The world of MLMs: What they are, how they work and what to look out for
For some, unpredictable direct-sales businesses are a gold mine. For others they’re a disastrous fail. Many organisers boast of new-found wealth and independence but if you’re considering ditching your 9-5 job to sign up, proceed with caution.
Leader
Don't miss out on the headlines from Leader . Followed categories will be added to My News.
The Australian Competition and Consumer Commission has warned people to be wary of multi-level marketing schemes as Victoria’s unemployment rate continues to rocket amid the coronavirus crisis.
The notorious selling model has left a number of Melbourne women out of pocket and feeling like a “failure” but other direct-sellers have defended the ‘laptop lifestyle’ — claiming that ditching the 9-5 grind granted them financial freedom and a business opportunity like no other.
And with the State Government predicting a whopping 270,000 jobs could be lost as a result of the global pandemic, a random invitation on social media from an old school friend to ‘be your own boss’ and ‘build an empire’ could be tempting for those tight on cash.
“I got sent a message telling me all about this amazing opportunity and fantastic products that basically sell themselves,” Dingley Village mum and ex-makeup consultant Christina told the Leader.
“It gets presented as this fantastic business model that they assure you is not a pyramid scheme and you can earn really great money, and when you start your business you’re encouraged to buy products to start lending to people to try and sell it.
“I felt I had to spend a bit in order to get somewhere, so we spent $1500. You need to spend a certain amount of money each month to make it to the next ranking position including spending your own money, which I did time and time again under the leader’s encouragement to move forward.
“I can’t even count how much money I spent in the end. I never made it past being an independent consultant which is only the first rank … I was hoping to make the money back at least that I had spent but I just couldn’t do it without spending more.
According to Direct Selling Australia statistics, more than 460,000 people were engaged in direct selling across the country for multi-level marketing groups including cosmetic brands Arbonne and Rodan and Fields, health and wellness promoter JuicePlus and homeware giant Tupperware.
More than three quarters of the group were women in 2018, with 150,000 estimated to be currently on board full-time, 25,000 as part-time and a further 280,000 who joined to get a discount on products or are no longer active users.
In 2018, Direct Selling Australia companies raked in a whopping $1.38 billion through leading categories including wellness (44 per cent) and cosmetics (26 per cent).
According to the ACCC, pyramid schemes differ from multi-level marketing schemes.
“Pyramid schemes can sometimes offer a token product or service, however the key difference is that the only way people can make money in a pyramid scheme is by recruiting people rather than by selling actual products or services, even if the scheme includes a token product or service,” an ACCC spokeswoman told the Leader.
“While multi-level marketing schemes sell a genuine product, people should check whether there is a sufficient need for that product in the market place, who they could sell the product to and how it places in the market with any competing brands.
“In some instances, people have lost significant outlay in these schemes because, even though there was a genuine product or service to sell, there wasn’t sufficient consumer demand for the product or service.”
Mt Eliza mum and former consultant Helen spent $1000 to buy an inventory of cosmetics including mascara, cleansers and anti-ageing cream, and ended up losing more than $2000 as she struggled to sell the product. She says she was under an agreement to purchase up to $100 worth of products a month to keep her commission coming in.
“We were told the products were amazing in Australia but you could walk into a shopping centre and ask the makeup ladies if they had recognised it and they would have no idea,” she told the Leader.
“If people haven’t heard of the business name, they don’t trust it … you can’t make someone buy something they don’t want to buy.
“It also caused some friction with my friends as they began to avoid me, thinking that I was going to put the hard sell on them all the time.”
Carrum Downs mum Cat said she felt like a “failure” when she couldn’t offload her Tupperware products to customers through weekly house parties.
“No one wanted to spend the money on Tupperware saying they could find a cheaper item or they already had it,” she said.
“I even tried a few markets and that fell short as well. It really deflated me and because I didn’t have any parties for a while, my account got closed.
“Emotionally I felt like a failure as to why I couldn’t get dates for huge sales like everyone else … some do really well at it and some don’t, I personally think the bigger the friend circle the better you will do in booking parties from friends of friends and so on.”
Cat’s advice to others considering a move to direct selling is to “do research on the company, and if you end up putting in more money than you’re making, it’s not worth it.”
But Frankston mum Kate, who has been selling cosmetics through multi-level marketing for eight years, said the trick was to treat the business like a proper job to reap the rewards.
She said her business changed her life, not only meeting new friends but also making a steady income and travelling the world.
“You cannot start as a brand new representative and move up the career ladder by just posting and spamming online platforms a couple of times a day and making promises that you are not achieving,” she told the Leader.
She urged people to consider how they like to be treated in a store and treat their friends, family members or other social media connections the same way.
Kate urged others looking to join multi-level marketing to do their research and ask questions, including if the company had returns options.
“My heart breaks every time I hear of someone that has had a bad experience with multi-level marketing.
“It’s most important have a sharer or leader that you know you can work directly with.”
MORE NEWS
INSIDE THE WILD YOUTH GANGS OF MELBOURNE
WILDLIFE ENCOUNTERS SOAR AMID STATE LOCKDOWN
CORONAVIRUS CASES: CHECK YOUR LOCAL COUNCIL AREA
Dromana mum and JuicePlus distributor Lisa said it was best not to rely on the job for sole income.
“I actually love the business structure and I can see how it can be successful, but it is not accepted well in our society,” she said.
Her advice to those new to a business was to “speak confidently about the business structure without caring what people think, and having another job at the beginning while you build is most essential.”
Direct Selling Australia and Tupperware did not answer the Leader’s call for comment.
Leader is not suggesting any of the products referred to in this feature are anything but legitimate and worthwhile products and brands
ACCC ADVICE
* Be aware of schemes that claim to guarantee winnings, require an upfront fee or significant upfront payments for products.
* Think twice before entering schemes you do not fully understand.
Do sufficient research to ensure you are not inadvertently joining a pyramid scheme … check exactly how the scheme operates and what they would be required to do to earn any income from the scheme.
*Don’t rely on the person approaching you or anyone they recommend for advice. Take time to seek independent legal, financial or other professional advice before you pay or sign anything.