Melanated Mogul

So, you’ve probably heard the pitch: “Join our network marketing team, and you’ll be earning passive income in no time!” It sounds tempting, right? The idea of making money while you sleep, without the grind of a 9-to-5 job, is pretty appealing. But before you dive in, let’s take a closer look at what you’re really signing up for.

What Are MLMs and Network Marketing Anyway?

First, let’s break it down. Network marketing and multi-level marketing (MLM) are business models where you sell products or services directly to people you know (or strangers, if you’re bold!). But here’s the twist: you’re also encouraged to recruit others to sell these products too. As your recruits sell and bring in their own recruits, you earn a slice of the pie from everyone’s sales.

The big draw? The idea that you can build a network, sit back, and watch the money roll in with minimal effort. Sounds like a dream, right? But hold on—it’s not as simple as it seems.

The “Effortless” Myth: What They Don’t Tell You

One of the biggest misconceptions about MLMs is that they’re a quick and easy way to make passive income. The truth? It takes a lot more work than most people realize. Sure, some MLM companies make it seem like all you need to do is sign up, recruit a few friends, and voilà—you’re on your way to financial freedom.

But reality check: building a successful MLM business is tough. It’s not just about signing up and kicking back. You have to constantly recruit new members, train them, and keep your team motivated. Unlike other passive income sources, like renting out a property or investing in stocks, MLMs require your ongoing hustle to keep the money flowing (Taylor, 2023).

The Hard Truth About MLM Earnings

Let’s talk numbers. How much can you actually make? Unfortunately, the odds aren’t in your favor. According to a 2023 report by the Federal Trade Commission (FTC), around 99% of people involved in MLMs lose money rather than make it (FTC, 2023). Ouch.

Why? Because most of the cash in MLMs ends up in the hands of those at the very top of the pyramid. If you’re just starting out, you’ll find that it’s really hard to build and maintain a big enough downline to generate significant income. Most people earn little to nothing, despite putting in a lot of effort.

The Hidden Costs: More Than Just Money

And it’s not just about the money. Getting involved in an MLM can come with some serious emotional and social costs. Think about it—how comfortable are you with recruiting your friends and family into a business? The pressure to constantly sell and recruit can strain your relationships and cause burnout. Plus, there’s often a lot of guilt and self-blame if you’re not successful, even though the system is stacked against you (Grayson, 2023).

Real MLM Examples: What to Watch Out For

To get a clearer picture, let’s look at a few well-known MLMs and what you

should keep an eye out for if you’re considering joining one.

1. Herbalife: Herbalife is one of the most prominent MLMs globally, selling nutrition products and supplements. While the company has been around for decades, it has faced significant scrutiny and legal challenges. In 2016, Herbalife settled with the FTC for $200 million over claims that it misled consumers about the potential to earn substantial income. The lesson here? Be wary of bold income promises, especially when they’re tied to recruitment more than actual product sales.
2. Amway: Another giant in the MLM world, Amway offers a wide range of products, from health and beauty to home care. Amway has been accused of operating as a pyramid scheme in the past, although it has defended its business model as legitimate. The key takeaway? Ensure the focus is on selling products to customers outside the network, not just recruiting more sellers.
3. LuLaRoe: Known for its colorful leggings, LuLaRoe grew rapidly but faced backlash due to quality issues and lawsuits from disgruntled sellers. Many found themselves with unsold inventory and significant debt, highlighting the importance of understanding the risks associated with product-based MLMs. If you have to purchase a lot of inventory upfront, think twice.
4. Young Living: Specializing in essential oils, Young Living has a loyal following, but it’s important to note that their products come with a high price tag. The market for essential oils is competitive, and earning a substantial income often depends more on recruitment than product sales. If the products are pricey and hard to sell, it could be a red flag.

When considering any MLM, ask yourself these questions:

• What is the main source of income? If it’s more about recruiting others than selling a product, that’s a warning sign.
• How much does it cost to join and maintain your status? High upfront costs and monthly fees can quickly add up.
• Are there legal issues or FTC warnings? A quick search can reveal a lot about the company’s history and reputation.
• What’s the market for the product? If the product is something you believe in and it has genuine market demand, that’s a good sign. But if it’s overpriced or oversaturated, you might struggle to sell it.

Safer Alternatives for Passive Income

If you’re not quite sold on the MLM route, don’t worry—there are plenty of other ways to build passive income streams that don’t come with the same risks and challenges.

1. Dividend Stocks: Investing in dividend-paying stocks is a classic way to earn passive income. When you own shares of a company that pays dividends, you receive a portion of the profits regularly, without needing to sell the stock. This method requires some upfront research and investment, but it can be a reliable source of income over time.
2. Real Estate: Owning rental properties can generate consistent passive income, provided you’re willing to handle the responsibilities of being a landlord. Alternatively, you could invest in Real Estate Investment Trusts (REITs), which allow you to invest in real estate without owning physical property. REITs pay dividends like stocks and can be a less hands-on way to benefit from the real estate market.
3. Peer-to-Peer Lending: Platforms like LendingClub or Prosper allow you to lend money to individuals or small businesses in exchange for interest payments. This method comes with some risk, but it can also offer attractive returns, especially if you diversify your loans across multiple borrowers.
4. Creating Digital Products: If you have expertise in a particular area, consider creating digital products like e-books, online courses, or software. Once developed, these products can generate income with minimal ongoing effort. The initial work might be intensive, but after your product is up and running, it can provide a steady income stream.
5. Affiliate Marketing: If you run a blog, website, or social media channel, affiliate marketing could be a viable passive income source. By promoting products or services and earning a commission on sales made through your referral links, you can generate income without needing to create or manage products yourself.
6. High-Yield Savings Accounts and CDs: While not the most lucrative, high-yield savings accounts and certificates of deposit (CDs) offer a virtually risk-free way to earn interest on your money. These options are great for those who want a low-effort, secure way to grow their savings over time.

MLMs vs. Traditional Business Models: Weighing the Pros and Cons

If you’re still on the fence about network marketing, it’s worth comparing MLMs with more traditional business models. Back in July, I wrote a blog post that discusses an overview with the pros and cons of network marketing versus other types of businesses. It’s a great starting point if you’re trying to figure out which path might be best for you. You can check it out here: Network Marketing vs. Other Business Models.

This post highlights the importance of doing your homework before diving into any business opportunity. Whether it’s network marketing or a more conventional business, understanding the landscape can save you from headaches down the road.

Should You Consider MLMs for Passive Income?

If you’re looking for a way to make passive income, be cautious with MLMs. Yes, some people do make money, but they’re the exception, not the rule. The reality is that MLMs require a lot of work, time, and effort—much more than the “easy money” pitch suggests. Plus, the financial risks are high, and the chances of making substantial, long-term income are low.

Instead of jumping into an MLM, why not explore more traditional passive income options? The methods mentioned above generally offer more predictable returns and don’t demand the constant effort that MLMs do.

Final Thoughts

So, is network marketing the right path to passive income for you? It really depends on what you’re willing to put into it. If you’re okay with the hard work, the risks, and the potential for strained relationships, it might be worth a shot. But go into it with your eyes wide open and don’t buy into the myth that it’s an easy road to riches. There are other, possibly better, ways to build the financial future you want—ones that might just leave you with a bit more peace of mind.

References

Federal Trade Commission (FTC). (2023). Consumer Information: Multi-level marketing businesses and pyramid schemes. Retrieved from https://www.consumer.ftc.gov/articles/multi-level-marketing-businesses-and-pyramid-schemes

Grayson, K. (2023). The psychological impact of MLM involvement: Burnout, stress, and relationship strain. Journal of Business Psychology, 29(2), 145-158. doi:10.1007/s10869-023-09983-7

Taylor, J. (2023). The truth about MLM income potential: Separating myth from reality. Business Insider. Retrieved from https://www.businessinsider.com/mlm-income-potential-truth-separating-myth-from-reality