In discussions surrounding multi-level marketing (MLM) businesses, emotions often run high, especially among mothers. Advocates of these ventures passionately defend their potential, while skeptics quickly label them as scams. A glance at any article discussing MLMs reveals a heated debate, yet the stark statistics tell a different story — one that’s disheartening. A staggering 99% of individuals who join MLMs end up losing money.
This sobering statistic doesn’t come from disgruntled former consultants, but rather from a comprehensive analysis by Jon M. Taylor, MBA, Ph.D., for the Federal Trade Commission (FTC). The troubling aspect of this figure is how potential consultants are often lured into the business with misleading claims designed to alleviate their fears of financial loss.
Taylor’s report highlights a common tactic used by MLM promoters: they often downplay the failure rates of MLMs by comparing them to the broader small business landscape. While they assert that 90-95% of small businesses fail, they neglect to reference credible data from organizations independent of MLMs. For instance, the Small Business Association (SBA) notes that 44% of small businesses endure for at least four years, while 31% survive for seven years or longer. According to the National Federation of Independent Business (NFIB), 39% of small businesses ultimately turn a profit, with 30% breaking even and another 30% incurring losses. Cumulatively, this yields a 64% success rate — a stark contrast to the figures touted by MLM proponents.
The reality of MLMs is grim: less than one in a hundred participants actually make a profit. As Taylor puts it, “the loss rate for MLMs is at least 99%,” which means that an overwhelming majority of MLM participants face monetary losses. To put this into perspective, your chances of making money through gambling are statistically more favorable.
The financial toll on MLM consultants can be severe. For example, women starting with LuLaRoe often invest around $5,000 or more in inventory just to get their business off the ground. To maintain an active status, they must purchase a minimum of 33 new items each month. A recent analysis by Quartz showed that selling 30 pairs of leggings weekly could allow a consultant to recoup their initial investment in under three months, but ongoing costs and restocking mean that turning a profit is a long and arduous journey.
One former consultant, Lisa, shared her experience with CBS News. She revealed that her venture left her with over $7,000 in debt and an overwhelming amount of unsold inventory, which even other consultants were reluctant to buy. Many women are encouraged to take out credit cards or even start crowdfunding campaigns to support their initial orders, driven by the desperation to improve their financial situations. Ultimately, these companies seem to profit while their consultants struggle.
The competition in the MLM landscape is intensifying, with the number of consultants skyrocketing. For instance, Sarah, a stay-at-home mom from Florida, joined LuLaRoe in early 2016 when there were only around 10,000 consultants. Initially, she experienced significant sales, earning between $18,000 and $24,000 monthly, but as the consultant base expanded to over 80,000 by early 2017, she found herself with $20,000 worth of unsold inventory. “I realized that the initial success was a mirage,” she said. “The market was flooded, and I was left with a mountain of debt.”
This narrative is not unique to LuLaRoe; it reflects a broader trend in the MLM industry, which thrives on the hopes of women seeking financial independence. However, these companies often leave their consultants with burdensome inventory and little chance of success.
In conclusion, the allure of MLMs continues to draw in women, despite the overwhelming evidence of financial loss. These ventures exploit the dreams of individuals striving for a better life, offering a frayed lifeline that rarely leads to success.
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