you’re not at the tippy-top of the pyramid, it’s very unlikely that you’re making very much money.

These businesses often publish an “Income disclosure statement” so you can search for this phrase and the name of the business to find out more.

Let’s look at an example. You’ll find the Monat Canada 2022 Income Disclosure Statement here. I’d like to draw your attention to the following numbers:

96.91% of the market partners (sales reps) made an average of $20/month
the average income of all market partners was $84
less than 1.4% of sales reps made an average of $1400/month or more (those with a rank of Managing Market Builder or higher)
these amounts do not include any expenses incurred by the sales reps (explained in the fine print)

I’d like to point out that these trends are not uncommon amongst MLMs. Basically, if you joined early on when the MLM started, and you find yourself right at the top of a huge downline, you might be able to be in those top ranks and earning good money. Otherwise, you’re probably not going to earn much (if anything).

It’s Not About the Pasta (Product)

While the producst sold by an MLM business may be high-quality, and lots of people may like them, they are necessarily overpriced.

Think about the way people in these businesses are paid: not only does the sales person receive a commission, their upline usually also receives a commission, and there are also all these recruitment bonuses. In order to pay out these various levels of commissions and bonuses, the products have to sell for far above their actual cost.

(Also - bonus points to any Vanderpump Rules fans who got my pasta joke. It’s a little unrelated; The title here would just be “It’s Not About the Product.”)

But MLMs are Not Illegal…

Sure. You’re right. In Canada, only pyramid selling schemes are illegal.

The problem is that often the lines are blurred. According to Canadian law, marketing schemes that do any of the following are illegal:

offer compensation for recruitment
require purchases (other than a start-up kit sold at cost) as a condition of participation
require participants to buy a large amount of inventory that cannot be resold or used within a reasonable amount of time (inventory loading)
fail to offer a buy-back guarantee on reasonable commercial terms

But just because something is legal does not mean it’s ethical or non-predatory.

Also, in my opinion there are a few reasons these companies continue to operate:

While they are massive in the U.S., I suspect that in Canada we simply don’t have the same saturation and impact, and therefore don’t have the same quantity of people speaking out against and reporting them.
They are legal in the U.S., where the federal government seems to have a bit more firepower in this area, and since they aren’t fighting them, neither are we (we as in Canada).
There are large lobby groups that fight for the support of these types of businesses. There are some very big names in the U.S. that lobby to keep these companies legal, and I assume that either there is something similar happening in Canada, or we are just falling in line.

Can I also add that the Canadian government website that addresses MLMs is the Competition Bureau Canada “deceptive marketing practices” website… so while they are differentiating between pyramid selling and MLMs in terms of their descriptions, BOTH are on the deceptive marketing page, and some of the tasks listed as pyramid selling features are often done by MLMs.

MLM Terminology

MLM, direct selling, network marketing, multi-level marketing, social sales… there are dozens of names for this type of business model.

Downline: the sales people a person recruits who are underneath them in the pyramid structure. The person at the top receives incentives for their downline, and may also receive commission based on their sales.

Upline: the sales person who recruited someone becomes their “upline.” They likely receive a recruitment bonus and a commission based on the new recruit’s sales.

Pyramid selling: “Pyramid selling focuses on generating profits by recruiting others and not primarily from the sale of products. Thus, even when these schemes offer products, the products may have very little value, or few incentives for their sale. It is a criminal offence to establish, operate, advertise, or promote a pyramid selling scheme.”

But My Parent(s) are in an MLM

There are mixed opinions about what you should do here. While you may want to warn them and do an intervention to try to get them to quit, MLMs allegedly protect themselves by convincing their sales reps that what they are doing is good, and that anyone who doesn’t agree isn’t worth their time.

Many in the anti-MLM movement believe that while we can present information to those involved in these models, it’s up to them to see it and listen, and because of the messaging within MLMs, it can be hard to help them see it.

Many allege that MLMs are high-control groups similar to cults, and use many of the same methods to keep their sales reps in line. Some say they adhere to Steven Hassan’s BITE model or use methods like NLP to maintain a group dynamic that benefits the business. This can make it difficult for those in these groups to listen to outside arguments.

If your parents, friends or family members are in MLMs, it’s up to you how you approach it. You can definitely do some research for yourself (see the “Want to learn more” section below for resources) and share if you would like.

And just a side note - there are scholarships for children or grandchildren of sales reps for businesses registered with the Direct Sellers Association of Canada. Sales reps also qualify, but as I mentioned in the title, I do not recommend that students become sales reps for these businesses.

What About Affiliate Marketing?

What these businesses do is not affiliate marketing. It’s different!

In affiliate marketing, you earn a commission based off any sales you make. You can be an affiliate for hundreds of companies: Amazon, Chapters/Indigo, smaller businesses. It just means that you get your own link and every time someone uses that link to buy a product, you get a commission. Companies have different requirements, usually around minimum sales amounts or minimum social followers, but if you meet the requirements you can sign up!

MLM companies often also offer affiliate options - where you have a link and you sell products and make a commission but do not need to recruit.

The problem is that with most MLMs, they also recruit new sales reps to recruit new sales reps, and then you are creating a downline from which you will earn additional income.

Want to learn more about anti-MLM?

Here are some excellent resources to learn more about MLMs and pyramid schemes! Check out the amazing creators below, as well - they all have different styles of reporting, so take your pick and find one you like!

Government of Canada MLM & pyramid selling page