The Dangers of Multi-Level Marketing Companies

the compensation method is almost identical to a pyramid scheme

Published in El Pais, 18 December 2018.

There are many out there who hate their job, be it for lack of pay, stress or both. You think about quitting but really cannot afford it. One day you look out the window and you see an advertisement: Join our company and you can become your own boss and make a large sum of money. That is exactly what many people tried to do when they signed up to be a sales representative for LuLaRoe. The clothing manufacturer is a multilevel company that markets itself as a great way for outgoing people to make money as a clothes salesperson. Those salespeople are now alleging that it is a pyramid scheme that has scammed many of its employees. Unfortunately, this is just the one of many to operate like this.

Before going in further it is important to understand exactly what a pyramid scheme is. These companies operate under a business model that compensates employees for recruiting more individuals into the company rather than offering a product or service. The more you recruit the more you earn. This essentially leaves the people near the top of the pyramid making lots of money off the backs of the people who joined later in the game. For this reason, pyramid schemes are illegal but there is a clever workaround being used called Multi-Level Marketing (MLM) companies. MLMs claim to be different by providing a product to sell, like makeup or health products. However, the compensation method is almost identical to a pyramid scheme and many who joined are left with garages full of unsold inventory and are out thousands of dollars.

With that in mind, if you are looking for work and you are not sure if a company is a scam there are tell tale signs that would suggest whether it is a pyramid scheme.

  1. Their website focuses more on recruiting you as a salesperson and not a customer. Go to a website like Apple and Microsoft and they will tell you all the benefits of their product. They may have a part dedicated to job applications but its not the focus of the website. MLM’s on the other hand will barely mention their product.
  2. There is a large financial commitment required, for example, to join LuLaRoe requires a $9,000 investment.
  3. They make ridiculous claims of wealth potential such as a six-figure salary only working part time.
  4. Finally, it is important to go back to the basics. If something seems too good to be true, it probably is.

It is a shame that these companies can operate under such an obvious ruse as more people are being duped into handing over their savings. For those that are looking for a way out of their job or even some extra income, MLMs can be tempting. But if you talk to those unfortunate enough to be lured in by these false promises they would tell you to stay away and it is advice worth holding on to.

About Matthew Glezos 190 Articles
Matthew is Canadian and has a Master in Business Administration. He has international experience in marketing and strategy. He has a strong interest in technology and combines it with the business side.

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