{"id":2948,"date":"2023-02-19T16:11:11","date_gmt":"2023-02-19T16:11:11","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/getting-down-to-business-6\/"},"modified":"2025-02-04T21:30:06","modified_gmt":"2025-02-04T21:30:06","slug":"getting-down-to-business-6","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/getting-down-to-business-6\/","title":{"raw":"Module 7: Readiness Check","rendered":"Module 7: Readiness Check"},"content":{"raw":"

What's a MLM?[footnote]FTC. \u201cMulti-Level Marketing Businesses and Pyramid Schemes,\u201d July 25, 2022. https:\/\/consumer.ftc.gov\/articles\/multi-level-marketing-businesses-pyramid-schemes[\/footnote]<\/h2>\r\nMLM is an abbreviation for multi-level marketing. MLM companies can be legitimate businesses where individuals sell products or services directly to consumers and earn commissions on their sales. The multi-level part comes in when individuals recruits others into the business and then earn a commission based on the sales made by those they recruited. Some well known MLM companies are Mary Kay (cosmetics), Herbalife (dietary supplements), and Amway (health, beauty, and home care products). MLMs may offer training, support, and the flexibility to work at your own pace.\r\n\r\n\"dryIf you are approached to join a MLM company with promises that sound too good to be true, it might be unethical or illegal.\u00a0MLMs are sometimes illegal pyramid schemes in disguise. Pyramid schemes are fraudulent business models where members are required to pay money upfront to join and they are incentivized with monetary rewards for recruiting more members. The profits are mainly generated from the recruitment of new members rather than sales of products or services. Sometimes illegal pyramid scams are called Ponzi schemes when they involve investors who pay to invest in a business that doesn't exist and the appearance of profit is only maintained because money from new investors is fraudulently characterized as profit.\r\n\r\nMLMs often target particular populations, such as women, stay-at-home parents, college students, and people who are under financial pressure due to debt. The MLM's pitch offers the promise of flexible hours and the potential to earn unlimited income. MLMs may use predatory tactics to lure new members such as misleading income claims and emotional manipulation.[footnote]Holden, Caileen Kehayas. \u201cWhat Is Multi-Level Marketing + Why Women Are Targets | Career Contessa.\u201d Career Contessa. Accessed April 11, 2023. https:\/\/www.careercontessa.com\/advice\/multilevel-marketing\/[\/footnote]\r\n\r\nUnfortunately, many people who join MLMs end up losing money rather than earning it. MLMs often require members to purchase products or starter kits at inflated prices, with little or no guarantee that they will be able to sell them to others and no ability to get a refund for unsold products. Members may also be required to pay for training, conferences, and other expenses, which can quickly add up and become unmanageable. MLMs may have complex compensation plans that make it difficult for members to understand how they will be paid. Members may also be required to meet high sales quotas or recruit a certain number of new members to be eligible for compensation, numbers that are hard to sustain and which can create a high-pressure environment. Unsurprisingly, according to the Federal Trade Commission, 50% of MLM members drop out after the first year of participation and 99% of MLM participants lose money.[footnote]Taylor, Jon. \u201cThe Case (for and) against Multi-Level Marketing.\u201d FTC. Accessed April 11, 2023. 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[\/footnote]\r\n\r\nOne example of a MLM company that displayed questionable business practices is LuLaRoe, a company that is known for selling leggings. In 2021, LuLaRoe agreed to pay $4.75 million to settle a consumer protection lawsuit in Washington State where $4 million of that settlement would be paid as restitution to LuLaRoe retailers who failed to earn a full-time income as the company promised.[footnote]Attorney General of Washington. \u201cLuLaRoe to Pay $4.75 Million to Resolve AG Ferguson\u2019s Lawsuit over Pyramid Scheme | Washington State,\u201d February 2, 2021. https:\/\/www.atg.wa.gov\/news\/news-releases\/lularoe-pay-475-million-resolve-ag-ferguson-s-lawsuit-over-pyramid-scheme[\/footnote] The company was accused of being an illegal pyramid scheme, making deceptive claims about how much representatives could earn, and leaving members with debt and unsold merchandise that they could not return without losing money. In addition, LuLaRoe's structure paid representatives for recruitment rather than sales. This allowed two LuLaRoe retailers to earn over $5 million in profit over the course of 3 years while over a third of the recruits in their downlines reported losses.[footnote]Id.[\/footnote] In fact, in a 2017 webinar, a LuLaRoe executive announced changes in their bonus structure because of a \"need to get away from being a pyramid scheme.\"[footnote]Id.[\/footnote]\r\n\r\nWhile MLMs can provide a legitimate opportunity for individuals to earn money, it's crucial to research and thoroughly understand the business model before investing time and money. Pyramid scams are illegal and should be avoided. Make informed decisions based on research and facts, rather than hype and emotion. Here are some things to consider before jumping in to join a MLM company:\r\n
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