If you find it strange that your mother had parties to celebrate Tupperware or that your Facebook friend is trying to sell you steak knives, you're not alone. These are examples of multilevel marketing (MLM), a direct sales strategy in which members not only sell products but also encourage and recruit others to be sellers. Multilevel marketing strategies, from companies like Amway, Cutco, and Herbalife, are legal. Pyramid schemes, which are similar but don't usually involve selling products, are illegal.
Read on to find out more about the history behind the multilevel marketing industry and pyramid schemes.
The First Multilevel Marketers Were Avon And Nutrilite In The 1920s And '30s
In 1878, David McConnell sold books door-to-door, mainly to women. When he realized his potential customers were more interested in the perfume he provided as a persuasive gift, he left the book biz and created the California Perfume Company in 1886.
McConnell hired women to sell the perfume, and sales went through the roof. In 1920, the company began to sell toiletries and cosmetics under the name Avon. By 1929, women were selling Avon door-to-door all over the US.Surprising fact?
Some Studies Say Fewer Than 1% Of MLM Participants Make A Profit Throughout Their Career
Surveys show that 25% of participants in MLM companies have made money from selling products. If that's more than you expected, it's because this 25% doesn't take into account the purchases participants make to join. Potential recruits are told they need to spend money to make money and start their business, which requires an initial investment in inventory.
When starting fees are taken into account, fewer than 1% of participants break even. And those who do make money earn nominal amounts. Most sellers make less than 70 cents an hour.Surprising fact?
- Photo: evgenii mitroshin / Shutterstock.com3
A 1979 FTC Case Against Amway Established Three MLM Guidelines
In 1975, when Amway was the giant of the direct sales industry, the Federal Trade Commission accused the company of being a pyramid scheme.
After four years of litigation, Amway's tactics weren't deemed illegal, but the judge did come up with three guidelines that Amway and other MLM companies had to continue following to operate legally:
1. Disclose distributors' average earnings.
2. Require distributors to sell "at least 70 percent of the total amount of products... bought during a given month" at wholesale or retail price (instead of just buying the products themselves to meet quotas).
3. Require that distributors "make not less than one sale at retail to each of 10 different customers that month" (again, to create an actual chain of commerce vs. one person buying everything).Surprising fact?
The Man Who Started Amway Also Shaped Modern Politics
The late Richard DeVos, who made a fortune from his company Amway, donated millions and was an influential voice in US politics for more than 40 years. Amway is one of the original MLM companies, selling everything from household cleaning products to nutritional supplements through tiered direct sales.
DeVos, who died in 2018, was a strong supporter of conservative causes, including the Heritage Foundation, the Federalist Society, and Focus on the Family, and served as finance chairman of the Republican National Committee. Amway donated millions of dollars to Republican candidates.
His daughter-in-law, Betsy DeVos, was US Secretary of Education during the Donald Trump administration.
The DeVos family's net worth was an estimated $5.4 billion as of 2018.Surprising fact?