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Shona Gates considered herself a savvy businesswoman, having built a successful spray tanning business in her hometown. But three years after joining a multi-level marketing (MLM) scheme, her life was in ruins.
“My marriage was almost destroyed, my body was giving up, I was feeling isolated and alone. I was coming to terms with the fact that I had been sucked in.”
It started when one of her clients, a family friend, talked about some “wonder shakes” that were helping her health issues. Initially skeptical, Shona tried the products to help with irritable bowel syndrome and weight loss.
She saw an improvement in her health and suddenly, clients, friends and family wanted a taste of it too. Shona didn’t want to be involved in an MLM, but “accidentally fell into it” by helping a few friends order the product.
Suddenly, she was cashing in.
Shona says she had no intention of joining an MLM but all of a sudden, she was making fast money. Source: Supplied
“The turning point was when I realised that I made the same amount of money in a five-minute text conversation with a friend (selling the products) than I had made the entire week doing spray tans,” she told SBS Insight.
“I began to see this as a way I could set up my family for the future. So I went all in.
“I didn’t just drink the Kool-Aid, I filled up the sink, dunked my head in … and chugged it every day.”
MLMs or pyramid schemes?
MLMs are a form of ‘direct’ consumer-to-consumer sales, with companies made up of a non-salaried workforce selling the company’s products or services. Think Tupperware and Avon of years gone by, and the likes of Amway and Herbalife today. There’s an estimated 350,000 sales consultants working in MLMs in Australia, and about 80 per cent are women.
Participants earn money from two potential revenue streams: commission from directly selling the product or service, and commission made by other sellers who the participant has recruited below them.
MLMs are legal in Australia, while pyramid schemes are not. The difference between the two, according to the Australian Competition and Consumer Commission, is the revenue from pyramid schemes is based purely on recovering commission from those you’ve recruited below you, while MLMs usually involve a product or service, though also work on a similar commission structure when people below you make a sale.
MLMs often make buying a certain amount of the product in order to sell it a requirement of moving up the organisation.
Professor Gary Mortimer, an expert in retail marketing and consumer behaviour from the Queensland University of Technology, says MLMs and pyramid schemes are remarkably similar.
“Unlike illegal ‘pyramid schemes’, MLMs do sell products that exist. However, many MLMs do focus on recruiting ‘downline’ and getting new consultants to buy products, rather than on actual sales to real customers.”
In Australia, MLMs continue to thrive. Australian shoppers spend more than a billion dollars through MLMs each year, according to industry body Direct Selling Australia (DSA).
A graphic detailing the number of MLMs in Australia and the numbers of people who work for them. Source: Supplied
Stephanie Tonkin, CEO of the government-funded Consumer Action Law Centre, says the cost-of-living crisis has driven increasing numbers of people to MLMs.
“The promise of money on the side is appealing,” she said.
But the reality is, MLMs, like pyramid schemes, are designed to favour people at the top.
“There’s a very small number of people making money from those in the layers below them. Everyone above you gets a clip of your sale, so the lower down you go, it just becomes patently unfair and less profitable.
“And because people in MLMs are independent contractors, there are no protections.”
While DSA didn’t respond to a request for an interview, the body states on its website that the direct selling channel “offers an alternative to traditional employment for those wanting or needing a flexible opportunity to supplement household income”.
“Direct selling has a positive benefit to the Australian economy and provides a supplementary income and social/lifestyle opportunity to hundreds of thousands of people, as well as serving consumers with a convenient source of quality products,” it adds.
‘Laptop lifestyle’ harder than it appeared
For Shona, her fun side hustle went from “sharing booty pics, body transformations and cute smoothie pictures online” to spending hours every day walking around putting flyers in mailboxes, running daily workout groups, and doing dozens of hours of online calls each week.
“It was a full-time job, and I worked hard. Looking back, my ‘laptop lifestyle’ was a lot harder than it appeared online. I was on call 24/7, and working myself to the bone,” she said.
“We were told if this business doesn’t work, it’s because you’re not working hard enough. I thought the people who had quit or who called the company a ‘scam’ were just lazy.”
Shona joined an MLM expecting a “fun side hustle” but the reality was very different. Source: Supplied
She was spending much of the money she was making on buying more products to qualify for interstate trips.
“Despite all this, as a stay-at-home mum, they served up everything I needed on a silver platter: financial independence, connection, travel, fancy gifts. And there was such a strong sense of community and euphoria within the company that it was like living with blinkers on.
“It was just like a cult.”
‘MLM has always been there to support me’
Anna Feldman was first attracted to MLMs in her mid-20s and has sold products including water filters and gel food supplements. At 49, she’s still in the game, selling cryptocurrency and financial products.
“I was attracted by the lack of glass ceiling and not having a boss, being paid for the hard work I put in, and the opportunity to work with interesting, aligned and ambitious people,” she said.
For Anna, her experiences have lived up to expectations.
“Throughout the years that I was teaching yoga, becoming a mum, MLM has always been there to support me financially, but also through community and personal development education.”
However, she believes the lifestyle promises can be misleading, and says not everyone makes good money.
Anna has worked in MLMs for over 20 years and says the experience has been largely positive. Source: Supplied
At her previous company, she estimates 90 per cent of her team were just breaking even. Many didn’t last the distance.
“I crossed the barrier and started making a profit, but I could see that most people, while they see the opportunity, don’t have the leadership and entrepreneurial spirit to get the income they want. They don’t realise the amount of work that’s involved, the amount of showing up that it takes, and they lose stamina for it,” she said.
“For us, there’s definitely been low points financially when things didn’t move as quickly as I’d like them to.”
Decisions from the top were also a constant reminder of her lack of control.
“Companies can change their compensation plans or shut down product lines of business, which can change the game. This reminds you that you don’t have as much control over your business as you think.”
But she said success was possible.
“The truth about MLM is someone can come in at any time and create incredible marketing outreach and lead generation…”
Anna advises those considering working for an MLM to not get swept up in the excitement and lose sense of reality.
“People can make rash decisions in this industry such as quitting their day job too soon or selling a home, which can leave them very exposed financially. People just need to be aware of the ups and downs. MLMs don’t offer a guaranteed income.”
Hard to make money
The limited amount of research backs this up. US study The Case (for and) against Multi-level Marketing By Jon M Taylor, published by the Consumer Awareness Institute in 2011, based on 15 years of research, showed less than one per cent of MLM participants profit.
“For promoters to present MLM as a ‘business opportunity’ or ‘income opportunity’ is a misrepresentation,” it said.
Former MLM Rodan and Fields’ 2016 Income-Disclosure agreement seems to back this up, with 90 per cent of members earning less than $US200 per month and 96 per cent earned less than $US500 per month. That year, 44 per cent of all recruits recorded zero earnings.
Mortimer says new MLM consultants often need to front up hundreds, if not thousands of dollars, before they can start selling, to buy display sets, testers or starter kits.
After that, not succeeding can feel like failure, he says.
“If you are already financially vulnerable and struggling, that kind of toxic positivity can leave people feeling ashamed and disappointed.”
Tonkin adds that after making a significant financial investment in an MLM, many people find themselves in financial difficulty and struggle to escape.
“People are spending money and not making money, and they’re being manipulated to stay and spend more money. It’s terrible.”
She believes the harm caused by MLMs “seems to be amplifying”.
“Social media allows MLMs to target people, manipulate them and push them more.”
Leaving was ‘terrifying’
While Shona had been seeking a life without a boss, the irony was she was becoming increasingly controlled.
“I wasn’t allowed to post certain things, say certain things, be friends with someone from the opposing company, or post about my real life or bad days — it was ‘positive vibes only’,” she says.
The final straw came when her mentor told her that being at an interstate training was more important than paying her mortgage.
“She said, ‘I don’t care how you get there, but you HAVE to be there’.
“I thought, “Whoa, this is not the advice we should be giving to people who have joined this company to try and better their lives.”
For Shona, leaving the MLM was “absolutely terrifying”.
“My husband and I had made this company our entire life, but leaving was the best decision.”
Six years on, she runs two companies and campaigns for business integrity. She feels “shame and regret” from talking about her experience, but wants others struggling in MLMs to know they’re not alone.
“An MLM can give you new opportunities, skills, friendships and support. But it can also lead you down a path where you become a robot, lose yourself, friends and family, end up in debt up to your eyeballs, and live a fake life on your Instagram feed.
“Those mentors and ‘friends’ in your company don’t actually care about you; they care about the dollars you are going to make them. If they are genuinely your friends, they will celebrate your leaving just as they did your joining.”
And for more stories head to Insightful – a new podcast series from SBS, hosted by Kumi Taguchi. From sex and relationships to health, wealth, and grief Insightful offers deeper dives into the lives and first person stories of former guests from the acclaimed TV show, Insight.
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