Want to support a small business this Christmas? Why you shouldn’t buy from an MLM rep!

Business

Plan to support small businesses by spending money with them this Christmas (or any time)? Find out why you need to avoid MLM reps like the plague!

Christmas is traditionally the time of year we hear people promote the concept of buying from small businesses, rather than large corporations. On social media, people share inspirational posts like this one, shared by an Australian jewellery designer:

And the sentiment is right: it’s important, where possible, to support small businesses. But not everyone purporting to be a small business actually is.

Indeed, there’s one group of people who most definitely do NOT fit this bill, yet cleverly attempt to Trojan horse their way into buyers’ goodwill. They do this by claiming that by buying from them you are supporting a small business, and emotionally blackmailing you with posts like this one:

So who are these people? They are MLM reps.

Three reasons why MLM reps are NOT small businesses

MLM reps are pretty much as far from a small, local business as you can get. Because yes, you may be making your purchase from a local, self-employed person, perhaps even a friend. But the money you pay isn’t going to them.

Instead you’re lining the pockets of a much larger, and far less local business. Your friend, meanwhile gets a paltry commission.

Of course, this isn’t what they’ll tell you. They’ll claim they get a ‘very generous’ commission but (as we’ll explain later) the numbers don’t lie. And the numbers show that much of the money from your purchase goes anywhere but to your friend.

Before we get to that though, let’s spell out in simple terms why MLM reps aren’t deserving of the ‘small businesses’ label they claim. Here are three reasons why they’re not a small business:

  1. The money from their sales doesn’t go directly to them – it goes to a large, usually global, business who pay them a small commission.
  2. They don’t have any control over pricing, product range, marketing, branding or even choice of suppliers.
  3. Their products are produced by a large company – they’re not made by them and they don’t have a say over product range.

If an MLM rep was indeed a small business these three statements would not be true. Instead:

  1. Any money they made would be theirs after expenses and taxes were deducted.
  2. They would have control over their pricing, branding, marketing and suppliers etc.
  3. They products would be produced or sourced by them.

MLM reps are just unpaid sales reps for multi-million pound companies

So if your MLM rep friend isn’t a small business, what are they? The ugly truth is that they are merely an unsalaried sales rep for a company – usually a multi-million pound organisation based in the USA.

And not even a well-compensated sales rep.

Every income disclosure statement we’ve seem from an MLM shows that the vast majority of reps (usually around 80% or more) earn either nothing or a pittance. And after expenses are taken into account, they undoubtedly lose money.

We even ran the numbers on MLMs like Acti Labs to see how much reps need to sell to earn money. And we worked out that, if you are are at level three and you hit all your targets that month, you will earn just £175.

And to earn this small amount, you personally need to sell £175 of products, and your downline (the people you recruit) collectively must sell £2,625 of products. In just one month. To earn just £175. And then you need to do it all over again the next month.

To compare, you’d earn the same if you worked just 4.6 hours a week in a minimum wage job. You also wouldn’t have any business expenses so you’d actually be better off in the minimum wage job.

Things aren’t much better at Younique. We worked out that at the lowest rank you need to sell £500 of products a month just to make £100. That’s a LOT of makeup to hawk to your friends and family! And if you want to earn as much as £1,500 a month, you’d need to sell £7,500 of products in a month.

And it’s not just Acti Labs and Younique. When we did the sums, we were shocked at how little people earn in MLMs. According to figures from the Direct Selling Association (DSA), the top 1% of US MLM reps earn less than a foreign language tutor!

And that’s the tiny fraction of people right at the top. A survey by MagnifyMoney found that 80% of participants in an MLM will earn less than 70 cents an hour – before business expenses are subtracted.

So where is all the money going when you buy a product off someone local selling MLM? The rest goes in commission to their upline and the multi-million dollar or pound company they’re signed up to. Hardly very ‘small’ or ‘local’.

Buying from an MLM rep is like buying an alcoholic a drink

There’s another very important reason not to buy from an MLM: you are enabling what amounts to little more than a scam, in our opinion and that of an increasing number of people investigating the MLM industry, including the BBC.

We’ve already mentioned how little money MLM reps earn. But according to research published by the Federal Trade Commission (FTC), it’s even worse than appears. Because an average of 99.6% of MLM reps will lose money when business expenses are taken into account.

And these ‘expenses’ almost always include products they buy to ‘be their best customer’ or simply because they have to sell (or buy) a certain value of products every month or rolling months to remain active.

And they’re pushed to meet these targets by their upline, who benefit financially from having a certain number of active consultants, and who have their own team sales targets to meet every month.

By purchasing from an MLM rep you aren’t helping them in the long term. In many ways it’s like buying an alcoholic a drink. By buying from an MLM rep you are contributing to the illusion that they’ll make a success of this and one day attain the wealth their uplines pretend they enjoy.

And the longer they stay in their MLM, the more money they’re likely to lose, according to the research.

MLM products are often overpriced

And if that isn’t enough to convince you to give MLM reps a wide berth, here’s another excellent reason: their products are usually overpriced.

When we price checked Forever Living’s products, we discovered that they were significantly more expensive than high street alternatives – even when the high street versions were clearly superior.

Superdrug’s organic aloe vera gel, for example, was more than three times cheaper than Forever Living’s aloe vera gel, despite Forever Living’s version not being organic.

A whistleblower who used to work at Younique’s head office in Utah also revealed the huge markup on their products:

Here’s a stark example of just how much of a markup there apparently is on MLM products, according to the Younique whistleblower:

And when we investigated Usborne Books at Home, we discovered that we could buy their products for less via sites like Amazon and The Works than their own reps were paying for them.

So if you are looking to buy Christmas presents, save your money and buy them from anyone other than an MLM rep. You’ll probably get far better value and you won’t be lining the pockets of a large company who are, in many people’s eyes, scamming your MLM friend (and you if you buy from them).

MLM reps are stealing from small businesses

In fact, not only is an MLM rep deceiving you if they try to pretend they are a small business but they are, in effect, stealing money that you might have spent at a genuine small business otherwise.

So this year, save your pennies from falling into the clutches of large MLM corporations and spend them with the REAL small businesses who deserve them.

Want to know why MLMs are so dangerous?

After over four years of research, we believe MLMs are little more than dangerous, cult-like scams. If you want to learn more about them, we recommend reading our investigations into individual MLMs here:

You can also read more about the MLM industry in general in these articles:

If you’d like to learn more about the history of MLMs, and find out why the business model has been allowed to continue despite an average of 99.6% of participants losing money, we also recommend listening to the first series of The Dream podcast.

Photo by Dayne Topkin