- Multilevel marketing companies recruit people to sell their products, usually on commission. And the more people they recruit, the more money they stand to make. Unfortunately, the research shows that many people that join these companies actually lose money.
- Many distributors share their personal success stories on social media to entice others to join the company. But it is hard to know if all these success stories are true given the incentive to recruit and the data that shows how hard it is to make money in multilevel marketing companies.
- Three former distributors told Business Insider how they found themselves making misleading claims on social media about the success they had achieved. They felt pressured by other distributors to "fake it until you make it."
- Jennifer Chatman, an expert on how organizations leverage culture to enhance performance, explains the strategies that help these companies recruit and keep their sales force motivated.
Leggings, dietary supplements, and essential oils are just some of the multilevel marketing products you can buy through distributors of multilevel marketing companies.
You may see promotions for products like these posted on social media. These posts not only make the products look great, sometimes it seems like the lives of the people selling the products are better than ever.
Business Insider spoke to three former distributors from different multilevel marketing companies. Each of them said they poured money and time into this dream before giving up and getting out — but not before they had recruited others into the very same situation. The women’s last names have been omitted to help protect their privacy.
"You’re not just selling oils, but you’re selling the possibility of opportunity," Kristyn, who joined Young Living in the summer of 2018 and sold essential oils for the company for 10 months, told Business Insider.
Chrysti, who sold clothing for LuLaRoe for two and a half years, told Business Insider she was drawn to the business because of how others who worked as sellers portrayed their success on social media.
LuLaRoe is known for producing limited quantities of brightly patterned clothing that is purchased sight unseen and then sold by distributors.
The opportunity to own a business, work from home, and make money are just a few of the reasons people decide to join an MLM.
Multilevel marketing companies (MLMs) recruit people to sell their products, usually on commission. And the more people they recruit, the more money they stand to make. These kinds of businesses have been around for decades. Think Tupperware parties, but now turbocharged by social media. Today, sellers can host virtual events and sales, and reach far beyond their immediate friends and family.
A curated and positive social media feed is a must, sellers told Business Insider.
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"We were told very specifically, never post anything negative on your Facebook. No prayer requests, no talking about, I’m having trouble at this. No drama. Like you were supposed to filter your Facebook as though once you joined It Works all your problems went away," Courtney, a former distributor for It Works, told Business Insider of the pressure she received from other distributors.
It Works is a multilevel marketing company that sells beauty, nutrition, and weight loss products through its network of distributors. It Works is best known for its Ultimate Body Applicators which people wrap around their stomachs or other areas in hopes of tightening, toning, and firming. Courtney says she first learned about this product and the opportunity to sell for It Works after she posted in a mom group about her "mom pouch" about three weeks after having a Cesarean section.
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Because recruiting and motivating thousands of independent distributors is fundamental to how MLMs operate, it has caused some to liken these companies to cults.
"Multilevel marketing companies do have some similarities to cults," Jennifer Chatman, a professor at the Hass School of Business at UC Berkeley who researches, teaches, and consults on how companies leverage organizational culture to improve corporate performance, told Business Insider.
"What cults do is they try to recruit people based on relationships. They say, here’s a person who is very similar to you and you should forge a relationship with them and they’re going to be really nice to you," Chatman said.
Chatman said that MLMs, like other groups looking for new recruits, target people who are at vulnerable places in their lives — perhaps someone who’s in a lot of debt, just had a baby, or lost a job.
"We were told to add as many moms as we could, go into mom groups and look for anyone at trying to look for friends or who had financial struggles and to go after them, like a friend offering them this thing that they needed," Courtney said of communication she received from other distributors for the company. It Works did not respond to Business Insiders request for comment about this claim.
Kristyn told Business Insider she was at a pretty vulnerable place in her life when she joined Young Living. She was fresh off maternity leave and wanted to be home with her baby.
"The investment was $165, which they totally downplayed and made it sound like you could become the CEO of your own company for just 160 bucks," she said.
Chrysti, who was a distributor for LuLaRoe, said the business model seems very simple at first, but gets complicated very quickly.
"Getting people to join a multilevel marketing company usually involves a small initial hurdle, maybe they have some success selling a little bit and they buy a little bit more. So there’s a kind of escalation cycle that occurs," Chatman said.
According to data from the Direct Sellers Association, multilevel marketing companies brought in an estimated $34.9 billion in revenue in the US in 2017, thanks to the more than 18 million people selling their products. That works out to just under $2,000 in revenue per direct seller for the year. But that revenue goes to the companies, the sellers get a percentage of that.
Judging by what people post on social media, it seems like there are a lot of multilevel marketers doing great and making money. But the data tells a different story.
If you look at the 2016 income disclosure statement for essential oil company Young Living, average monthly income seems impressive. But that’s mostly for the distributors in the top six rungs of the ladder — which actually includes less 1% of all members. Some 94% of all members are at the very bottom rung where the average monthly income is less than $1.
The 2016 income disclosure statement for It Works is also very top-weighted, with much higher average income at the higher ranks where there is a small percentage of active distributors.
These income disclosures do not include any expenses, which means this is only part of the story.
Courtney said she reached Emerald status at one point while selling It Works and still did not come out ahead.
"By the time we figured all the losses, we were at least negative $1,000 after 18 months. And being within the top 10% at least of the company," she said.
A study done in 2011 by John Taylor of the Consumer Awareness Institute analyzed the compensation structure for 30 MLMs. Taylor accounted for expenses including the products that distributors had to buy themselves just to qualify for commissions or bonuses. Taylor found that over 99% of participants lost money in each of the multilevel marketing companies analyzed.
"Before you can make a penny, you were spending around a $100 to $110," Courtney said of her experience with It Works.
Chrysti said that when she was a distributor for LuLaRoe she was required to buy 175 pieces, costing between $12 and $30 each, every calendar month to collect a bonus check.
Some sellers even purchased extra product to advance a level or maintain a rank.
Kristyn says she remembers doing this with Young Living.
"If I was like super close to like hitting the next rank, like someone’s got to spend 150 bucks to do it, I would do it. That’s why I kept dipping into my savings," she said.
Courtney said she had a similar experience with It Works where she would spend $800 buying the company’s products underneath a distributor just so she could reach her promotion.
Chrysti said she spent a lot of her bonus checks on buying more product. She said she felt like the people that were doing the best with LuLaRoe had the most inventory for their customers to shop from.
Don’t let the team down
Chatman said a big reason why people don’t quit MLMs despite not making money is because of the sense of community the companies provide.
"Even more than it being a job and a source of income, it’s a source of relationship gratification. They feel an allegiance to one another and feel pressure to sell based on living up to their friendships with their peers within the organization," Chatman said.
Chatman said that companies with strong cultures exhibit a type of social control by creating strong relationships between people within an organization. This can be a very powerful tool in driving certain behavior. Chatman says this can happen in MLM and non-MLM companies.
"It’s not enough just to be accountable to your boss, but to really feel some pressure, you would want to feel accountable to your peers, as well." she said.
This is in line with the stories these former distributors shared. They described the pressure they felt from other independent distributors and not from the company directly or its official staff.
One of these women shared a text message she received after she expressed some frustration with the company. She was told, "You have come way too far to quit," "I’ve just created expectations for you that you feel pressured to meet," and "There’s no reason it will work for me and not for you."
Chrysti said she felt that she did it to herself, that she put herself in this situation.
"I dug myself into this bubble that everything around me in terms of who I was associating with and my social media feed and everything that I did was LuLaRoe related. And it was like I couldn’t see outside of that bubble," she said.
Kristyn said she felt pressure not to let her team down, which led her to do things she would later regret.
"I so badly wanted to continue recruiting and to continue succeeding and making my leaders proud that I definitely exaggerated what a life-changing opportunity Young Living was," she said.
Fake it till you make it
These social strategies have been proven to be effective tools for pushing people to do things they wouldn’t otherwise do, including misleading others on social media. But according to Chatman, this is somewhat easy to do.
Chatman said that people will sometimes feel like they are close to achieving something or on track to win a big award and they really believe it’s true. Chatman attributes this behavior to a phenomenon called self-justification.
Courtney said she experienced this first-hand.
"There was one time that we went to the bank after my husband had gotten a, a good check at his work. We were all being told to post a picture of as much cash as we could to post on Facebook to talk about how it had been our bonuses this month," she said.
"And I just remember us withdrawing every dollar that was in the account basically — every hundred dollar bill — just to hold for a picture to say, ‘Oh, you could be making this with It Works too.’ Just to go back through the bank drive-through and put it back in the account."
Chrysti said she had a similar experience with LuLaRoe. She said she went on a vacation with her family and claimed on social media that it was because of her income from LuLaRoe, even though that was not the case. The mentality she describes among the other distributors was always "Fake it until you make it."
Kristyn said she also made inaccurate claims on social media, and it’s not something she is proud of.
"I feel that I wouldn’t have done that had I not had the pressure coming down from the people above me to sell the lifestyle and sell the dream," she said.
It Works, and LuLaRoe did not reply to Business Insider’s requests for comment. Young Living said that social media has become a vehicle for sharing information and endorsements and naturally has become a useful channel for the minority of its members that are building their businesses. The company also states that it continually educates employees and members on complying with laws and regulations relevant to the sale of its products.
"Additionally, we have a monitoring system in place to identify and correct any non-compliant product claims. Part of our agreement with members states that they must sell our products in compliance with all laws and regulations. A member who violates this agreement may have their membership terminated," Young Living said in a statement to Business Insider.
Distributor agreements for Young Living and It Works state that distributors cannot mislead prospective distributors about the income opportunity. Agreements for all three companies, including LuLaRoe, state that distributors may not make any claims about hypothetical income or disclose their own bonuses.
But the women Business Insider spoke with said the pressure that comes from outside the companies’ official staff. Instead, it came down through the multi-level structure from other independent distributors who themselves are just trying to keep up.
Because of the nature of MLMs, it’s often very difficult both emotionally and financially to walk away, Chatman said.
"You make an initial investment, you are surrounded by people who are giving testimonials about how successful they’ve been. So you continue to try. And then you fail to recognize the truth about sunk costs — which is sunk costs are sunk," she said. "And that’s the escalation of commitment bias — is failing to recognize that at some point you just need to eat that initial investment and walk away."
When asked what advice she would give others considering getting involved with a multilevel marketing company like Young Living, Kristyn said
"Don’t blindly go into it because you want to support a friend or a family member. Really do your research. Because in retrospect now, now that I have in fact put that company into a Google search bar and just looked a little bit deeper, I see a lot of things that I, I don’t like," she said. "And there are a lot of warning messages out there about the predatory nature of MLMs. And had I taken a second to really look at what I was getting myself into, I probably would have walked away."
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