Multi-level marketing (MLM) is a controversial sales model that raises many doubts regarding its fairness and effectiveness. Although it may initially seem attractive, in practice, many people who engage in MLM do not make profits, and the entire structure often resembles a pyramid scheme. In the following article, we explain why MLM is disadvantageous for customers and how it is modeled on the dishonest practices of a pyramid scheme.
- MLM Structure – A Financial Pyramid in Disguise
MLM is based on a model where individuals recruit new participants, who in turn must recruit others. Each participant in the system earns not only from the sale of products but also from commissions on sales made by people they have registered. This structure resembles a pyramid, where the largest profits go to those at the top, while those at the lower levels are doomed to failure.
In a true financial pyramid, profits do not come from actual product sales but from payments made by new participants, who must pay to „join” the system. In MLM, this may be somewhat more hidden because participants’ income is based on product sales. However, if a person cannot effectively recruit others, they have no chance of making a profit, making the model similar to a financial pyramid.
- Low Chances of Profit – Most People Lose Money
One of the main criticisms of MLM is that only a small percentage of people in the system make significant profits, while the majority lose money. Reports and studies show that in many cases, 90-99% of people in MLM earn less than they invested or lose money entirely.
Many MLM participants invest in expensive products that they need to sell in order to earn money, but often face difficulties finding customers. To achieve profits, they must not only sell products but also recruit new participants into the system, which places them in a difficult financial situation. It is important to note that, in many cases, people at the lower levels are forced to buy products that they then try to sell but, due to low margins and limited market, are unable to monetize.
- High Initial Costs and Pressure to Purchase
Before an MLM participant begins to earn any money, they often have to invest significant sums to purchase products. MLM companies require their members to make regular purchases to maintain their status as an active participant or to earn commissions. This forces many participants to invest money that they then cannot sell. As a result, most people are left with a large amount of unsold products that are difficult to return.
- Psychological Manipulation and Promises of Wealth
MLM companies often use aggressive marketing techniques, promising fast and large profits. Individuals who join such structures are often manipulated by promises of wealth and success presented by those at higher levels. This can be misleading because the reality is much harsher, and only a few participants achieve success.
Training sessions and events organized by MLM companies often focus on motivating participants and reinforcing the belief that success is just around the corner. However, those who are unable to recruit new members or sell products are left with significant financial and psychological stress.
- Lack of Real Product Value
In MLM, there is often a problem with the value of the product itself. Frequently, products sold in MLM schemes are priced higher than comparable items available on the market. Many of these products are specialized, and their effectiveness is often questionable. Furthermore, in MLM, recruitment is the most important element, not the actual sale of products, which means the value of the product itself takes a backseat.
As a result, many customers end up purchasing products in MLM with the feeling that they have paid too much for an item that does not meet their expectations.
- Overcommitment and Financial Exhaustion
One of the most damaging aspects of MLM is how quickly it can lead to financial exhaustion. Participants who engage in recruiting new people must invest in training, marketing materials, travel for conferences, or product purchases—all in the hope that they will achieve success. In practice, however, most of them not only fail to make money on these investments but also struggle with debts due to mandatory purchases.
Conclusion
Multi-level marketing is a sales model that, in many cases, resembles a financial pyramid. While it is based on selling products, the key to success lies in recruiting new participants rather than actual sales. Most MLM participants do not make significant profits, and their investments in products and training often end up being a waste of money. Moreover, high initial costs, psychological manipulation, and promises of quick wealth make MLM an unfair and unfavorable sales model for customers.
MLM may be beneficial only for a few people at the top of the structure, but for the majority of participants, it turns out to be a financial trap. Therefore, it is important to be aware of the risks and not be misled by marketing promises of easy profit.
Author: Maciej Mucha, Editor-in-Chief, GazetaKonopna.pl
