How much can you really make from multi-level marketing? - Stuff

When Amy started selling Mary Kay products, she did so with the aim of getting a discount on the cosmetics.

Read this story in te reo Māori and English here. / Pānuitia tēnei i te reo Māori me te reo Pākehā ki konei.

"There is no way you could actually earn a living," she says.

The mother-of-four, who did not want to be identified because of a career change, said it was only once she got to $1000 in a single order that she would make 50% commission.

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She could have moved up the ranks to earn more by recruiting more salespeople into the system, but she said that did not appeal. "I hated the 'you join and sell'."

Mary Kay pulled out of New Zealand in 2020. In 2019, it said 83% of its salesforce did not earn any commission. Of those who did, the average annual commission was US$206 (NZ$369).

Data from some of the major network marketing, or multi-level marketing (MLM), firms shows that Amy's experience is probably the norm. For most schemes, consultants are not even making enough in a year to fill up their cars.

In 2021, a "typical" Arbonne consultant earned $225 in commission and overrides. For those at the bottom of the tree, the median earning for the year was $114. The bottom 50 had an average income for the year of $9. National vice-presidents, the most senior in the ranks, made a median income of $122,373.

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Amy says she sold Mary Kay because she liked the products.

Scentsy's base-level consultants had median earnings of $187 in 2021. In 2019, only 50% of essential oil firm Doterra's distributors earned more than $100.

These companies have been approached for comment.

In most cases, the only way to make real money in any of these schemes is to sign up more people to your team and take a cut of what they earn. Until then, many salespeople invest significant money in advertising and development of a brand that often offers little in return.

Rob Hamlin, senior lecturer in the Otago University business school, said multi-level marketing schemes tended to be exploitative.

It was likely that 90% of all multi-level marketers were making a loss, rather than returning even a small income, he said. "Reported net loss rates of 99%-plus for multi-level marketing participants are not uncommon."

He said business structures that relied on layers of salespeople should be made illegal. "There is a lack of functional differentiation between the layers, this means that the higher-level layers are harvesting the lower-level layers while the orchestrator or company that runs the show harvests all of them."

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Damien Mather, a senior lecturer at the University of Otago business school, has had contact with people involved in MLM schemes himself.

"I lost a drummer in a band I was in, in Christchurch. He started to try to sell me stuff and wouldn't stop.

"A lot of people involved on the selling face of the system are genuine people, really trying hard, and they are hard workers. But the system is generally set up to not reward them."

Mather said one of the main concerns was the unfairness that was built in. As "salespeople", those selling products did not have the rights of employees but they did not have the negotiating power that a business taking stock from a wholesaler to sell normally would.

"They have very little bargaining power. They have no input into how much they get, it's just a take it or leave it thing."

Supplied

Tupperware, one of the big MLM names, has pulled out of New Zealand.

Mather said many people who were looking for an income were attracted to the "free training" that was offered.

"They might be out of a job, thinking 'I'm good at selling, I've got a network of friends to sell to' – which is another downfall, by the way. One of the things that lures them is the offer of free training, but it's their way or the highway with these systems."

A normal salesforce might ask for training and be given something that covered general sales principles, Mather said. "Not 'you will say this and not say that word' but with MLM they often have this mass-reproduced sales training folder, and they're like a robot going through it. It takes all the fun and intelligence and enjoyment out of what could otherwise be a rewarding and exciting job."

If people rigidly following sales guides burnt a particular market, it could make it harder for other businesses in the sector, Mather said. "People can be turned off by the approach and you can end up doing damage to the retail sector they work in as a whole, not just their own business."

There were generally few restrictions on who else could set up a business selling the products in a particular area, and this would be encouraged by those further up the chain trying to sign up new recruits. But it could be damaging to those who only wanted to sell. "[The business] doesn't care about channel conflict because it always works in their favour."

Mather said people who were good at selling would be better off in standard sales jobs.

"Most salespeople have bonuses and incentives, but the salespeople I know, they have all done way better than anyone in MLM. They're nowhere near as good as if you train yourself up to be a good salesperson and apply for sales jobs to use your skills and knowledge. The sky's the limit for that sort of thing. Plenty of people I know do so much better when they are not in MLM ... they have no problem succeeding. There's almost no chance of getting to the top of MLM."

He said the people selling the business opportunity in MLMs took a "Lotto" approach – highlighting the potential benefits of striking it big and glossing over the more-likely pitfalls. "The pitch given to sellers, it puts this huge effort into putting a positive frame on it ... they say, 'imagine if you have 200 friends and then they all sold to 200 friends', but the probability of that happening ... if they were honest they wouldn't hire anybody."

Retail NZ chief executive Greg Harford earlier said multi-level marketing appeared to be becoming less popular.

This was shown in the decline of Tupperware. The exclusive importer of the brand in New Zealand, UOL, announced it would close its business on October 30 thanks to Covid-19 causing a decline in sales. Avon has also quit New Zealand.

As for Amy, she says she's not sure if she would ever go back to MLM sales. "It depends on why and what it is and if I use it."

Someone she knows is selling Thermomix, a $2500 kitchen appliance, and wants her to do it, too. But she's not keen.

"It's only like $200 you get [in commission] from one ... totally not worth my while. When it's something like makeup, people are happy to spend $100 to support you, but not $2000."