Our communities are under economic attack. Economic hardships can cause generational poverty and issues beyond just our bank accounts, reaching into the lives of our children and grandchildren. That is why companies that take advantage of at-risk communities are so egregious. The very institutions that are the backbone of our economic foundation can sap the life out of our communities.
One particular blight on our communities is multilevel-marketing companies (MLMs). These companies promise “wealth generation.”1 However, they will never tell you that the majority of MLM participants, as much as 99%, are estimated to lose money!2 Furthermore, MLMs target women in particular. This focus adds another tick to the tally of cultural injustices that women already face.
Today, I will walk through what multilevel-marketing companies are, how they target women, why MLM participants lose money, and why this information is important to know.
What are multilevel-marketing companies?
Multilevel-marketing companies are a specific subset of the direct sales model. Direct sales companies rely on individual contractors, sales representatives, or independent business owners to sell products.3 MLMs differ from direct sales companies through predatory recruitment strategies. While every MLM is different to some degree, many share tactics. Two of these tactics include lying about how money is generated and expanding their pyramid model in an exploitative way.
First, recruiters will lie. They commonly lean into the financial benefits gained from selling products. In reality, the bulk of financial gains comes from recruiting new MLM participants (i.e., expanding the pyramid).4
Second, original MLM participants get a bigger cut of commissions for each individual that they have working for them. As new participants join, they realize that to make money, they need to pull in new people.5 As the pyramid expands, it creates an environment in which participants are encouraged to trick new individuals into joining.6 Unfortunately, those new recruits are often friends and family.7 MLMs make losing money a family matter.
How do multilevel-marketing companies target women?
Whether the individual is an independent contractor, an independent business owner, or a sales representative, MLM participants are most often women (74%, as seen in the graph below).8
Why do MLMs target women? The answer is twofold: product line and cultural manipulation.
Product Line
First, MLMs tend to sell products that women are more likely to be pressured into buying. These include “health, wellness, and beauty products, as well as home care and household durables.”9
Selling these types of products enable MLMs to capitalize on existing social pressures that women experience. That is, MLMs do not need to spend as many resources creating new brands from scratch; they can utilize current consumer mentality.
Cultural Manipulation
MLMs seek to manipulate the existing cultural context surrounding women. This cultural context includes homemaking and feminism.
One study expressed that MLMs capitalize on the schedules of stay-at-home mothers. The study goes on to say that “Direct sales may be more compatible with women’s household and childcare work.”10 This also helps explain why, as seen in the graph below, 72% of MLM participants are married and living with a partner.11
In addition, MLM recruitment strategies often attempt to manipulate feminist ideals. For example, Jessica Wood, a prominent author, notes the following:
“The main issue which I and many other people have with these companies [MLMs] is that they claim to be supporting female entrepreneurs and feminism, calling themselves ‘Boss Babes’ and ‘Momtrepreneurs’… MLM ‘business’ implies that it is out of the ordinary for women to be earning their own money or that it is a rare achievement in itself. It almost feels as if feminism has taken a step backwards.”12
One researcher, Tiffany Lamoreaux, notes that one of the main narratives for MLM recruiters is “empowering women.”13
These tactics are particularly disturbing because the majority of MLM participants lose money.14 In effect, MLMs are doing the opposite of empowering women. They are financially disabling their female participants, blatantly lying, and unabashedly attempting to manipulate.
Why do multilevel-marketing participants lose money?
Not all MLMs operate in the same way; there are many different ways that an MLM participant may lose money. For my purposes here, I will list two: taxes and debt.
Taxes
As described above, MLMs make liberal use of independent contractors.15 Now, while it might sound great to be your own boss, some important tax implications follow.
Independent contractors have to pay the self-employment tax.16 The self-employment tax covers Social Security and Medicare for independent contractors.17 You might not have a physical boss, but the IRS is everyone’s superior.
The self-employment tax is a significant chunk (15%) of an independent contractor’s wages. This 15% is a sum of 3% for Medicare and 12% for Social Security.18
Furthermore, the self-employment tax comes in addition to any other state and federal taxes that an individual might need to pay.19 At the end of the tax season, an individual contractor could be paying far more than a company employee.
Now, if everyone understood self-employment tax, there would be no moral issue here. However, for all those who do not fully understand what MLMs are and what they are getting into, the extra tax can be a huge burden.
Debt
Debt is a double-edged sword. It can either create ex nihilo or cause financial ruin. Personal debt should be scary for everyone. However, it should be even scarier for MLM participants. Unfortunately, around 32% of participants started their association with MLMs with debt. Such debt is likely financed by personal credit cards and includes more than just purchasing products. “They rack up debt to attend conferences and training or pay for marketing materials and other expenses related to involvement….”20
So many MLM participants start their involvement using the little money they actually earn to pay off their debt. Meaning 32% of MLM participants—who are already losing money—have less spending power after joining than before.
Why is this information important to know?
Foundational information enables functional decision-making. This is a true concept for every area of our lives. Even small choices would be improved if we knew more contextual information.
Joining an MLM is not a small decision. A poor financial decision can cause issues that remain years later, so having contextual information is all the more important.
From the perspective of an MLM, the situation described in this article is perfect. MLM participants shoulder the tax weight and deal with the customers. Using independent contractors saves on taxes and operating costs.
Furthermore, because of predatory techniques, many MLM participants are tricked into debt.21 Participants are then eventually coerced into recruiting, taking advantage of friends and family.22
Don’t give MLMs the satisfaction. Avoid this tax on our communities. Know your facts beforehand. For that purpose, I invite both prospective and active MLM participants to action.
Please, if you are thinking about joining an MLM, make contact with a current participant who is not recruiting you. Ask to see his or her financials. In particular, ask about how much net revenue the individual receives from his or her operations. After all the costs are accounted for, how much has his or her bank account actually increased?
If you are an active MLM participant, I invite you to do two small tasks. First, please look at how much time, effort, and money you have put into your MLM business. Second, look into how much net revenue you have truly received from it.
For both groups, time is money. Please, reach out and ask questions as soon as possible so that any loss of money or time is minimal.
Notes
1. DeLiema, Marguerite, Doug Shadel, Amy Nofziger, and Karla Pak. “AARP study of multilevel marketing: Profiling participants and their experiences in direct sales.” AARP Foundation (2018).
2. Wrenn, Mary V., and William Waller. “Boss Babes and Predatory Optimism: Neoliberalism, Multi-level Marketing Schemes, and Gender.” Journal of Economic Issues 55, no. 2 (2021): 423-431.
3. Tarver, Evan. “Understanding Multilevel Marketing and How to Avoid Pitfalls.” Investopedia. Investopedia, September 10, 2021. https://www.investopedia.com/terms/m/multi-level-marketing.asp. Accessed October 25, 2021.
4. Federal Trade Commission. “Multi-Level Marketing Businesses and Pyramid Schemes.” Consumer Information. FEDERAL TRADE COMMISSION, October 19, 2021. https://www.consumer.ftc.gov/articles/multi-level-marketing-businesses-and-pyramid-schemes. Accessed October 25, 2021.
5. Reingewertz, Yaniv. “An Economic Model of Multi-Level Marketing.” PLOS ONE 16, no. 7 (2021). https://doi.org/10.1371/journal.pone.0253700.
6. Tarver. “Understanding Multilevel Marketing.”
7. Federal Trade Commission. “Multi-Level Marketing.”
8. WFDSA. “Distribution of people working in the direct selling market worldwide in 2020, by gender.” Chart. July 1, 2021. Statista. https://www-statista-com.erl.lib.byu.edu/statistics/1031657/share-of-people-working-in-the-global-direct-selling-market-by-gender/. Accessed October 23, 2021.
9. DeLiema, Marguerite, Shadel, Nofziger, and Pak. “AARP study.”
10. Wren, V, and Waller. “Boss Babes.”
11. DeLiema, Marguerite, Shadel, Nofziger, and Pak. “AARP study.”
12. Wren, V, and Waller. “Boss Babes.”
13. Wren, V, and Waller. “Boss Babes.”
14. Wren, V, and Waller. “Boss Babes.”
15. Tarver. “Understanding Multilevel Marketing.”
16. Luthi, Ben. “Independent Contractor Taxes: Things to Know: Credit Karma Tax®.” Credit Karma. December 18, 2020. https://www.creditkarma.com/tax/i/independent-contractor-taxes-things-to-know. Accessed October 27, 2021
17. Internal Revenue Service. “Self-Employment Tax (Social Security and Medicare Taxes).” Internal Revenue Service, June 26, 2021. https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes. Accessed October 23, 2021.
18. Internal Revenue Service. “Self-Employment Tax.”
19. Internal Revenue Service. “Self-Employment Tax.”
20. Singletary, Michelle. “Perspective | Why Multilevel Marketing Won’t Make You Rich.” The Washington Post. WP Company, September 27, 2018. https://www.washingtonpost.com/business/2018/09/27/why-that-multilevel-marketing-business-is-probably-not-going-pay-off/. Accessed October 23, 2021.
21. Internal Revenue Service. “Self-Employment Tax.”
22. Federal Trade Commission. “Multi-Level Marketing.”