As summer approaches and students begin to scramble for jobs and internships, “multilevel marketing” companies can sometimes seem like an opportunity not to be missed. But, as some students have discovered, becoming involved in MLMs might not turn out to be as great as it may first appear.
MLMs are companies that market goods and services through distributors who are paid based on commission. They also earn money as they recruit more distributors and create a network of people called the “downline.”
At UCSD, it is not uncommon to find advertisementfrom such MLMs as American Communications Network (a communications company), Southwestern Company (a publishing firm) and USANA Health Services, a distributor of health products — recruiting students. More well-known companies include Mary Kay and Avon, which sell cosmetics.
MLMs can be an attractive option, especially when company representatives offer students valuable job experience and solutions to financial instability. Companies first give presentations to potential employees about their products and what they would be doing as employees. For some students, these presentations are what initially hook them into the MLM.
“I got more convinced that this company was going to be really great and that I’d be selling good stuff and be able to make money fairly quickly,” said a Revelle College sophomore, a former employee of USANA Health Services who wishes to remain anonymous since she has friends who still work for the company.
Most MLMs offer students the potential to earn huge profits. But instead of a guaranteed income, students make their money according to how much they sell and how many others they can pull into the network.
According to Career Services Center Director Andrew Ceperley, there are never any guarantees.
“You may make nothing,” Ceperley said. “In fact, you may lose money if your employment agreement required you to buy supplies or inventory.”
This was the case for one Thurgood Marshall College sophomore, who put down $499 to ACN before signing on to become part of the company. When he decided to quit, he was unable to get that money back.
According to the ACN representative agreement, the money pays for a maintenance fee as well as a training kit. The money can only be refunded if the new representative decides to pull out within 10 business days.
“I saw that I could have gotten [the money] back if I had worked harder and longer,” he said. “It wasn’t worth it to me. It was not practical for me to work really hard hours.”
Students should be aware that MLMs are all about selling, Ceperley said.
“If you do not like to convince, persuade, even pester, it may not be the best opportunity for you,” he said.
MLMs also thrive on their ability to market products through personal networks. According to Ceperley, students should also think about their relationships with family and friends.
“If a potential employer is interested in your personal address book, this suggests that they expect you to market products to those you know,” Ceperley said. “Unless you are comfortable selling to those you know, don’t do it. It can ruin your relationships with people.”
Some students find out quickly that working for an MLM company is not for them.
Rena Tran, a sophomore at Cal State Northridge, joined an MLM that sells vitamins and facial care products. Tran said she spent $900 on what she believed to be good products, but she did not continue to sell them.
“I am still ordering their stuff, but I feel that I can’t sell stuff to my own family members,” Tran said. “Basically, I am trained by [them] to beat around the bush, but I can’t do it.”
Quitting an MLM can also become a hassle. For Revelle College sophomore Tu Pham, a former independent representative of ACN, company representatives did not let him go so easily and insisted that approval was needed before he could quit.
“[Company representatives] made it seem like we needed approval to cancel,” Pham said. “But I knew [they were] lying because [they] don’t have the power to make me stay.”
When asked about the company’s quitting policy, ACN independent representatives — who requested to remain anonymous due to company policies — maintained that one can quit at any time.
Another Revelle College sophomore worked for the health products MLM and spent $1,500 for the merchandise. But once she quit, it took two months to get back $500 from that initial payment and she is still waiting to get the rest of the amount back from the company.
“[The recruiter said,] ‘You’re making a big mistake, but OK, I’ll try to get a refund,’” she said. “[Later, they said], ‘How about we just try to sell your products and slowly pay you back instead of getting a full refund from us because that will mess up the downline.’”
According to the Federal Trade Commission, while some MLMs are legitimate, others may be “pyramid schemes,” most of which are illegal. Unlike most MLMs, which allow for distributors to earn through product sales, pyramid schemes usually promise to pay distributors commissions based upon the number of people they recruit. Pyramids do not pay based on the number of sales of goods or services made.
According to the FTC, some illegal pyramid schemes use products and services to hide the pyramid. Most eventually fail once there are no more distributors to recruit. After the plan collapses, most people lose their money, except for some of the distributors at the top.
Many MLMs are careful to distinguish themselves from the illegal pyramid schemes. Accordording to Pham, ACN company representatives were quick to show the legitimacy of the company.
“They showed us a video of the people in the company talking, like CEOs, and one of them made a speech about how ACN is legit and they do business honestly,” Pham said.
According to the FTC, consumers should avoid any business plan that offers commission based upon the recruiting of other distributors, to be cautious of distributors that promise excessive profits and to be wary of those that claim that the purchase of a “start-up kit” of resources and sales discourses will be the promise of financial success.
Ceperley said that if an opportunity is too good to be true, it probably is.
“Glossy campaigns and promises of wealth seldom pan out,” Ceperley said. “Some employers prey on vulnerable job seekers who have not done their homework. In most cases, if an employment opportunity requires you to buy a specific quantity of the product, research the organization very carefully before committing.”
