What Is MLM (Multilevel Marketing) and Is It a Good Idea? - Ramsey Solutions

Have you ever opened a Facebook message from a friend you haven't talked to in years? You're excited to read their message until you notice the copy-and-paste sales pitch they used to try and rope you into their latest multilevel marketing (MLM) scheme—I mean business. Hard nope. Yeah, you had a great weekend (thanks for asking) but no, you really don't want to join their newest venture or buy the latest and greatest magic potion to grow your eyelashes. Your eyelashes are just fine the way God made them.

When you hear "multilevel marketing," maybe you think of essential oils, Tupperware, beauty products or even workout programs and fitness drinks. Or maybe you think of that old friend who only reaches out when they've got something new to sell. Bless their heart. (That's passive-aggressive southern speak for "ugh.") But what is MLM, and does this type of business actually make you any money? Let's find out.

What Is Multilevel Marketing?

Multilevel marketing is a business strategy that uses an army of everyday people—a network—to sell and distribute products and services. Instead of selling products in a retail or brick-and-mortar store (or directly to consumers), these companies give you a platform to start your own "business" and make a commission. And when you recruit others to join the business, you'll make a cut of their sales. This pattern continues down the line. (In fact, it's called a downline.) Along the way, you're incentivized with vacations, cars and other perks for hitting different levels of sales.

Plenty of people are suspicious of MLM companies because of their poor reviews from customers and even distributors (distributors are the people selling the products, and they're also known as representatives, consultants or whatever fancy name they feel like calling themselves). Now, you don't need to write off every MLM immediately, but you should do plenty of research and be careful about which of these network marketing businesses you get involved with (if any).

Let's look more closely at the MLM meaning, how MLMs work and why you would join one—or not.

How Does MLM Work?

In most MLM companies, you make money by selling the company's products and earning commissions from the people you recruit to the business—plus any additional recruits they bring in. That's why it's called multilevel. MLM salespeople can do most of their selling from home. But before you can start selling products and making money, you pay to join the organization and then pay for the company's products before you turn around and try to sell them. (Sounds like a money-making scheme already, right? For the multilevel company, at least . . .)

To be successful at a multilevel marketing business, you'll need to spend time getting to know the products like the back of your hand. You also have to make a business strategy, determine your sales goals, and sit through companywide coaching calls. It takes a hefty investment of time (and money) up front before you start seeing any returns.

What Are the Downsides of MLM?

Joining MLMs can be risky business. For one thing, there's no guarantee you'll make any money. And each company has a different compensation plan, so make sure you understand how you'll get paid before you get started. For example, some companies pay you based on the products you sell, and others pay you for how many people you recruit. Here's the thing: Sales and recruiting each require totally different skill sets, so make sure you know what you're getting into from the start.

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Something else to keep in mind is how much money you'll spend to get started. If your job is to sell a product—sometimes within a certain time frame—you could end up eating your investment if you buy inventory but don't sell it to buyers. You'll have wasted a lot of money, and you'll be stuck with a giant pile of leftover eyelash potion. (Look into your MLM to see if they offer a buyback program for unused and unopened product.)

On top of that, it's easy to keep spending your own hard-earned money in the name of "being a good teammate." Especially when your leaders and team encourage you to buy more so you can sell more (and hit those sales goals). It's a slippery slope, and I don't want you going into debt to keep up.

Finally, I'm just going to say it . . . You run the risk of turning into a nuisance. Yep. Don't be that friend who reaches out to old buddies after a decade just to sell them your company's latest weight-loss shake. Even if dad bods are your target market, it's not cool to bug your friends to buy your miracle muscle shake. If you're constantly reaching out to family and friends with sales offers and they're not interested, you could annoy them and start to isolate yourself. Through MLM sales training, you learn to see every person as an "opportunity" for recruiting or a sale. This turns everyone in your life into walking dollar signs. I think we can all agree that's gross.

Examples of MLM Companies

Have you heard of these popular MLM businesses? You may have already bought some of their products or been approached by someone who encouraged you to get involved in the business.

• Amway sells nutrition, beauty, personal care and home products.
• Avon markets cosmetics, fragrances and other beauty and self-care products.
• Beachbody is a fitness coaching and nutrition company.
• Beautycounter is a clean beauty product manufacturer and distributor.
• doTerra is an essential oil company that also sells personal care products.
• Isagenix sells weight management, natural beauty and nutrition and fitness products.
• Mary Kay is a cosmetics and beauty company.
• NéVetica is a pet brand that sells nutrition and cleaning items.
• Pampered Chef is a kitchenware and cooking tool company. (I'll bet you a dollar your mom has a Pampered Chef casserole dish or cookie pan in her kitchen.)
• Rodan + Fields is a skincare brand founded by dermatologists.

Are MLMs a Good Idea?

Starting a business can be daunting and lonely, especially if you aren't sure what type of business you want to start or what to do next.

If it's a reputable company, multilevel marketing businesses can be a good option for beginners because they come with a built-in support system. When you join, you'll have team leaders (called your upline), and they'll help train you, share tips and tricks of the trade, and encourage you to set and reach your business.

Working for an MLM can be a convenient way to work from home at your own pace. But like any other business, your success is determined by how much time and energy you spend building your business. If you're not totally dialed in, this could go sideways pretty fast. But you get to call the shots and decide what works for you and your family.

On the other hand, people start out with high hopes they can make a quick buck and scale their business in no time. But what often happens is they end up losing money and get into a recruiting role instead of sales role. Don't be naïve and expect your early income to match the top-earners from the get-go. (If that's what the business is advertising, run away fast because it's probably a pyramid scheme).^1 But it's important to note: Not all MLM companies are pyramid schemes. Do your research.

What's the Difference Between a Pyramid Scheme and an MLM?

Pyramid schemes are straight up fraudulent businesses—scams—disguised as an MLM strategy. In a pyramid scheme, it's challenging (if not impossible) to get promoted in the organization, and there's a big focus on recruiting other participants. It can also be difficult to sell enough inventory or recruit enough new members to make any serious money—and trying to meet these demands can quickly drain your bank accounts. Don't be tempted by get-rich-quick promises that require hundreds (if not thousands) of your dollars to launch! Especially when all your time and resources directly benefit your recruiter. And their recruiter. And so on and so forth.

Multilevel marketing, however, is a totally legal business model and focuses more on product sales. There's also more research that goes into market demand, so there's a proven need for the services and products for sale.

Should I Join an MLM?

The answer to this question depends on you. The most important question to ask yourself is, Why do I want to join the business? Most people join MLMs hoping they can bring in extra money for their family. That's a great reason, but the end result and your success with the company depend on your personality style, skill sets and even your network of contacts. If you're looking for a side hustle or a supplemental income, it might be better for you to find a stable part-time job with an established company.

Otherwise, there's nothing wrong with joining a reputable, respectable multilevel marketing company. As long as you do your research, know what you're getting into, and decide exactly how much you want to invest (and know when you'll get a return on your investment), give it a try. Just remember, most MLMs are more about the sales and recruiting side of business than anything else. If you're a salesperson at heart, this may be the right thing for you. (But also, if you're great at sales, why not just get a more traditional sales job that can make way more money without all of the up-front investment?)

Let me be clear: You're not a bad person if you do MLM. I've got a bunch of friends that are high-quality people of integrity who are into it because they truly believe in the products. But they don't ever go into debt for it, and they're not out there using slimy sales tactics and trying to push people into it to make a buck.

And here's a pro tip: If you're thinking about joining an MLM company, do your research and always look up their income disclosure statement. This will show you exactly how much people actually make a year through these companies, instead of what they're advertising you can make.

If you do decide to join a multilevel marketing company, don't forget to include that extra income in your budget. Check out the free EveryDollar app to plan and track your income and expenses.