Why paying a company to sell their products is bad for you and your finances

Stay-at-home restrictions have led to an increase in people becoming consultants for 'MLM' companies

In the United States alone, over 18 million people, mostly women, are involved in the $36 billion multi-level marketing industry, according to the Federal Trade Commission. Getty Images

What would you say if a family member or a friend was about to start a job in which 99 per cent of the people who worked there lost significant amounts of money while being “employed”? And what if you found out that this “job” exploited financially vulnerable people and used extreme pressure tactics to force them to stay and perform?

Would you tell them to go for it – to take a course of action that could make a bad financial situation worse and cause lasting damage to relationships? I doubt it. You’d be a terrible friend or relation if you condoned such a thing.

When consultants make a sale, a portion of their commission goes to the person who recruited them

Sadly, such jobs exist and staggering amounts of people and money are involved. They’re called multi-level marketing companies, or MLMs for short, and sell anything from cosmetics to health, beauty and home care products.

In the United States alone, according to the Federal Trade Commission, more than 18 million people, mostly women, are involved in this $36 billion (Dh132.2bn) industry. I’ve even seen some of my friends in the UAE get taken in, and these companies know their target audience well.

They primarily target women who need extra income. Social media has been a huge boon to these companies because it allows “consultants” to show how awesome their lives are by being their own boss. But in reality, it can be an expensive nightmare for the majority of the “consultants”.

Covid-19 has added another layer to this. More people are out of work and desperate. They want something where they can work from home, and so they are prime candidates for predation. MLMs are even selling Covid-19 “cures”, prompting the US Federal Trade Commission to issue official warnings to 10 prominent companies engaging in this trade.

To start selling products, new consultants have to buy a significant amount of products, often worth tens of thousands of dirhams. When they make a sale, a portion of their commission goes to the person who recruited them. So, the more people you recruit to sell, the more you make. This is what makes it similar to a pyramid scheme.

These vulnerable people then flood their social media platforms and talk to everyone they know who is sympathetic enough to buy their products, but that can only take them so far. Eventually, that well runs dry, and that’s when it gets expensive, because these salespeople are often left with thousands of dirhams worth of products and no way to sell it.

These companies often encourage salespeople to take out credit cards to buy products to sell. Then, when they’re stuck with products and nobody to sell them to, they have steadily mounting credit card bills with 17 to 45 per cent interest rates and find themselves in a terrible financial hole.

They also use the same manipulation tactics as cults. They isolate you from people who would question your behaviour and the benefits of the job. They prey on the financially vulnerable. They make you feel like if you just worked a little bit harder, you can achieve the great benefits they tout so publicly.

According to Douglas M. Brooks, an attorney who represents victims of MLMs, the same professionals who help to de-programme cult survivors are also seeing a lot of former MLM salespeople with similar symptoms and in just as dangerous a place.

If you have the chance to help someone, you should do it, especially if it’s someone you care about. The next time you see a friend or family member talking about a “great new opportunity” where they are selling things, have a long chat with them. Make sure they are informed about all the potential financial pitfalls of their new job before it’s too late. They’ll thank you eventually.

Dubai schoolteacher Zach Holz (@HappiestTeach) documents his journey towards financial independence on his personal finance blog The Happiest Teacher