Multilevel marketing companies, such as Amway, Avon and Mary Kay utilize a business model where you sign up with them to sell their products directly to consumers and earn commissions on your sales.  In addition, you can earn money by recruiting other people to do the same thing and get a commission from their sales as well.  You will often see social media used to recruit people to multilevel marketing companies with promises of big pay for your work.

While multilevel marketing is legitimate, pyramid schemes, which often resemble multilevel marketing businesses are not.  The key difference is people involved in pyramid schemes make their money not primarily by selling products, but by recruiting other people to participate in the pyramid scheme.  In October of 2019 I told you that the Federal Trade Commission (FTC) settled its legal action against AdvoCare International and its former CEO who under the terms of the settlement are banned from operating  multilevel marketing businesses and were ordered to pay more than 149 million dollars to the FTC to be refunded to consumers.

AdvoCare promoted health and wellness products such as its Spark energy drink, but its profits came from recruiting new distributors rather than selling products which is the hallmark of a pyramid scheme.    AdvoCare routinely misrepresented and lied to people about the operation of the company.  Among their misrepresentations were that the distributorships would routinely provide hundreds of thousands or even millions of dollars of profit annually to people who signed up to be distributors.  The truth is that in 2016, 72.3% of distributors earned nothing, 18% earned no more than $250 and 6% of distributors earned between $250 and $1,000 while the distributors paid thousands of dollars in fees to join and maintain their status each year with the company.

Sometimes a legitimate multilevel marketing business may look quite similar to an illegitimate pyramid scheme, which is one of the reasons that so many people fall prey to these scams.  For every legitimate multilevel marketing company, such as Mary Kay and Amway, there are many that are just scams.  In a legitimate multilevel marketing company, investors make money by selling products to the public and by recruiting new salespeople.  In a pyramid scheme the source of profits is based primarily on the recruiting of new members or salespeople.

TIPS

Anyone who is considering investing in what is represented to be a multilevel marketing business should always investigate the company and the terms of investment carefully before investing any money.  In addition, you should also check out the company with the FTC and your state’s attorney general to make sure that the company is legitimate before investing any money.

Here is a link to information from the FTC that you should consider before investing in a multilevel marketing business.  http://www.consumer.ftc.gov/articles/0065-multilevel-marketing

In addition, even with “legitimate” multilevel marketing companies, according to research by the FTC few people make any money.  According to the FTC in 2021 the average annual income for someone working for Amway was a mere $766 and that figure is before expenses are factored in.  Here is a link to a study referred to by the FTC https://www.ftc.gov/sites/default/files/documents/public_comments/trade-regulation-rule-disclosure-requirements-and-prohibitions-concerning-business-opportunities-ftc.r511993-00008%C2%A0/00008-57281.pdf

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