Multi-level marketing companies should be illegal everywhere They’re basically pyramid schemes, so why are they still here?

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Multi-level marketing (MLM) has been the subject of much controversy, with some claiming it is in fact a pyramid scheme. This is because the business model inevitably requires constant recruitment for sellers to make money. By design, the people at the bottom, who have no one else left to recruit (I mean, there are only so many people you can manipulate into joining) are the ones who are most vulnerable. A report from the Consumer Awareness Institute found that 99 per cent of people either don’t make money or actually lose money from MLMs. Before diving into the twisted world of MLMs, let’s quickly define MLM and pyramid schemes.

MLM is a marketing strategy where companies use a network of independent distributors (referred to as a “downline”) to sell products to customers. These distributors are compensated for selling the company’s products as well as the sales of the distributors they recruit into the company. This creates a system: people who have built the biggest downlines earn the most money because they’re profiting from selling the product themselves but also from the sales of everyone beneath them. According to the Government of Canada, “Pyramid selling focuses on generating profits by recruiting others and not primarily from the sale of products. Thus, even when these schemes offer products, the products may have very little value, or few incentives for their sale.”

If these two business models sound similar, that’s because they are. The line between them is thin, and many MLM companies—including Amway and Herbalife—have been taken to court for this exact reason (among others). Some people argue that MLM is a legitimate method of marketing because they are selling a product and the added incentive for recruiting new sellers is just a bonus. However, the top sellers in MLMs only reach that status by recruitment. You simply can’t make that much money on product sales alone. Hence, if sellers want to be successful, they have to recruit people to join their downlines.

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