Why Does Everybody Hate MLM's...?

Hey girl!!.... I want to take this opportunity to talk to you about..... Multi-Level Marketing. Hear me out hear me out. I'm not sliding into your DM's and I am also not trying to sell you a single thing. Lately I have been seeing a both intriguing and controversial uptick in ladies specifically taking over my Instagram feed with their earned trips, pretty packaging, and social media content that I can't lie, does make one go "hmmm'. As someone who relies very much on my salaried income, the passive income from my little side ventures where I've purposely cut out the middle man, but who ALSO exists on this giant floating rock as an unbiased consumer that happily buys and uses many "MLM" products and genuinely loves them, I want to unpack why MLMs spark so much debate. 

A few things as a disclaimer: I have no emotional or financial attachment to any MLM company other than liking some things. I also possess the type of entrepreneurial spirit is always thinking about how to turn a nickel into a dollar so I respect all hustles.  I feel like I’m qualified to argue both sides of a case because **work**and,  I love to buy shit! And for those reasons, Sharks, I'm asking you for 5 minutes of your time to unpack this, okurr?

Multi-level Marketing or Pyramind Scheme?

The most common criticism I hear from people surrounding MLMs is the comparison to pyramid schemes, which are by the way illegal. The fundamental difference is that while MLMs offer what are often (but not always) quality products, the focus seems to shift toward recruiting others into the business, rather than selling the actual product. This can lead to situations where the public undermines the value of the products being sold, and gives the impression that only the people at the top are the ones making money. This recruitment focus overshadows the actual products being sold, making the business model feel more like a "pay-to-play" scheme and I think (my observation as a consumer) that the people that are the most successful in these ventures are the ones emphasizing the sale and use of the products and not the ones constantly asking people- publicly or privately- to "join" them. But like it or not, they are not pyramid schemes. 

Seemingly Exaggerated Claims of Wealth and Success

Another common critique is the exaggeration of potential earnings and earning structure. MLMs often showcase “success stories” where top earners boast about their earned cars, lavish lifestyles and financial independence. And this CAN happen! People do earn cars and trips and that’s amazing for them. But if you think they are earning these things after just a few weeks and not actually working hard toward those goals you would be mistaken. However, it is facts that the majority of people who join MLMs fail to make significant profits. Remember that girl that was selling shampoo on her Instagram 2 years ago? Now she only posts about her dog, so obviously she grew tired of direct sales, and that's her prerogative. According to the Federal Trade Commission, 99% of MLM participants lose money throughout their tenure. I believe this statistic and I want to dive into this a little further. If approximately 102, 000, 000 people are involved in these direct sales, and only 1% of them are “high earners” (that amount has yet to be quantified because $1000 extra a month to one family could be life changing whereas it may not make much of a difference to another) that still means over one million people are considered in the top earners of these companies. Which is pretty wild to think about, if you consider that we have approximately 300 000 people experiencing homelessness in Canada and another 10.3 M people with housing insecurity. If we put the operation model of MLMs aside and think of a nuclear salaried job in which there is an employer and an employee ( I will use mine as an example, working as an associate in a law firm being on a payroll and enjoying the stability that brings) it's no secret that employees exists to work FOR their employers. Employees have to bring some value to the table, otherwise they are a liability, not an asset, and their employment is unlikely to last. Employees exist to generate revenue to the big guy up top. At my office, my hourly rate for the legal services I provide is X, and my income is Y. My hourly wage is not synchronous with my hourly rate.  The reason for this is simple: my employer needs to make money off me and he has earned the right to do so with his experience and reputation as a criminal lawyer. I do my own work, and I support him in his work. I both respect and understand this power dynamic, but I am also fortunate enough to be in a position that the better he does, the better I do. You could call this a mutually beneficial arrangement, where I am OK with him making money off me. My bills are more than paid, my kids are provided for, and I feel happy and fulfilled in my career. But he is still making money off of me, and the dynamic doesn’t feel all that different. Most of us, whether we like it or not, are making someone rich. 

If you dedicate 40 working hours a week to something, you're probably going to accomplish a lot, and be at least moderately successful at whatever it is you're focusing on. But sales are not for everyone, and most people (me) prefer to rely on the stability that a salary brings in a traditional employee/employer setting. Also, being "self employed" is not for the faint of heart. It requires a determination and work ethic that many people don't have. Seeing someone just like you on your Instagram earn a free Mercedes Benz and get to be at the school pick up line at 3:30 when the bell rings every day is tempting as hell.... but understand the nuances: that did not happen overnight, that person likely is dedicating a full time work week to their biz, and or has more free time than you (or more time to dedicate to the endeavor), they may have a spouse that covers their living expenses, they may have started with that company years ago and have been quietly working their way up since, or or or or. Social  media teaches us that comparison is the thief of joy, so don't just look at someone's highlight reel and think that you're going to be earning a Benz in three weeks, too. That is delulu. The gap between these “success stories” and the reality of average earnings can be frustrating, leading to feelings of deception. Many individuals are promised financial independence but are left disillusioned when they realize the effort required is far beyond what was initially advertised. But like anything, the harder you work, typically the more money you make. 

Are They a Real Business?

Yes, legally speaking, Multi-Level Marketing companies are businesses. Let’s explore this by breaking down how they are a business, how they aren’t quite a traditional business, and then dive into the tax-related aspects under Ontario’s laws.

Just like any other business, they need to generate revenue through sales, have a structure, and operate with the goal of profit-making. MLM participants (often referred to as "distributors" or "consultants") are typically independent contractors who earn income by selling products to consumers and by recruiting others to join the network. The structure looks like this:

1. Product or Service Sales: Consultants earn commissions based on their direct sales of the MLM’s products to customers.

2. Recruitment and Downlines: Participants also earn commissions or bonuses from the sales made by people they recruit (their “downline”). As they recruit more people, their income can come from an expanding network of sales.

Tax Implications for MLMs as Businesses:

Under Ontario tax law, MLMs must comply with both federal and provincial regulations regarding business operations. MLM participants are usually considered self-employed, and they must report their earnings and expenses to the Canada Revenue Agency.

• Income Tax: If you are an MLM distributor, your income is considered business income, and you are required to file it under the appropriate category when submitting your income tax return. This includes both commissions earned from direct sales and bonuses earned from the downline.

  Example: If you earn $5,000 in sales commission and $2,000 from your downline in one year, you need to report that as business income. This is taxable income and will be subject to regular income tax based on your total taxable income.

• Business Expenses: Consultants can often claim business-related expenses as tax deductions. For example:

  • Marketing costs (e.g., social media ads, business cards

  • Office supplies or a portion of home office expenses

  • Travel expenses related to meetings or sales presentations

  • Inventory expenses (if applicable)

The Real Real

Here's what I do know: Monat shampoo has changed my hair in a good way; my house smells like vanilla when you walk in because of Scentsy; I cannot live without my Arbonne fizz in the afternoon to give me a pick me up and conversely, I think those body wraps that promised to shrink your waist by 6 inches were such a f****** stupid idea it's no wonder we don't hear about them anymore (I am only interested in buffalo chicken wraps, thank you). At the end of the day, businesses are what you make of them. Whether you're in an MLM or running your own startup, the success of your business depends largely on the effort, mindset, TIME, and integrity you bring to the table. If MLMs are something you're considering, do your research with a company that aligns with you and offers great rewards and kickbacks. If you're trying to sell something you don't personally love and believe in, it's going to be painfully obvious.

Yes, there are valid critiques of the MLM industry, and like any business model, some operate better than others. But if you're triggered by someone in an MLM or frustrated with their constant posting, mute them, and let them do their thing. It’s not your business, and it’s not your responsibility to judge someone else’s path. Instead of putting energy into tearing down others, why not support your peers in whatever ventures they’re pursuing, whether it’s an MLM, a small business, or any other entrepreneurial journey? After all, it’s not the Jeff Bezos types we should be looking up to; it's the people around us grinding it out, building something from the ground up, and pursuing their dreams with passion- whatever those dreams are. If it doesn't work out for them it doesn't work out, and they will move on and find their thing eventually.

 

XX

Kait

• •