Multi-level Marketing: A Pyramid Scheme by Another Name

Multi-level Marketing: A Pyramid Scheme by Another Name


One of the most insidious forms of scams is one that poses as a legitimate business when it is, in fact, designed only to enrich the people at the top. Multi-level marketing companies like SmartCircle, Rodan + Fields, and LuLaRoe are technically legal, though they are hardly the kinds of companies you want to work for or buy from. They promise that their employees (often called “investors”) can make money by working from home and growing their “downstream” sales network.

What is MLM?

The idea behind these MLM companies is that sellers can recruit people to sell for them. Those people, in turn, can recruit others to sell for them. This system promises to enrich the earliest adopters, but leaves the people “downstream” in a position of working rather hard (and often paying for the privilege of doing so) without the promise of much return.

The Federal Trade Commission reports that roughly one-percent of participants in MLM schemes actually make money. This leads many to call such companies “scams,” though the companies themselves have robust legal defenses that they spring up to defend themselves when accused of operating dishonestly.

How do you Avoid Falling for These Schemes?

It may seem difficult to avoid these schemes, however, as they often have the veneer of being normal, respectable businesses. However, there are some telltale signs that the business you’re dealing with is MLM-based and likely not worth your time.

Don’t Pay Money to Make Money

If a company wants you to purchase product that you then turn around to sell to your friends and family, it’s probably an MLM. Moreover, if they’re focused on you also recruiting people to sell these products, then it’s almost definitely an MLM. These tactics, while technically legally, are nearly indistinguishable from the (albeit simpler) illegal practice of pyramid schemes.

Pyramid schemes are scams that have people at the bottom giving a bit of money to people above them for some nebulous opportunity, resulting only in the enrichment of the very small number of people at the top of the pyramid.

Look it Up

If a job opportunity seems fishy, just look it up online. The company might be pressuring you into working ridiculous hours selling products that don’t seem genuine.

Maybe they’re calling your job a “management training position” but you’re actually just standing around in a Sam’s Club trying to sell cable subscriptions. Whatever the case, these companies don’t operate in secret: there is an ardent community of anti-MLM blogs and forums online.

So, if you think a job listing or sales opportunity sounds too good to be true, it likely is. Apply the MLM test, and look the company up. If they are really a “multi-level marketing” company, what they’re offering isn’t an opportunity. It’s a scam designed to part you from your money.