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Want to be your own boss? Set your own hours? Control your destiny by earning commissions, bonuses and even luxury cruises?
You could hear that too-good-to-be-true sales pitch at the next ribbon-cutting celebration or small business mixer. Last month, the Wilson and Bailey chambers of commerce each announced new multilevel marketing affiliates.
The Bailey Chamber of Commerce shared photos from an MLM business on its Facebook page, but chamber President Cecil Hawley said the business is not a member. (Clarification added Friday, Sept. 6.)
MLMs sell products you can’t find on store shelves — from nutritional supplements to cosmetics, clothing, costume jewelry and cookware — through networks of independent distributors. You probably know someone hawking diet shakes or skin rejuvenation cream on Facebook. Maybe a healthy dose of skepticism has warded off such overtures, or maybe you’ve purchased items you use and enjoy.
Either way, the profit margin on these products is too slim for most consultants to make a living without retail store-level volume. That’s why recruitment is a bigger business than sales for many MLMs — and the main reason these companies deceive well-meaning folks, destroy friendships and trap consultants in a cycle of debt.
You may be placing that order to support your friend’s new home-based business, but he or she isn’t likely to receive all the commission. Some of the overhead probably goes to your friend’s “upline” — the consultant who recruited him or her, the consultant who recruited that consultant, ad infinitum. When you sign someone up to sell, you may receive a small cut of that person’s sales commissions in perpetuity.
Sounds like a good deal — but only if you’re near the top of the dogpile.
“If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan,” the Federal Trade Commission says on its website. “If the money you make is based on the number of people you recruit and your sales to them, it’s probably not. It could be a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.”
Regulators are cautious about painting MLMs with a broad brush, but independent research they’ve cited doesn’t mince words. In a 2011 white paper available on the FTC website, Consumer Awareness Institute President Jon M. Taylor dispels the notion that multilevel marketing is a respectable field with a few bad actors. It’s a predatory industry whose business model is bilking people.
Taylor studied 350 MLM companies and found that all of them were “recruitment-driven and top-weighted.” While 39% of legitimate small businesses become profitable, fewer than 1% of network marketers will ultimately make money.
“MLM makes even gambling look like a safe bet in comparison,” Taylor wrote.
Another conclusion from his report: “For promoters to present MLM as a ‘business opportunity’ or ‘income opportunity’ is a misrepresentation.”
By lending their good names to MLM affiliates, are our chambers cloaking these companies with undeserved credibility?
In fairness, chambers of commerce were never meant to be an arbiter of best practices. They are not clearinghouses for consumer complaints or regulators empowered to inspect members’ sales ledgers. They’re voluntary, membership-driven organizations whose mission is to promote local businesses and advocate for their interests.
It’s also worth noting that this issue isn’t unique to our local chambers. Network marketers are dues-paying members in business groups across the country, and in 2013, the U.S. Chamber of Commerce even elected an MLM executive as its board chairman.
Business boosters have to walk a tightrope. And I can sympathize.
To avoid giving these MLM companies publicity, I’m not naming them here. But I’ve left out local affiliates’ names for another reason — they’re far more likely to be victims than perpetrators, and it’s unfair to hold them individually responsible for the industry’s ills.
Honest, kind, good-hearted and fair-minded people fall into the MLM trap every day. Many active sellers may be true believers, convinced they’re just connecting people with products that will help them live better lives and sharing a sales opportunity with their friends and neighbors.
It all boils down to education, and maybe that’s where the Wilson and Bailey business communities have a role to play.
Whether or not our chambers of commerce continue allowing MLM consultants to join, they’d be performing a true public service by warning earnest entrepreneurs about the pitfalls of network marketing. Success comes in many shapes, but a pyramid isn’t one of them.
Corey Friedman is editor of The Wilson Times. Reach him at 252-265-7813 and email@example.com.