What is multi-level marketing?
The way these companies work is simple. Every time one of their salespeople sells a product, he/she gets a commission. Most also encourage their sales staff to recruit other salespeople. And then when one of these new salespeople sells a product, the seller who recruited them gets a cut too.
For example, let’s say Jill works for a MLM company. She gets a friend, Kerry, to sign on as a salesperson. Whenever Kerry sells something, Jill makes a commission (Kerry does too, of course). And if Kerry gets another friend, Sally, to sign on as a saleswoman, Kerry and Jill both get commissions from every product Sally sells. And then there are all kinds of bonuses for hitting sales marks. That’s what the “multi” stands for – there are multiple ways to get paid.
Not everyone is a fan of these businesses. Critics say they’re pyramid schemes that turn people into fanatics who are forced to exploit their friends and families just to make a buck. The newest salespeople usually earn the least, as all the people ahead of them get a cut of their profits. And most companies have start-up fees.
We’re not passing judgment on these businesses. Although the industry has some bad apples, many companies offer good products. And people are definitely making money selling them: the Direct Selling Association reported 18 million mostly part-time workers in the industry last year, nearly three-quarters of them women.
Is multi-level marketing right for you?
We looked into three direct sales companies popular with millennials (you can see the top 100 direct sales companies here), so you can decide for yourself if this might be a good side gig for you.
What they sell: Jewelry, starting at $18 per piece and going up to $200.
Who joins their sales team: 75 percent of Chloe and Isabel sales staff, called “merchandisers,” are under the age of 35. Part of the reason this company appeals to people in their 20s and 30s may be that the company is digitally savvy.
Traditionally, direct sales companies encourage the salespeople to hold parties at their homes, or in the homes of friends and families. To incentivize the host, the company usually gives him/her a discount on the products or freebies—depending on how much stuff guests buy.
Chloe and Isabel doesn’t push their merchandisers to hold such parties. They know younger people prefer to shop online, so they make it easy for merchandisers to sell stuff online, particularly from mobile devices.
For example, merchandisers can plan and execute a digital shopping party with tools on their smartphones.
The financial details: Like 99 percent of direct sales companies, you must pony up some cash to get started. Their starter business kit, which costs $175, includes $700 worth of jewelry, marketing materials, and tools to help you build a web site and track web traffic and sales.
Merchandisers earn a 25–40 percent commission on every sale.
Every sale also earns the merchandiser a credit for more jewelry, which they can buy at a discounted rate of 30–50 percent off.
One pro: Unlike many other direct sales companies, Chloe and Isabel doesn’t require you to recruit other salespeople.
One con: The jewelry is kinda pricey, which may make it hard to sell.
What they sell: Dermatology grade skin care products.
Who joins their sales team: Allure describes the typical Rodan + Fields saleswoman as “friendliest neighbor on the block, the chicest mom at school, the Spin-class regular with glowing skin.”
I think that’s a little snarky. Most of their sales force, who the company refers to as independent business owners, are busy moms. My friend Jaime Thelen has been selling Rodan + Fields products for 18 months and says, “Since I have young children I literally work my business into the nooks and crannies of my busy daily life. I work primarily from my cell phone anywhere, anytime.”
The financial details: Start up costs range from $45 (which includes a DVD and instructions to start distributing Rodan + Fields) to $995 (which includes products, samples and worksheets).
You have two months to figure out if the gig is for you. “Just like our products, our business kits also come with a 60-day, money-back guarantee,” Jaime says.
Business owners make commissions on every product they sell. If they sign up other salespeople, they also take a cut of what they earn.
The company, unlike many multi level marketing organizations, has an “income disclosure statement” on its website that says in 2014, entry-level consultants made an average annual income of $769, while an executive consultant, the next level up, made an average of $3,196.
One pro: The products work. The company was started by the dermatologists behind Proactiv, the Katy Perry and Justin Beiber endorsed skin product you often see ads for late at night.
If your friends don’t like a product, they can return the unused portion within 60 days of purchase.
One con: The commission range from 10–25 percent. Be prepared to spend some of that on the bottle of wine you’ll drink just trying to understand out the company’s official compensation plan document.
What they sell: Aloe-vera-based cosmetics, beverages, nutritional supplements, and personal care products.
The financial details: Unlike other multi-level marketing companies, there is no cost to join Forever Living as an “independent distributor” – their term for a salesperson.
Distributors purchase products at wholesale prices through Forever Living and then resell these products at higher prices. The independent distributor keeps the difference.
Commissions can be as high as 43 percent. Distributors also receive discounts of up to 18 percent when they sponsor new distributors.
And then there are a slew of bonuses that range from 5 to 18 percent.
One pro: Best Company, a web site that reviews companies, voted them the number one multi-level marketing company to work for in 2015.
One con: You must place a minimum $100 order from the company whenever you want to stock up.
- Multi-level marketing or network marketing companies pay average people to sell their products directly through their personal networks.
- Salespeople can also sponsor new salespeople and get a cut of their sales.
- Critics say these companies are pyramid schemes because the earliest salespeople keep the largest percentage of profits.
- Proponents say MLM companies offer a flexible way to earn extra money.