Eight ways we believe the DSA misrepresented the MLM industry on the BBC’s Woman’s Hour

Business

Think it’s just MLM reps who hide or play with the truth? Here are eight ways we believe the Director General of the DSA misrepresented the industry on the BBC’s Woman’s Hour.

Last week, I was invited to appear on BBC Radio 4’s Woman’s Hour to talk about the MLM industry. Also speaking in the segment were Claire, a rep for the MLM Flamingo Paperie and Susannah Schofeld, the Director General of the UK Direct Selling Association (DSA).

The DSA is an organisation that represents the interest of businesses engaged in the direct sales of consumer goods (MLMs), and is controlled by its members (MLM companies).

In the show, Susannah made several claims about the UK MLM industry that we believe, based on four years of extensive research, are gross misrepresentations, bordering on lies.

To explain why we believe this, we’ve taken eight statements made by Susannah during the programme and added our response, with proof where relevant.

1) “I think it’s a great opportunity for women to earn”

Susannah started by claiming that MLMs are a “great opportunity for women to earn”. But decades of research and industry experts disagree.

In his in-depth research, published by the Federal Trade Commission (FTC), Jon Taylor MBA, Ph.D describes MLMs as “a mathematical trick played on the unwary”.

Jon’s research discovered that, on average, 99.6% of all participants in an MLM will lose money once business expenses have been taken into account – a figure that’s backed up by MLM companies’ own income disclosure statements.

(You can read some of our investigations into these companies – many of them members of the DSA – at the end of this article.)

Jon’s research also revealed how a 1980 investigation by the Office of Attorney General for the State of Wisconsin into Amway discovered that the top 1% of distributors in the state (a total of 200 people) had an average gross profit of $12,500. But after deducting operating expenses they each made an average loss of $900. (This information was gathered from tax returns.)

His report adds that “had the costs of all Amway products that were consumed or given away as gifts – but which were required to qualify for commissions and advancement in the scheme – been subtracted, the net losses could have been much higher”.

If the top 1% of Amway distributors made a loss, how much did the 99% (a total of 19,800 people) underneath them lose?

So no, the FACTS show that MLMs are not a great opportunity for women to earn – quite the opposite. According to the research published by the FTC, they are more likely to LOSE money.

2) “A pyramid scheme is where you take money and give nothing back”

Susannah tries to distance the DSA from the ‘pyramid scheme’ label by claiming that in order to be one there has to be no actual product or service for sale.

But this isn’t true.

Here’s what the FTC says about pyramid schemes and MLMs:

“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.”

So let’s be clear: an MLM can sell products and still be a pyramid scheme if participants are rewarded for the number of people they recruit, and their sales to them.

To put it very simply, in order for an MLM to avoid being a pyramid scheme, most of the money people earn has to come from genuine sales to people outside the company.

And yet we know this doesn’t happen. Every compensation plan we have seen for an MLM rewards recruitment (the size and sales of your team) over personal sales. We explain how you can’t make money just by selling products in an MLM here.

The FTC also disagrees with Susannah’s simplistic and inaccurate description of a pyramid scheme. Last year they fined the MLM AdvoCare $150 million and banned the company from operating a network marketing business. They also labelled them a “pyramid scheme” and a “scam”.

The FTC also announced they were suing MLM Nerium, alleging the company “operates as an illegal pyramid scheme and falsely promises recruits they will achieve financial independence if they join the scheme”.

Both AdvoCare and Nerium sell actual products.

Research published by the FTC even goes as far as to say that product-based MLMs are more harmful than illegal, no-product pyramid schemes:

“Product-based pyramid schemes have been found to be the most extreme of all the types of pyramid schemes, with the highest loss rates (approximately 99.9%) – far worse than for no-product schemes, or even than most games of chance in casinos.“

In other words, your chance of financial success is actually HIGHER if you do join an illegal pyramid scheme, or bet your money in a casino.

(For the record, the research published by the FTC also refers to the Direct Selling Association in the US as the “deceptive selling alliance”.)

3) ‘Every organisation is pyramid shaped’

Susannah also attempted to argue that every organisation is shaped like a pyramid. And to be honest, we were disappointed that she had to resort to this tired misrepresentation usually trotted out by lowly, uneducated reps. (It makes us wonder how much Susannah really knows about the industry she’s working for.)

To explain why she’s wrong, let’s look at how companies normally work.

Small businesses are often run by a boss, who may employ managers, and people under them. Larger corporations are run by a CEO or chairman, with a board of directors, and directors, managers, employees etc under them.

And yes, the higher up that structure you are, the more you earn. However, unlike in an MLM, everyone gets paid for the work they do. Everyone who works for a company gets a salary, and enjoys employment rights that often include sick pay, holiday, expenses and legal protection.

In a normal business, you also don’t need to ‘qualify’ for your role every month. You don’t need to ensure you have a minimum number of people in the company working under you, and they don’t need to make a minimum number of sales just for you to get paid and avoid demotion.

In non-MLM companies you also don’t need to buy a starter kit to join, or your own samples to make sales. And if you need training to do your job better, the company usually pays – both for your time spent training and the actual training itself.

So no, Susannah, MLMs are nothing like ‘normal’ businesses. An MLM participant is simply an unsalaried sales rep (and more often than not, a customer) with zero rights.

To claim that ‘every company is a pyramid scheme’ just shows complete ignorance of how businesses operate, in our opinion.

4) “It’s a side hustle”

Susannah was a little misleading with her numbers when attempting to assert that MLMs are just a nice side income for people. She claimed that “most most people spend no more than 10 hours doing this”.

Actually, according to the DSA’s own figures, 51% of participants spend less than 10 hours a week working at their MLM. That means a whopping 49% spend more than 10 hours a week.

We actually looked at the DSA’s numbers in detail here, to see if it’s really possible to make money in an MLM, and what your earnings (or losses!) might be per hour.

We calculated that MLM reps earn less than minimum wage, and that’s before business expenses were taken into account. And this research by MagnifyMoney discovered that women earned an hourly median wage of $0.56 – BEFORE business expenses (including personal purchases) were deducted.

You can see why we strongly disagree with Susannah when she says that MLMs are “a great opportunity to for women to earn”.

To further prove this, here’s what Claire, a rep for Flamingo Paperie said of her experience on the Woman’s Hour show:

“It cost me £200 to get started… I worked hard and and really got out there with the product, and sold it to people, because it doesn’t sell itself if you keep it in the cupboard at home. And I was lucky I did mine in six months.”

So Claire paid £200 to join the company, and despite working hard it took her SIX MONTHS to recoup her money. And she says she was “lucky”. Does that sound like an income opportunity you’d be interested in?

We also wonder how much she SPENT to earn that money back, given that Flamingo Paperie say that “To qualify for bonus payments, however, you need to meet the volume criteria in the months in which you wish to be paid bonuses”.

And Flamingo Paperie aren’t the only MLM to insist on a minimum number of sales – it’s standard across the industry.

Here’s a post from a Facebook group for reps of a DSA UK member company reminding reps to put in their personal orders (products they buy themselves, not sales to the public) in order to keep their rank:

We know from speaking to MLM victims that it’s this sales (or more usually purchase) requirement that gets so many into debt.

5) “[The damning research is] American, and I think there is a real difference”

When presented with cold, hard numbers published by the Federal Trade Commission, Susannah attempted to brush it off by claiming the MLM industry is different in the UK.

Really? If this was the case then the income disclosure statements published by companies would show very different earnings in each country, right?

But they don’t.

Our research into companies like Arbonne, Herbalife, Amway and Forever Living (all members of the UK DSA) show the exact same pattern in earnings in the UK and the US – i.e. that only the top tiny percentage of reps earn anything like decent money.

And again, this is before expenses. As the tax returns of top Amway distributors investigated by the Office of Attorney General for the State of Wisconsin show, even those at the top who, on paper, made money, actually made a large loss.

And if the MLM industry is SO different in the US and the UK, then why is the compensation plan for Arbonne, a DSA UK member company, the same in both countries?

Here’s how you earn an income from Arbonne in the UK:

And in the US:

As you can see, aside from a mention of VAT in the UK summary, they are the same.

The truth is that the MLM industry works pretty much the same in every country. And has the same results in every country, according to our own extensive research conducted over four years.

6) “You don’t make money from recruiting”

Susannah seemed quite keen to push the point that people don’t make money from recruitment, in an attempt to distance her members from the MLM industry at large – and from any accusations they may be illegal pyramid schemes.

But time and again our research, and that published by the FTC, shows that her statement is not true.

To give you a specific example, the UK’s number three Forever Living rep has boasted that she only has nine retail customers. And a former Black Younique presenter (the company’s top rank) revealed to us that she had to personally buy products to meet her monthly sales requirements. (Both Forever Living and Younique are members of the UK DSA.)

And if reps at the top don’t earn much money from their own personal sales, then how are their teams underneath them doing so?

The fact is that our research shows that the only way to make money in an MLM is by recruiting. And the money that you make from your team, in our opinion, comes from the joining fee and personal purchases of the reps underneath you to remain active or buy a rank – NOT their genuine sales to real customers.

This is why MLM companies’ training is heavily weighted towards recruitment. Why the only way to progress through their compensation plans is to build a team. And why reps are encouraged to recruit their own customers.

If the emphasis was really on sales outside the business (and the real money in it) why on earth would you turn a customer into a competitor by recruiting them? It just doesn’t make sense, unless it’s all about recruitment and building a team.

And finally, if you don’t make money from recruitment, why are teams from DSA UK member companies currently offering financial incentives, like this, for recruiting:

We also interviewed two former IT Works reps (another UK DSA member company) and both confirmed that they were incentivised to recruit, rather than sell.

7) “There was to be no active recruitment”

When questioned about member companies being warned by the Federal Trade Commission in the US about false income claims in an attempt to recruit during lockdown, Susannah responded that the UK was much more ethical, saying:

“As an association we took a very serious remit to say there was to be no active recruitment; this was not a time to go out and prey on people’s vulnerability, as they were being furloughed.”

Really?

Then why have reps in DSA member companies been on an active recruitment drive, even specifically asking for people who have been furloughed to contact them?

Here’s a post from the UK’s number two rep in Forever Living (a DSA member company):

Here’s another post from a Forever Living rep:

We’ve seen HUNDREDS of posts like these since lockdown, from pretty much every MLM. We’ve even seen posts cynically ask for hairdressers and nail technicians who couldn’t work to contact them.

And we believe that Susannah isn’t ignorant to the blatant recruiting happening among her member companies, despite her protests. Why else would there be “a number of DSA members seeing record growth at the moment”, as she claimed in this interview with Retail Gazette?

The DSA even recently paid for an advertorial in the Sunday Express (which Susannah is quoted in) that says:

“As millions take a financial hit from the coronavirus lockdown, many are hunting for ways to make up the income they have lost in recent weeks… 

“Direct Selling could help you raise extra money, while staying healthy and complying with social distancing rules by working online from home.”

How is a paid advertorial that promotes MLMs as a potential source of income during lockdown not ‘preying on people’s vulnerability as they were being furloughed’?

It’s hardly a great moral example set by the DSA, is it?

Edit: Since we posted this article, the link to the article above mysteriously disappeared from the DSA website! But you can see plenty more similar examples here.

8) “Consultants can only talk about their own ability [to earn]”

One of the biggest complaints we get about MLMs is the false income and health claims. We’ve even been personally told by a doTERRA rep (a DSA UK member company) that doTERRA cured her stage three cancer.

And right now we’re seeing a LOT of income claims. Claims that, in the US, the FTC is cracking down on with warning letters (doTERRA and Arbonne – DSA members in the UK – both received them).

But Susannah doesn’t believe this happens with their members in the UK because, as she said:

“Consultants can only talk about their own ability… it has to be first person for what they’ve earned and they can talk about that.”

And she’s right, the DSA Code of Business Conduct says:

“Any earnings claims must relate to actual earnings from the opportunity by an identifiable person and be capable of verification.”

So then, why are reps from DSA member companies posting income claims like these?

To make matters even more interesting, the top unsubstantiated income claim is made by a rep who is actually on the Forever Living payroll – something they don’t declare when promoting their success.

And the unsubstantiated claim from the rep underneath – that she can show you how to earn £1,000 profit a month in “pure sales” – contradicts a Facebook live on her profile in which she claims:

“I’ve got about 17 regular customers who come back to me. And that gives me probably £350-400 per month income.”

This is one of Forever Living UK’s highest ranking and earning reps, and she’s been in the business for more than 10 years. So how on earth can she claim to be able to teach a new recruit to earn more than her?

Susannah claims that the DSA take very strong measures against income claims. If that’s the case, then the DSA are welcome to get in touch with me and I will give them the names of member company reps who are doing so, with evidence. (The DSA has my email address so it will be easy for them to do so.)

‘I would welcome working with Hannah’

Susannah ended the segment by saying she’d love to work with me. Sadly I don’t expect this to come about.

Two years ago, I met the then-Director General of the DSA (Susannah’s predecessor) and their press representative and explained the many ways reps working for their member companies were breaking the rules, and how companies were acting irresponsibly, in my view.

The Director General asked for my advice on how the industry could improve, and I recommended making income disclosure statements mandatory, so new recruits could see the real earning potential before signing up.

I also recommended they remove the requirement to sell (or buy) a minimum value to remain active, to get tougher on illegal claims, and to encourage reps to track their sales and expenses to ensure they weren’t losing money.

The DSA followed up our meeting in an email:

“There were quite a few other broader points that we took away from the meeting with you that we hope to move forward with the DSA Board.”

To date I have heard nothing more regarding this, and seen no change.

For the record these are the problems in the MLM industry (and some recommendations) I outlined to the DSA, all of which still stand:

  • No income disclosure statements. I’d like to see all MLM companies publish annual statements clearly stating how many reps they have, what % are active, and what each level are earning in profit. These must honestly and clearly show the earning potential of the business.
  • No information for new recruits. I’d like it to be mandatory that new recruits see income disclosures before they join for a realistic picture of the business.
  • No expense indications. Again I would like companies to be transparent about expenses, and give new recruits a realistic idea of how much they’ll need to spend (for example personal purchases). This would not be difficult to ascertain.
  • No clamping down on untrue claims by reps. These include irresponsible health claims, and wild income claims.
  • Not encouraging proper bookkeeping or legal tax practices. Reps should be encouraged (and taught) to keep basic financial records which would show them how much, or little, they were making in actual profit, not sales.

If MLMs offer a real income opportunity to participants, and the DSA genuinely wants to clean the industry up, then they’ll embrace these changes. There’s nothing in there that any respectable business would not implement.

But as with Susannah’s predecessor, I’m not expecting any progress to be made.

Why? Because the MLM industry only works BECAUSE it misrepresents the opportunity, dupes people to join, and then binds them in with cult-like practices, in my opinion.

(We’ll go into detail about how the MLM industry uses cult-like practices to recruit and emotionally manipulate people in an upcoming article.)

So it serves the industry if people aren’t given too much information when they join. If they’re obligated to make a minimum number of sales (or personal purchases). And if they DON’T realise they’re actually losing money.

Because, remember, according to the research published by the FTC, the ‘mathematical trick’ that is MLM only works if it’s ‘played on the unwary’.

So no, I don’t believe the DSA will make any of these changes. But I would be delighted to be proved wrong.

Read more about MLMs

We’ve published a number of articles on MLMs. If you’d like to learn more about the industry, here are some of our income investigations:

And here:

And you can learn more about how the MLM industry works here:

As always, we have made every effort to ensure that the information in this article is correct. If we have made any factual errors in this article, please contact us and we’ll be happy to correct them.

Photo by Alice Triquet