Why an MLM is a Terrible Side Hustle

Unless you have lived under a rock or have not come out of your room for the past, well forever, you have probably heard of or have run into someone involved in multi-level marketing (MLM).  You may not have recognized it as an MLM right away, however.  

Maybe you have been to a party involving the sale of makeup, cookware, jewelry, or oils.  Perhaps you have had someone approach you that could save you money on your utility bills and ask you to join their program.  These are some solid signs that you are getting involved in a MLM.

The common reaction is to be skeptical, yell “SCAM”, and run for the hills.  I know I do.  But according to the Direct Selling Association, millions of Americans are involved in direct sales which adds approximately $36 billion to the economy.

So, in the case of using a MLM as a side hustle, can it be done, and can it be done successfully?

I am going to use facts and figures from a comprehensive research study done by Jon M. Taylor PhD.  In his study, Dr. Taylor researched the compensation plans of over 400 various MLM companies and analyzed the results.

How Much Time and Money is involved?

Side hustles are meant to be just that, things done outside of our 9 to 5 job to make extra money.  They, by definition, should not take more time or effort than your primary job or cost a lot of money to get off the ground in initial investment.

According to Dr. Taylor’s research of the investment required to launch an effective business-building campaign for a recruitment-focused MLM (a company that places compensation and incentives on recruiting a “down-line” as well as selling a product), a minimum of $25,000 in total expenses including incentives, products, phone, internet, giveaways, computer supplies, advertising, travel, etc. would be required.

For a product-centered direct sales company, where the product is the focus for compensation and bonuses, the yearly expenses are far less.  Dr. Taylor found the yearly expenses for the starter-kit, marketing expenses, party-hosting expenses, internet, phone, office supplies, travel, etc. for this type of MLM to be approximately $1,000 per year.

To build any type of successful MLM or direct-sales business, you will need to invest many hours into marketing, promotions, hosting parties, recruiting, planning, and networking.  

If you are looking at this type of business for a side hustle, you will have to make sure that you have the time, startup money, and network available to get out of the gate quickly.

Do People Stick With It?

Once you start with an MLM, are you going to stick with it?  Well, that really depends on your commitment level and how good your sales skills are.  I can give you some statistics that may shed some light on the subject however.

According to Taylor’s research:

  • In the first year of operation, a minimum of 50% of representatives drop-out.
  • After five years of operation, a minimum of 90% of representatives left the company.
  • By 10 years of operation, only those at or near the top are left, meaning that at least 95% of the representatives have dropped out.

If you compare those statistics with the failure rates for traditional small businesses, you will find that 44% of small businesses survive at least four years and 31% survive at least seven years.  Only 64% of small businesses fail within ten years of opening.

Reasons You Would Want To Join an MLM

There are a lot of negative thoughts surrounding the MLM and direct sales market.  Defenders of MLMs have come up with reasons why you might want to become a part of this home business option:

MLM is less expensive than many other business opportunities.  Even though it may look like startup costs for some MLMs are pretty steep right away, the initial investment compared to other businesses are minimal.  consider franchises for example.  You could spend thousands of dollars to purchase a franchise or a business that is already established.

They are easier to quit than other ventures.  Because the startup investment is smaller for a MLM, it is a bit easier to walk away from if it doesn’t work out.  Spending $5,000 or $25,000 makes it a little more difficult to walk away from.

Some people don’t treat their MLM like a business.  Your MLM must be treated like any other business.  You need to market, promote, sell, network, and do all of the things you would normally do with your business.  For some reason, people do not treat their MLM like a real business and it never takes off.

You dictate your own success.  In a MLM, you are the sales rep.  You determine if you succeed or fail.  You need to determine how you are going to meet your income goals, become rich, or give up.

Personally, my thought is why start and put money into something you have slim to no chance having success or sticking with.

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Can You Be Successful Building a MLM Business Part-Time?

I am going to be honest with you here and tell you that I have not seen anyone get rich from a part-time MLM business.  It comes down to the fact that you honestly don’t have enough hours in the day to get all of the business duties done and done well.

One of the biggest factors you need to consider is the MLM or direct sales company that you become a part of.  Does the company sell a service or product that you believe in?  What are the compensation, marketing, and business policies?  Have you researched the company to make sure it is a legitimate company?

Can You Make Money?

This is the million dollar question, literally.  Can you make money, any money, being part of a MLM?  Well, sure you can!  Will you make money?  The odds are not in your favor.

According to Taylor’s research, “In every case, using the analytical framework described, the loss rate for all these MLMs ranged from 99.05% to 99.99% with an average of 99.71% of participants losing money in an MLM.  On average, one in 545 is likely to have profited after subtracting expenses and 997 out of 1,000 individuals involved with an MLM lose money (not including time invested).”

So, unless you are the 1 in 545 or the top 1% working for the business, you will probably actually lose money by being a part of an MLM.

CONCLUSION

I am going to wrap this article up by saying that an MLM is going to be a huge waste of almost everybody’s time.  Unless you are in the top 1% of the business, you are losing money. 

Statistically speaking, you have a rough road ahead of you if you are looking to make money.  It will take a huge deal of effort and determination.  A lot more than I would personally want to put into a side hustle.

Have you ever been part of an MLM or would you ever be a part of an MLM as a side hustle?

  • Cory says:

    I have to agree with you about MLM being a legitimate side hustle. I’ve had friends try to recruit me for various enterprises: Amway, selling industrial oil and calling cards. None stayed in business more than a couple years. Plus my wife tried and failed at Mary Kay.

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