NBSV 125

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Transcript of the No-Bullsh!t Vegan podcast, episode 125

Why multi-level marketing is unethical, and why it's problematic for the fitness industry


Karina Inkster: You’re listening to the No-Bullshit Vegan podcast, episode 125 — in which I discuss why multi-level marketing companies are unethical, and why they’re a scourge on the fitness industry as a whole.


Hey, thanks for joining me today on an episode I’ve been wanting to do since the beginning of this show, over 4 years ago. It’s been on the back burner this whole time, but a few recent online conversations brought MLM — or multi-level marketing — to the forefront. So it’s finally time for an episode on why this business model is unethical and shouldn’t be supported.


But first, I’m excited to announce the publication of my 5th book: Resistance Band Workouts for Seniors. It’s based on my previous resistance band book, so if you already have that one, you probably don’t need this one unless you have an older adult friend or family member who might appreciate it. It’s very similar to the previous book, except it’s geared toward older adults, with a chapter on healthy aging, and all 50 exercises are modeled by my powerhouse 70-year-old mom! You’ll learn correct form for those 50 exercises (which cover all the major muscle groups), how to use 3 different types of resistance bands, and how to put together your own strength training workouts.


You can get Resistance Band Workouts for Seniors anywhere books are sold, but I’ll have a few direct links in my show notes at nobullshitvegan.com/125.


So, most of us have probably received a message from someone we’ve had no contact with in years, saying “Hey hun! How are you? I have an opportunity I thought you’d be interested in where you can make some extra income while running your own business and being your own boss! Interested?”


And this is the start of getting sucked into the scheme that is multi-level marketing.


I am all for folks deciding for themselves what's best for them, and taking steps toward their goals -- whatever those might be. However, I don’t support taking part in MLMs.


- not bashing individual MLM distributors. I’m focusing on the businesses themselves, their overall structure, why they should be avoided, and how they relate to veganism and the fitness industry.

- not all MLMs are unethical to the same degree. But they all have many similarities.


What is MLM?


If you’ve heard of companies like Arbonne, Avon, Amway, doTerra, Mary Kay, Younique, Herbalife… you’ve heard of MLM.

Multi-level-marketing, or MLM, companies don’t sell their products in stores. Instead, they rely on representatives to do all the work, selling to people within their networks. MLM is also called “network marketing”, “direct selling”, “direct marketing”, “referral marketing”, etc. At first glance it might seem that MLM representatives are selling you products — usually beauty products, nutritional supplements, essential oils, home cleaning products, etc. — but what they’re really trying to do is profit from you by recruiting you to be a representative under them. To start as a representative, you need to pay a fee and often purchase inventory. The cost here ranges from $50 to many thousands of dollars.


MLM salespeople don’t make most of their money by selling products to their own customers; they make most of their money by recruiting others to sell under them, profiting off of those people’s sales. If I were to recruit someone into the company I’m selling for, I would earn a percentage of that person’s sales, and a percentage of sales for everyone underneath that person.


The popularity of MLMs in recent years has been declining, but they’re still very prominent, especially in the health, fitness, nutrition, and wellness space. One of the largest MLM companies, Amway, does almost $9 billion in sales annually.


How is MLM different from pyramid schemes?


Pyramid schemes are illegal. Participants in pyramid schemes are financially compensated by others paying into the scheme, rather than by selling a product.


An MLM is legal if reps are able to earn money selling products without recruiting. If recruiting is mandatory, then it’s a pyramid scheme.


“Every business model is a pyramid”


Uh…nope. In my current business, that I built from the ground up, I didn’t have to buy my way in. The hiring process for my employees didn’t involve having them buy their way in. They didn’t have to purchase a “starter kit” for their jobs. And they have guaranteed hourly wages, and they get their own commissions for sales they make. I’m not profiting from multiple levels of salespeople making sales completely unrelated to me.


Why am I doing an episode on MLMs? Why do I care?


As you’ll see, MLMs are unethical business models, so I’d like to shed light on why. They’re also a scourge on the entire fitness, health, nutrition, and wellness industry.


Why MLM is bad for the fitness industry as a whole


Many of the biggest MLM companies on the planet exist within the health and fitness space.


Beachbody is one of the biggest MLMs, where distributors are called “Beachbody Coaches”. And what does it take to become a so-called coach? Paying the $39.95 sign-up fee. That’s it! You can then call yourself a coach. I realize that much like the term “nutritionist”, there’s no official regulation of the term “coach”. But come on…having a barrier to entry that low really does a disservice to those of us who have actual coach qualifications.


Here’s a quote from an article by CMG Health & Fitness:

“Beachbody totally undermines and devalues those who have spent countless hours in research and training….not to mention the tens of thousands of dollars spent in furthering their education and expertise at accredited institutions.”

Also: “I don’t even CALL MYSELF A COACH ANYMORE – because Beach Body has ruined the word. You can call me a fitness professional, a personal trainer, an exercise physiologist, but do not call me a coach. I don’t want to be associated with Beach Body in any way shape or form, and that word, unfortunately, associates me with it.”


Beachbody also has a supplement line that includes Shakeology, which you might have heard of.


In a 2018 clinical nutrition journal article, researchers concluded:

“While considering that MLM of dietary supplements and other nutrition products are a legal business strategy, we affirm that it is an unethical practice. MLM products that have nutritional value or are promoted as remedies may be unnecessary and intended for conditions that are unsuitable for self-prescription.”


I should say here that if supplements or Beachbody-style workouts have given you an “in” to the world of fitness — if they’ve helped you start a consistent workout habit and increase your overall health — I’m not going to shame you as an individual. Anything someone does to sustainably increase their health or fitness is going to be a net positive. What I’m doing here is focusing on companies themselves, and to some extent the distributors (even though as I mentioned at the beginning of this episode, I’m all for people deciding for themselves how they’re going to make money, assuming they’re not being duped into anything), but I’m not focusing on individuals buying their products.


Back to why MLM companies are a stain on the health/fitness/wellness space.


By their very nature, MLM companies need to sell products. And more often than not, these products are supplements, or workout programs — both of which offer quick fixes and often promote extreme results. I mean seriously…one of Beachbody’s most well-known programs is called the 21-Day Fix. Yikes.


Now I realize this is no different than any non-MLM supplement company — any company, MLM or not, can sell supplements and workout programs. However, with MLM, it’s all about the sale, not about an individual client. The sales pressure is extreme in MLM, whereas in coaching businesses like mine, it’s all about making a connection and building a relationship with each client.


Also, it’s officially outside the scope of practice for fitness professionals to recommend supplements. Overarching certifying bodies we get our qualifications from are very clear about not recommending (or selling) supplements. Many trainers ignore this and do it anyway, and others find ways to get around it, like selling supplements to clients when they’re not officially in a training session. Moral of the story: fitness professionals should not be recommending or selling supplements. Period.


What MLM does to legit business


Over the years I’ve had countless MLM distributors contact me (always via social media) to offer me an “additional revenue stream” to add to my existing business. I also see countless qualified fitness professionals who sell things like supplements through MLM companies.


I think this does their existing business a huge disservice.

I get so many MLM requests that I put together a copy-and-paste response:


I work on creating equity of my own brand, and don't represent other companies (great - and vegan - as those companies may be).


Fellow fitness business owner Jordan Lark says it best: “If I were to affiliate/profit by something, I’m pretty sure the perception of my advice would change. And that perception would decrease my worth. Decrease my brand equity. And considering that is my core product, it’s simply not worth the trade-off. A short term gain, potentially, but also potentially a long-term loss.”


Why MLMs are unethical


I’d like to present 6 reasons why MLMs are unethical.

- lack of fair wages, lack of transparency, culture that blames failure on each individual, manipulation tactics, targeting vulnerable populations, and commodifying your personal relationships. Overall, MLMs are an exploitative business model.


1. Lack of fair wages/exploitative business model:

The Federal Trade Commission published a report that investigated 350 MLMs. A whopping 99% of recruits *lost* money by being involved in MLMs. So you have a 1% chance of making money if you join an MLM.


- 99.6% of all MLM representatives lose money, when expenses are taken into account.


A 2018 report found that most reps don’t even earn minimum wage. The study found that most MLM sellers who make any money, make 70 cents per hour — or less. It polled 1,049 MLM sellers across many different companies, and found that nearly 20% never made a sale, and almost 60% earned less than $500 in sales over the past 5 years.


[All references for this episode will be linked in the show notes, by the way: nobullshitvegan.com/125.]


Sure, there are a select few folks who do financially well in MLMs. But that financial success is built on an unethical, exploitative business model, with MLMs often targeting folks in vulnerable situations like single parenthood or unemployment.


MLMs are recruitment business, not product businesses. It’s like owning a retail store, and being entitled to a percentage of the profits of someone else’s retail store. That’s not an ethical business model.


As Christopher John Lindsay writes:

MLM is not a legitimate business—it is a money-making scheme. Independent agents make money from other people’s financial investment and labour. In a normal business enterprise, the owner has a legal and moral right to the profits. The workers are paid for their labour, and the owner makes a profit by risking a financial loss. (The workers may not be paid fairly, but apart from the risk of not getting paid, they don’t risk any of their savings.) In a normal business, if you want a share of the profits, you have to take a financial risk.

The moral and ethical problem with MLM is you get a share of the profits without taking any additional financial risk. The independent agents in your downline take the financial risk for their own inventory. They also do the work of promoting and selling the product, while people above them receive a commission on their sales. This makes MLM a form of legalized theft. To receive a royalty on a product that you invented is fair and just. To receive a commission on a product that someone else bought and sold (for no other reason than signing them up as a distributor) is morally and ethically wrong.


2. MLMs are not transparent:


- they hide the close-to-zero odds of making a profit in their marketing/recruiting material

- no info available (by contract) on how much sales reps make

- companies use the MLM structure because it benefits them, not the reps.


3. Culture:


- “You earn as hard as you work”. This toxic positivity leaves people feeling ashamed when they don't do well in network marketing. I saw on the Beachbody website the following line: “How much money you earn depends on how much effort you invest and how many people you help.”

- reps stay silent about their struggles, reps are told it’s their fault when they don’t make enough sales. Guilt and shame.

Folks who don’t do well in MLM (which is most folks in MLM) are told that they just weren’t meant for success, or didn’t have what it takes. It becomes about them as individuals, instead of a faulty, exploitative overall business model.


4. Manipulation:


MLMs use manipulation tactics to entice vulnerable folks into their business. The promise of financial freedom, being your own boss, running your own business, calling yourself an entrepreneur, etc.


From JoJo Bonetto:

“Motivational materials, including seminars or webinars, are frequently deployed to cite “success” stories despite the evidence suggesting there is a low likelihood of success, low average income, and inequality in the distribution of income. This is ethically problematic as it is a form of deception, particularly when targeting socially and economically vulnerable groups.”


You’re not “running your own business” when you get involved with an MLM.


You’re a sales rep for a large corporation. You’re an independent contractor. Not a business owner.

A real business (like the one I’ve run for 11 years) *hires* employees and/or contractors (I have both), sells its own products, doesn’t rely on signing up distributors, isn’t entitled to a percentage of someone else’s profits just because they happen to be in your downline, and sells services or products to the end consumer, not people who are also in the organization.


From Travelling Jezebel:

People working in MLM schemes do not get to choose the products they sell, how much they sell them for, what the returns/refund policies are, and the rate of commission that they receive from their downline. They do not get to create their own business strategies, change the company name, or anything else that you might expect a business owner to do.


In several online conversations I’ve had with folks about MLMs, I’ve come across people who don’t support “corporate America” and think taking part in an MLM is “being your own boss”.


- MLMs are built to profit those at the very top, and disadvantage those at the bottom. If that’s not corporate America, I don’t know what is!


5. Targeting vulnerable populations:


From a Business.com article:

“Shady MLMs often target stay-at-home parents, usually moms, seeking flexible work they can do from home. These individuals often have broad social networks and desire paid work that they can easily do from home or on a flexible timeline. The rise of the gig economy means more stay-at-home parents can make money from home by working part time, and direct sales companies position themselves as a viable option that’s identical to being self-employed, freelancing or otherwise making money on the side of a busy life, when, in reality, some MLMs are predatory.


Predatory companies also target recent-immigrant communities, minority communities, and lower-income communities worldwide. Many of these groups are known for valuing family and community, are upwardly mobile, and have close, trusting connections. A single foothold in a tight-knit community is valuable for recruitment because communities that value cohesion are likely to produce more recruits or, at the very least, more buyers.


Did you know? Many MLM companies have a foothold in Utah because the state has a high percentage of stay-at-home mothers and is home to many practicing Mormons who value community.”


Speaking of community, MLM has an impact on social relationships:


6. MLMs’ impact on relationships


- direct selling these days means harassing everyone you know through social media.

Distributors often feel pressure from their uplines (people above them) to create personas on social media that attract potential recruits. A life of financial freedom, luxury, travel…

Someone who was involved with MLM said, “My posts were monitored, and I was criticized if they did not fit with their idea of what the brand message should be.”


From https://ecowarriorprincess.net/2021/03/ethical-multilevel-marketing-companies-2

“Because it requires the reps to go to their inner circle for sales, it has a toxic effect on relationships. You stop seeing people around you as people, and start viewing them as potential sales.”


“I think that the culture is dehumanizing – your upline sees you as someone they will make money from, and you start seeing the people in your life the same way. I now encourage people to stay away from MLMs.”


Most MLMs have similar messaging around folks in your life who don’t support your MLM venture (those who voice concerns, or refuse to buy your products): they’re jealous, negative, they don’t deserve your friendship.


MLMs and veganism


For the reasons I’ve outlined above, MLM companies are not ethical — even when they’re vegan. Any company paying its workforce much less than minimum wage is not ethical.


- many MLM companies are using terms like “vegan” and “cruelty-free” as marketing terms (like any other company)

Here’s an excerpt from an excellent article by Chris Pert, who’s been a supporter of this show since Day 1:


The damage it could do to the vegan community is incalculable. Just imagine you’re a non-vegan and you see this kind of thing. Especially if the non-vegan knows anything about science. Vegans are often scorned enough as it is by mainstream society, but add MLM to the mix and it looks positively nauseating. And I’ve barely touched upon the cult-like nature of many MLMs and the extremely tacky “look at all the money I’m making” videos and social media posts MLM-bots often make.


It’s disturbing witnessing people who claim to be vegan engaging in this sort of unethical, predatory behavior. This can damage our movement in myriad ways. Besides inflicting financial harm on individual vegans, it also hurts the credibility of the movement and has the potential to drive people out of it. And the infiltration of MLM into the vegan movement is not just an online phenomenon, since MLM companies will often set up shop at vegan fests around the world.


MLMs and other charlatans through their actions dilute the meaning of veganism, sometimes to the point that it’s only about healthy living, or for MLM-bots, healthy living + financial independence. Animal rights are pushed aside, or if they are considered at all, the “cruelty-free” label is similarly diluted. Some MLM cosmetics companies will even falsely claim their products are “cruelty-free” when they’re not.


Much like their effect on the fitness industry, MLMs, when it comes down to it, give veganism a bad name. Most people are skeptical of MLMs — other than people involved directly in those companies. Within my social and professional networks, a good 80 to 90% of people actively avoid MLMs because of their negative reputations.


MLMs and realtors


In online conversations about MLM, something I hear a lot from MLM supporters is, “MLM is no different than real estate!”


Debbie: “Realtors make their own agencies and "bring on" more realtors to work for them, as independent contractors, all while sharing in their commission, while "showing them the ropes." How do you think real estate companies expand and grow?? They don't recruit more realtors by just offering their brand and marketing for nothing. And, yes, they share in the profits.”


Real estate works on commission, not multiple levels of sellers who each automatically get commission when someone downstream makes a sale.


K: In this scenario, realtors have one, or possibly two, levels of "downline" -- very different from MLM structure. All realtors in this hypothetical scenario are sharing resources, not selling their own products that they've purchased from a parent company. Here are 4 key differences:


1. Real estate agents don’t make money by convincing other people to become realtors, and then earn money off those people’s sales.


2. Realtors don't have to first purchase houses in order to sell them at a marked-up price.


3. In MLM, the end customer is the distributor. In real estate, the end customer is the home buyer.


5. You need a license to become a realtor.

Even if being a realtor were similar to being an MLM distributor (which it's not), it's a moot point. Just go back to Christopher John Lindsay, who puts it better than I could: “To receive a royalty on a product that you invented is fair and just. To receive a commission on a product that someone else bought and sold (for no other reason than signing them up as a distributor) is morally and ethically wrong.”


D: So by your own definition, the thousands of people who are affiliates of Amazon and other online stores, that do nothing more than facilitate the buying/selling of products are morally wrong?? They make a good living helping people buy products they need/want. That's idiocy!!


K: Affiliate marketing is very different from MLM, so no, Amazon affiliates are not morally wrong.


Affiliate marketing is a “performance-based marketing system where you (as an affiliate marketer) only get paid if a sale is made or a specific action is taken. MLM, on the other hand, is a relationship based business model that involves individuals working outside the organization who essentially act as agents in facilitating the distribution of the firm’s offerings.”


From https://www.authorityhacker.com/affiliate-marketing-vs-mlm:

“Unlike with MLM businesses, affiliate marketing is a mutually beneficial relationship between brands and individual affiliates. The brand reaches new audiences and generates more revenue; the affiliate marketer picks up a healthy commission along the way.”


- with affiliate marketing, you get to choose which products to promote, and how you promote them. MLMs, on the other hand, are very prescriptive.

- affiliate marketing programs are completely free to join. In MLM, you’re charged for a “startup kit” that includes some combination of training, the products you’re meant to sell, “personal development” material, and more. You have to earn back this investment before you start making any money.


The future of MLMs


MLM companies showed a brief surge in popularity during the pandemic, but now, direct selling sales in the US as a percentage of all US retail sales are at the lowest level since 1992. This proportion has been in an almost constant decline since 2002.

According to the Direct Marketing Association itself, MLM representatives earned less in 2019 than they did in 2004.


Alternatives to MLM


If you’re looking for a way to earn extra income, rather than getting involved in a multi-level marketing company, where you’re not likely to make money anyway, you could try affiliate marketing, drop shipping, freelancing, starting your own legitimate business, or getting a part-time job. All of these are much more likely to earn you actual income compared to MLM.


That’s my official takedown of MLM companies. I’d love to hear your thoughts; get in touch with me at karinainkster.com, or on Instagram @karinainkster. Thanks so much for tuning in.




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