They're also encouraged to recruit new distributors and will earn commissions based on what the recruits buy and their sales to retail customers. The recruits become the "downline."
If the MLM is not a pyramid scheme, it will pay based on sales to retail customers, without having to recruit new distributors. The New Zealand Commerce Commission says this is legal and that unlike pyramid, or ponzi schemes, MLMs have a product to sell. The problem, critics claim, is the vast majority of those products are bought by distributors, not by their clients.
An article in the July 2020 issue of Time Magazine said 99 per cent of people who participate in MLMs lose money.
''Statistically, it is more likely you will win the lottery than you will make hundreds of thousands of dollars selling for an MLM," Robert FitzPatrick, the co-author of False Profits, a book about MLMs, says.
The pandemic has primed the direct-sales pump, sprouting new distributors, independent consultants and health coaches like weeds after a rainstorm.
In the United States, the Federal Trade Commission last April took the unprecedented step of warning 10 companies to stop making health claims about treating and preventing the coronavirus or pitching business opportunities amid the pandemic.
Consumer NZ last year published an article claiming MLM products could be up to 93 times more expensive than similar items found in stores.
Some, according to the article, made unproven, even dangerous, health claims.
You can do your own informal survey of MLM uptake: check your friend requests on social media to see how many strangers want to know you. Take stock of how many of your friends are posting inspirational quotes, recipes, before and after photos of clients and product videos.
Be especially wary if someone asks you to "DM [direct message] me". If your MLM-involved friend has attended a conference related to their new venture, in my view they're getting in deep.
Income disclosure forms show how very little money direct-sales consultants make. One company reported 96.9 per cent of American distributors made less than an average of $251 per year.
Another's income disclosure statement says a typical participant in New Zealand earned between $134 and $584 in 2019 in earnings and commissions. These are gross earnings, not net. That company states the figures do not represent profits, or expenses such as renewal fees, event registration.
Across the world, aspiring business owners have garages full of cleaning products, clothing, oils and nutritional supplements, according to accounts in publications such as The Guardian, Marie Claire Australia, The New York Times, Associated Press and many others.
Comparisons between MLMs and cults are not new.
Attorney Douglas Brooks (who specialises in representing victims of pyramid schemes, deceptive MLM programs and business opportunity scams), alleges MLM tactics include mass meetings with enthusiastic distributors giving standing ovations ... mysterious terminology, relentless focus on recruitment, positive thinking, and the avoidance of any questioning.
All of these factors, Brooks said, are consistent with the popular perception of what a cult is.
It's not the products or the people at the bottom of a network marketing scheme that I fault - it's the business model that in my opinion ensures all but the tippy-top of the pyramid will fail.
I love my friends and family and want them to succeed. I'll buy hand-crafted items, pay for their skills or give them money if they're in dire straits. But I won't buy anything from a multi-level marketing firm, because in my view it enables harm.
It's like buying an alcoholic a drink.
I don't want to help your upline. I don't want to grow your downline. You can't monetise friendship. At least, not mine.
