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Risky Business: What to know before joining a multi-level marketing company

COLORADO SPRINGS, Colo. (KRDO) - Companies that rely on multi-level marketing (MLM), also known as network marketing or pyramid selling, have been growing during the pandemic.

This is how multi-level marketing works - you join an MLM company and you can make money by selling the service or product, but you can make even more money by recruiting someone else to also sell the product. The more people you recruit, and then the more people they recruit, the more money for you.

Salind McCart joined Lularoe, a company that sells women's clothing, back in 2016 and ended up leaving her job in Colorado Springs to work full-time for Lularoe.

Salind with her Lularoe merchandise

"Leaving benefits, leaving paid time off, but what drew me to it was working on my own time," McCart said.

McCart initially invested $10,000 into Lularoe.

"I mean clothes, racks, hangers, supplies, my husband we cleared out a room that we had and he built shelves for me, I got a computer, I mean it when I say I went all in," McCart said.

McCart made her initial investment back and then some, and now owns Hot Yoga at Indigo in Fountain and credits Lularoe with helping her start her own business.

"How sales work and how do you sell something. How do you continue to grow it smart and successfully, so I think that part I am grateful for," McCart said.

McCart is a part of an extremely small percentage of people who see financial success from MLMs.

Katie Sudhalter lost $7,000 over four years while trying to sell essential oils.

Katie Sudhalter

Though the companies can't be entirely to blame for financial loss, it is up to each individual what they want to do and how much time they want to put in.

"To be able to get up to where people are making over $100,000 a month, it takes years and and it take effort," Sudhalter said.

When looking at income disclosure data for some MLM companies, most participants make very little money.

Erika Port didn't lose money, but she lost a friend to an MLM company.

"She was going to be my maid of honor in my wedding, and she got involved with Amway, and it came to a point where she basically said that if she had a conference with Amway she would go to the conference and not be at my wedding," Port said.

Erika Port trying on her wedding dress

MLMs tend to promote:

  • Being your own boss
  • Working from home
  • Earning a passive income
  • Sense of community

Those are not bad things to aspire for, but before you jump in, do your research.

Colorado Attorney General Phil Weiser suggests reading reviews on the company and looking at the actual product yourself before selling it.

"Make sure the business that you're looking at is a legitimate, reputable business. A lot of times these businesses may not be legitimate, they might be designed to take advantage of people," Weiser said.

Weiser also advises watching your wallet.

"What individuals looking at these sorts of arrangements need to know is that if you're going to put money into a program or a product, be aware that you might not get it back. Be scared, be skeptical," Weiser said.

KRDO reached out to a few MLM companies for a statement or interview.

Monat, a fast-growing MLM company responded with this statement:

"More than 460,000 MONAT independent Market Partners in the U.S.A., Canada and Europe supplement their household incomes by selling MONAT’s award-winning products to a customer base of more than 2 million. We are proud to call South Florida home to our global headquarters, manufacturing facility, and our U.S. distribution center. MONAT and our global manufacturing facility together employ 1,000 people around the world. We are making an important contribution to local economies and each year donate more than a million dollars to charitable organizations through the MONAT Foundation. 

Now, as we approach one billion dollars in sales, we continue to focus on providing premium, naturally based haircare, skincare and wellness products for our customers, and we are proud to offer a business opportunity that has made a significant positive impact on thousands of lives."

MONAT

The Federal Trade Commission has resources on its website for those considering joining an MLM and how to spot a pyramid scheme.

Colorado Springs / Local News
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Hanna Knutson

Hanna is the traffic reporter for Good Morning Colorado. Learn more about Hanna here.

Comments

1 Comment

  1. Amway has 2 major problems, and most MLMs have at least one of these issues:

    1. The products are overpriced, which makes them almost impossible to sell to customers and results in Amway being an illegal pyramid: http://allmlmfacts.org/2016/05/h-r-5230-and-the-fallacy-of-mlm/ , and also according to the FTC and SEC websites and previous court decisions and settlements; and

    2. The Tool Scam is hidden profit for the top level distributors only, and the vast majority of distributors operate at a net loss as a result: https://www.youtube.com/watch?v=d0iFUaiI2hY This is RICO fraud.

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