For decades, multilevel marketing companies, or direct sales companies, have recruited women to start their own businesses from home and sell retail goods. Direct sales companies offer people an easy way to make money with just a small initial buy-in. Mainstays like Avon or Tupperware have provided many a family with extra income over the years. But recently, more and more questionable direct sales companies have popped up, specializing in jewelry, home goods, or apparel. Each one claims to make their sellers or "consultants" thousands of dollars in extra income a month. While some people do make money with these kinds of business, research shows that direct sales businesses actually hurt women more than anything.
A direct sales company, or multilevel marketing company, is different than a pyramid scheme, but the line is very, very thin. A pyramid scheme is illegal, according to the Federal Trade Commission, and focuses more on people making money merely by recruiting others to sell with them, rather than actually selling goods. An MLM or direct sales business, by contrast, is when a person buys inventory from a company and makes most of their profit through sales to people.
Although direct sales, or MLMs, are legal, they are increasingly expensive to get into and hard to make money from, if only because of the initial cost of buying into one. And they hurt women looking to provide extra income for their families the most.
Direct sales companies recruit mainly from suburban and rural areas, where jobs are usually more scarce than urban areas. It's an attractive proposition: You can buy into an MLM for an initial sum, sometimes almost as much as $5,000 for inventory, and begin selling, and theoretically, turning a profit as soon as you can.
Decades ago, women went door-to-door or held at-home parties with their neighbors to sell their goods. Now, many MLM participants are using Facebook to sell inventory and form "consultant groups," where sellers allegedly compare notes, encourage, and empower each other.
To sell inventory, one only has to start a group on the social network and then use its live-streaming feature to broadcast an inventory, much like a personalized home shopping network, which is admittedly so much easier than throwing an at-home party once a month. But even with social media and technology, a lot of MLM "retailers," mostly women, are losing out.
Instead of encouraging people to recruit other sellers, participants in MLM businesses are encouraged to always be adding to their inventory, which means shelling out money all the time, even if sales are bad. One woman recently told Quartz, "I was urged to stop paying my bills to invest in more inventory. I was urged to get rid of television. I was urged to pawn my vehicle." All to pay for more inventory she already wasn't really selling.
Most MLMs obviously discourage and denounce that kind of behavior, but since direct sales businesses are built mainly through social networks, it's easy to see how a frustrated seller could be convinced to spend more money to make more money through their "consultant" groups on social media. That's how the old saying goes, right?
There are sellers that make money with a direct sales business, but there are so many more sellers that can't turn a profit at all. According to Business Insider, a seller for LuLaRoe estimated that a seller would have to invest at least $15,000 for inventory and sell it at a 40 percent markup to turn a profit, even though the initial buy-in is supposed to be around $5,000. (Which is already really high for a low income family.)
Direct sales is appealing for a few reasons — you can work from home, sell goods, and make extra cash for your family. But far too often women are talked into shelling out way more money than they can earn back in the name of the American dream. And selling and advertising on social media ends up being a full time job.
The moral of the story? Would-be direct sales "consultants," beware. There is no way to "get rich quick" and in the worst cases, you can actually lose valuable time and money in the process.