I grew up watching people I care about get pulled into multi-level marketing companies. Different decades, different products – vitamins, cosmetics, phone cards, travel packages, insurance – but the same script every time. Someone they trusted invited them to a meeting or a home demonstration. The opportunity sounded real. The people at the top seemed genuinely successful. And months or sometimes years later, there wasn’t much to show for it except product they couldn’t sell, relationships that had gotten awkward, and sometimes real money lost.
The script hasn’t changed because it still works. Here’s what it looks like and where it falls apart.
What an MLM actually is
A multi-level marketing company – sometimes called network marketing or direct sales – is a business model where you earn income in two ways: selling products or services directly to customers, and recruiting new distributors who sell under you. You earn commissions on your own sales and a percentage of sales made by everyone in your “downline” – the people you recruited and the people they recruited.
The model itself isn’t automatically fraudulent. Some MLMs sell real products at reasonable prices and some participants genuinely prefer flexible sales work to traditional employment.
What’s fraudulent – or at minimum deeply misleading – is how the income opportunity is typically presented versus what the income disclosure statements actually show.
What the company’s own numbers say
In September 2024, the FTC analyzed 70 MLM income disclosure statements – documents the companies themselves publish. The findings were blunt.
Most participants across those 70 companies earned $1,000 or less per year. That’s under $84 a month. And critically, none of the 70 disclosures accounted for business expenses – product purchases required to maintain distributor status, training materials, event fees, samples, shipping costs. When expenses are factored in, a significant portion of participants don’t just earn little – they lose money.
In at least 17 of the 70 companies, most participants earned nothing at all.
The top earners exist. The income disclosures show them prominently – which is exactly the problem. When the top 1% earns $90,000 a year and the bottom 82% earns $46 a month, reporting the average gives a number that doesn’t describe anyone’s actual experience. It describes the mathematical blend of a tiny group doing very well and an enormous group doing almost nothing.
Professor Stacie Bosley, the Kahlert Professor of Economics at Hamline University whose research focuses specifically on the MLM industry and consumer protection – she has served as an expert witness for the FTC and SEC in pyramid scheme cases – concluded in 2024 that the typical MLM participant does not earn supplemental income. Her full article is published at truthinadvertising.org and her faculty profile is at hamline.edu. Not the findings of a blogger or a disgruntled ex-distributor – an economist with a PhD in Applied Economics from the University of Minnesota, whose conclusions come from the companies’ own data.
How the income disclosures get manipulated
This is worth understanding because when you ask an MLM company for their income figures, you’ll get a document that looks transparent. Here’s how that document is designed to mislead you.
Excluding zero earners from the average. Most disclosures calculate “average earnings” only among participants who received at least some payment. Everyone who joined and earned nothing gets removed from the calculation before the average is computed. The FTC noted that including those participants would bring the already-low $84/month average down further. You’re seeing the average of people who earned something – not the average of everyone who tried.
Gross income, not profit. The figures shown are what the company paid out – not what participants kept after costs. An “average annual earnings” of $1,200 can represent a net loss after product purchase requirements, event attendance, and marketing materials that distributor agreements often require or strongly encourage.
Rank tables that emphasize the top. Income disclosures typically break earnings down by distributor rank. The top ranks – Diamond, Platinum, Executive, whatever the company calls them – get prominent placement and large dollar figures. The bottom rank, which contains 70-85% of all participants, gets a small number buried at the end. The presentation directs your eye toward where you hope to end up rather than where almost everyone actually lands.
Vague definitions of “active.” Who counts as an active participant varies by company and is often defined in ways that conveniently exclude the people doing worst. Some companies define “active” as having made a product purchase in the past year – which includes people who bought inventory and couldn’t sell it, which is a loss, not income. Some companies exclude anyone who didn’t recruit. The definition shapes the reported earnings significantly.
The script that hasn’t changed in 40 years
What strikes me about every MLM my family encountered – Amway in one generation, Herbalife in another, travel packages and insurance later – is that the recruiting conversation is almost word for word identical across all of them and across all those decades.
It starts with a relationship. Someone you know and trust mentions a product or an opportunity. It’s low-key at first – not a sales pitch, just enthusiasm. Then there’s an invitation to hear more – a home meeting, a presentation, a video call.
At the presentation, the focus is on the people at the top. Success stories. Testimonials. People who “changed their financial lives.” The figures they quote are real – those people do earn that income. What isn’t mentioned is what percentage of participants those people represent or what everyone else earns.
The Harvard claim – and what it actually means
One line that shows up reliably in MLM recruiting presentations is that “multi-level marketing is taught at Harvard Business School” or some variation – the business plan is Harvard-endorsed, Harvard-validated, Harvard-recognized. The claim has been circulating since at least 1984, when an MLM consultant published it without any supporting source and it spread through the recruiting network before anyone checked.
Harvard Business School has explicitly denied it multiple times. A Harvard professor quoted in the Wall Street Journal said the school does not teach MLM and worries that people may join MLMs because they mistakenly believe Harvard condones the practice. Harvard’s own legal team flagged the claim as potentially defamatory. The most accurate version of what actually happened: Harvard Business School has published case studies on companies including Mary Kay – the same way it publishes case studies on companies in bankruptcy or under regulatory investigation – and somewhere along the way “Harvard studied this company” got laundered into “Harvard endorses this business model.” The distinction matters. If you hear this claim in a presentation, treat it as a reliable indicator that other claims in the same presentation deserve the same level of scrutiny.
The ask comes next – not “join this company” but “start your own business.” The framing is important. You’re not an employee or a salesperson – you’re an entrepreneur. The monthly product purchase requirement isn’t a fee – it’s “investing in your own business.” The income from recruiting isn’t the main point – it’s just a bonus on top of your genuine sales income.
Then comes the community. MLMs are genuinely good at building belonging. There are meetings, recognition events, group chats, a culture of positivity and mutual encouragement. For people who are isolated, between jobs, or looking for purpose alongside income, that community is real and valuable – which is part of why leaving is so hard even after the financial reality becomes clear. Walking away from the MLM means walking away from the community.
The specific patterns worth knowing
The product costs more than the market will bear. In a sustainable retail business, products are priced to compete in the market. In many MLMs, products are priced high enough to fund multiple layers of commission for everyone in the upline. That pricing is what makes the product hard to sell to people who aren’t already in the network – which is why recruitment becomes more important than retail sales for most distributors. If you couldn’t recruit anyone, would the product sell itself at the price you’d need to charge? That’s the question.
The income opportunity leads with emotion, not evidence. Legitimate job or business opportunities give you verifiable financial projections, expense breakdowns, and realistic timelines. A recruiting pitch that relies heavily on the success stories of top earners and the lifestyle imagery of financial freedom, without grounding those stories in the statistical distribution of actual participant outcomes, is giving you marketing rather than information.
Recruiting pressure outpaces sales support. In companies where the model actually works as described – direct sales of products people want at competitive prices – the support structure emphasizes sales skills, product knowledge, and customer relationship building. In companies where recruitment is the primary income mechanism, the training shifts toward how to approach new prospects, what to say to skeptics, and how to find more recruits. The emphasis tells you which activity the company actually thinks generates income.
The ask scales up after you’re in. The initial buy-in is often modest – a starter kit, a sample set, a registration fee. The real cost reveals itself after you join: monthly product purchase requirements to maintain active status, training events that require travel, annual conventions, premium tiers with better commission rates that require maintaining a larger downline. Each cost is presented as an investment in your business rather than a fee for participation. Add them up before agreeing to any of them.
The relationship changes. Family members and close friends become prospects. Every conversation becomes a potential recruiting opportunity. Social media turns into a marketing channel. The people who joined first become financially dependent on the people they recruit, which creates a dynamic that’s genuinely difficult to talk about honestly within the relationship. This isn’t accidental – it’s built into a model that requires constant recruitment to sustain income.
How to read an income disclosure statement
If someone hands you an income disclosure from an MLM they’re recruiting you into, here are the questions that cut through the presentation:
What percentage of participants earned nothing? If the company doesn’t disclose this, that absence is itself informative. If they do disclose it and the number is above 50%, you’re looking at a model where most participants lose money on a net basis even before expenses.
Does the income figure account for expenses? If the answer is no – and in all 70 FTC-reviewed disclosures, the answer was no – ask them to walk you through what the typical monthly expense requirement actually is for an active participant. The difference between gross income and take-home after costs is where the real picture lives.
What rank does the average participant hold? The answer is almost always the lowest rank – and the lowest rank earns the least. The aspirational senior ranks exist but represent a small percentage of participants, and they got there before the market in their area was saturated with other distributors from the same company.
How long do most participants stay? High turnover is a structural feature of MLMs, not an anomaly. If most people leave within a year or two, that’s meaningful information about what the experience is actually like once the initial excitement fades.
If someone you care about is already in one
This is the harder part to write, because what I’m describing is the situation of people I know.
Leaving an MLM is harder than not joining in the first place, for reasons that aren’t irrational. There’s a sunk cost in time, money, and relationships. There’s a community that’s genuinely been supportive. There’s the hope that the investment will eventually pay off if they just push a little harder. And there’s often real social pressure from upline distributors who have a financial stake in keeping their downline active.
The most useful thing you can do for someone already in is not to argue about the company or the products – that triggers defensiveness and typically doesn’t work. What does sometimes work is asking the questions above calmly and genuinely: what did you earn last month after expenses? What would your income look like if you stopped recruiting and only sold to customers? Those questions invite them to look at their own numbers rather than defending the company’s numbers.
And if they’re losing money consistently, naming that plainly and without judgment – “I’m worried about what this is costing you” – is more useful than explaining why MLMs don’t work in theory.
The bottom line
The same FTC analysis that showed most MLM participants earn under $84 a month before expenses also showed that the income disclosure statements designed to inform that decision are systematically presented in ways that make the opportunity look more achievable than the underlying data supports. That’s not an accident – it’s the same structure that makes the recruiting conversation work and makes the exit conversation so difficult.
The script your relatives heard and the one being used on social media today are the same script. The products change, the platforms change, the company names cycle. The economic structure – many people funding the income of a few at the top – is the constant. Recognizing that structure before you’re inside it is the entire value of knowing what to look for.
If you’re looking for real ways to earn extra income that don’t rely on recruiting people you know, the side hustles for bad credit list covers options that pay based on work rather than network size. And if you’ve encountered recruiting pitches that feel similar to what’s described here but in different formats, the paid course and guru scams and fake job offer red flags pieces cover the same psychological mechanics in different packaging.
Frequently Asked Questions
According to the FTC’s 2024 analysis of 70 MLM income disclosure statements, most participants earned $1,000 or less per year – under $84 a month – before accounting for expenses. In at least 17 of those companies, most participants earned nothing at all. Professor Stacie Bosley of Hamline University, who has served as an expert witness for the FTC in pyramid scheme cases, concluded that the typical MLM participant does not earn supplemental income.
No. Harvard Business School has explicitly denied this multiple times. The claim originated from an unsourced 1984 article by an MLM consultant and spread through recruiting networks before anyone verified it. Harvard’s legal team flagged it as potentially defamatory. Harvard has published case studies on individual companies like Mary Kay – as it does for companies in bankruptcy or under regulatory scrutiny – but that is not the same as endorsing or teaching the MLM business model.
It’s technically accurate but systematically presented in ways that make outcomes look better than they are. The FTC found that most disclosures exclude zero earners from averages, report gross income before expenses, emphasize the small percentage of top earners visually, and use inconsistent definitions of “active” participants. Always ask what percentage earned nothing and what the expense requirements are before drawing conclusions from a disclosure statement.
Legally, an MLM sells real products or services and generates income through genuine retail sales to actual customers – not just through recruitment. A pyramid scheme generates income primarily through recruitment fees. In practice, many MLMs operate closer to pyramid schemes because recruitment, not retail sales to outside customers, is where most income actually comes from. The FTC looks at whether genuine retail sales to non-participants are possible and occurring at realistic prices.
Several genuine reasons: sunk cost in time and money already spent, real community built with other participants, hope that more effort will eventually produce results, and social pressure from upline distributors who have a financial stake in keeping their downline active. The community aspect in particular is real and valuable – leaving the MLM often means leaving relationships that have become important. Understanding this makes the exit harder but also explains why it’s not irrational to stay longer than the numbers justify.
Four that cut through the presentation: What percentage of participants earned nothing last year? Does the income figure include expenses? What rank does the average participant hold? And – if I couldn’t recruit anyone, would the product sell itself at the price I’d need to charge? Clear, verifiable answers to those four questions tell you more than any income chart or success story.