Debt and Defeat At the Bottom of the Sales Pyramid

Pink Truth

The Salt Lake Tribune
By Steven Oberbeck

Nicole Lopez’s desire to earn additional money for her family so she could be a stay-at-home mom led her to give multilevel marketing a try.

Yet like so many Utahns who get involved with such companies, her dream came to naught.

Although a few make millions and some comfortably less, for Lopez there was no freedom from work at the end of her MLM rainbow. There was no extra time with her son or additional cash to help out with the household bills. What she wound up with instead was debt and the realization that she had gotten involved in a business model she now believes relies upon deception for its survival.

Although companies dispute her viewpoint, for Lopez it came down to this: “I was told that if I worked hard and followed their proven marketing plan that I would be successful and reach my goals. Well, I worked hard. I put in countless hours recruiting and selling products. And I followed their plan exactly.”

When her “coaches” told her she needed to invest extra money in her business — $1,000 for advertising and another $350 for marketing materials each month — she charged those expenses on her credit card. Yet the promised returns never arrived.

“I was getting deeper and deeper into debt and farther and farther away from my goal of staying home with my son,” she said. “What was worse, though, was when I realized that I was the reason the people I had recruited were getting into debt, as well.”

Lopez’s stint in 2005 as an Herbalife distributor lasted about six months, but it was time enough for her to incur more than $8,000 in debt — an obligation the Springville resident said she still is working to pay off.

Critics say the results were typical of most who get involved in multilevel marketing. And it doesn’t matter whether they are selling fruit juices, cosmetics or any of the other popular potions, herbal pills or lotions.

What those who get involved with multilevel marketing are never told is that upward of 99 percent of them will lose money, said Jon Taylor of Kaysville, an industry critic and author of The Case For and Against Multi-Level Market, which is available as a free download at www.mlm-thetruth.com.

“It is designed that way,” he said. “Only those few at the top of the sales pyramid will make any real money.”

But the Direct Selling Association, the Washington, D.C., trade group that represents many of the nation’s network marketing concerns, says its members are offering legitimate business opportunities. Although it estimates that the annual turnover among distributors at its member companies averages 56 percent, it contends that is evidence only that many people get involved with MLM companies for a variety of reasons, some to fulfill short-term goals, such as buying a new refrigerator or range.

“You cannot equate dropping out with [someone’s] level of satisfaction. In fact, most direct sellers rate their experience with direct selling as excellent, very good or good,” said Amy Robinson, a spokeswoman for the Direct Selling Association.

Multilevel marketing companies, also known as network marketing companies, operate pyramid-like sales structures made up of multiple levels of independent distributors who earn commissions by selling products. The problem is, the products usually are expensive — $30 or more wholesale for less than a quart of fruit juice, for example. So marking them up even more for sale to the public doesn’t produce a lot of retail sales.

Instead, the distributors often become the customers. They rely on getting a piece of the sales from new distributors they recruit — and on down the line. For the thousands at the bottom, though, it is nearly impossible to break even, Taylor said. And their experiences are far different from the handful of those who sit high atop their various pyramids and boast of their fine automobiles, big mansions and carefree lifestyles.

But some manage to come out almost even.

For Shawn Candland of Sunset it wasn’t the lure of the luxury vacations or finely tailored suits that drew him to sign up as an independent distributor with MonaVie, a Utah company that sells a fruit juice concoction based upon the acai berry found in the Amazon jungle in Brazil. Rather it was the promise that he could earn extra money when his plumbing and electrical contracting business began to slow down during the recession.

“I really didn’t have any problems with the people [at MonaVie] or the product,” Candland said. “It was hard, though, getting others interested in signing on as new distributors — probably because just about everybody in Utah has been approached to join a multilevel marketing company at one time or another.”

Candland said it also was difficult keeping those few people he recruited motivated because they, too, were having trouble signing on new participants.

“Maybe I would have been more successful if I lived in another state,” he said.

Candland gave up on MonaVie when his plumbing and electrical contracting business in 2009 started to bounce back from the recession. “I didn’t really make any money, but I didn’t lose any, either. Well, I did spend about $2,500 on product — but I used that myself. I’d still be buying MonaVie [juice] if it wasn’t so expensive.”

One of the hallmarks of most multilevel marketing companies is that they hold up their “successful” distributors as examples for those new to the organization, suggesting that with hard work and commitment they also can achieve a similar level of financial success.

Yet often that is as much of an illusion as the suggestion that wealth can bring happiness.

“I was one of those people who was looked upon as a success,” said Carol Hatem, a former sales director for Mary Kay, which distributes cosmetics though a multilevel network of independent beauty consultants. “And I had all the trappings. In my 13 years with the company, I earned a diamond ring and was a star consultant. I drove a company car five times — they weren’t pink Cadillacs, but they were just one step below.”

But behind the glamour and glitz, reality was much different, she said.

“I was living a lie. I was working full time but I wasn’t making that much money. Probably the best year I ever had I made maybe $25,000. But I got to stand up in front of a Mary Kay convention and pretend I was doing really well.”

Secretly, Hatem felt like a failure. “I’d stand up there with other sales directors who all seemed to be so successful and wonder, ‘Why aren’t I as successful as they are?’ It took me a long time to realize that none of us were as successful as everyone pretended.”

Crayton W. Webb, a director of corporate communications at Mary Kay, said the company is always sorry to hear that some people are unhappy with their Mary Kay experience.

“We are a company that is well known for our recognition programs,” Webb said, noting that he couldn’t comment on success of those who receive recognition for their sales efforts. “We have 2 million independent sales force members in 35 countries and we’ve been around for 50 years, so we must be doing something right.”

However, forensic accountant and Mary Kay critic Tracy Coenen, who runs the website www.pinktruth.com, describes the company’s business as based on endless recruitment of new people who purchase inventory so those at the top of the marketing organization can collect large commission checks.

And Hatem said her years with Mary Kay were dominated by a constant struggle to recruit new consultants to replace those who would join, get discouraged because they were not making any money and drop out. “And all the time I really believed that I was empowering women. I really drank that Kool-Aid.”

She dropped out of Mary Kay in 2008 after deciding she no longer was willing to try to get others to join her sales organization by pretending she was successful. She found comfort at www.pinktruth.com, where other former Mary Kay consultants gather online to discuss their experiences.

“Looking back, I’m furious with myself. I make more than twice as much now as a judicial secretary than I ever made in my best year at Mary Kay. And to think that for all those years I could have been contributing to a 401(k) and preparing better for my retirement.”

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