Multi-level marketing (MLM) is a marketing strategy that uses representatives to sell products or services directly to their peers, or to recruit new representatives to act as salespeople for products or services. You’ve probably heard of MLM, also referred to as direct sales or network marketing, even if you didn’t realize it at the time.
You may have heard of MLM described interchangeably with a pyramid scheme. However, MLM is not illegal on its face. As long as MLM is driven by sales, not by the recruitment of individuals, it is legal and more common than you might expect.
While MLM has frequently been portrayed in the media as get-rich-quick scams that prey on the innocent and unsuspecting, there are many, many participants in MLM and it has grown into a multi-billion dollar industry.
Do people actually make money in MLM? What is the actual likelihood of success? Here, we’ve compiled some of the most important MLM statistics for 2020 that will answer these questions and more.
One of the most surprising MLM statistics out there may be how common it is: Nearly 8% of Americans have participated in multilevel marketing in some capacity. Just because no one in your neighborhood has tried to sell a company’s product to you directly doesn’t mean it isn’t happening.
That said, according to the DSA, there are 6.2 million Americans currently participating in MLM. That’s less than 2% of Americans, suggesting that participation rates are decreasing as younger generations come of age.
Despite declining participation, the MLM industry is still remarkably strong. The DSA reports that the industry is still worth more than $35 billion, up from $28 billion in 2009.
The most recent numbers available show that the vast majority of direct selling companies that are members of the DSA use multilevel marketing. In 1990, only 25% of member companies used MLM, which demonstrates how firmly entrenched MLM has become in the direct selling business.
The most popular product categories for direct selling are what you might expect. In 2019, wellness accounted for 33.2% of sales, while cosmetics/personal care accounted for 31.2% of sales. Household goods and durables was a distant third with 12.8% of sales.
MLM has earned a poor reputation through media portrayals of schemes where people pay upfront for inventory, only to be stuck with a bunch of low-quality products that they can’t sell. While reality isn’t quite as grim, it’s still not great. One AARP study found that 52% of MLM participants felt a company’s representation of achieving financial success through direct selling was “not too accurate” or “not at all accurate.” However, on the positive side, 43% of respondents said that it was “fairly accurate” or “very accurate.”
People who participate in MLM are not exactly dedicated, perhaps due to that lack of financial success. The AARP found that more than 50% of participants drop out after one year, and more than 90% drop out before 10 years. In contrast, about 20% of small businesses don’t make it past one year, while about a third survive more than 10 years.
In an analysis of MLM for the Federal Trade Commission (FTC), Dr. Jon M. Taylor estimated that dedicated MLM participants who want to succeed with the larger company can accrue more than $25,000 in expenses in a year. Those expenses include incentives, products, technology, advertising, and travel. To find this number, Taylor joined a recruitment-focused company and worked full-time with them for a year, doing everything he was asked, from buying monthly training products to attending conferences.
Part of the reason why MLM companies offer so many incentive programs is because the majority of participants never invest more than $1,000. Although the opportunity is there for them to spend thousands of dollars, most don’t. Another 24% of those surveyed by the AARP spent between $1,000 and $4,999; 11% paid more than $5,000; and 23% couldn’t remember how much they invested. Four people in the study reported spending more than $50,000.
While the FTC reports that 99% of MLM participants lose money, the more recent AARP study finds that the numbers aren’t quite as stark. The AARP found that 25% of those surveyed made a profit, while 27% broke even. Only about half lost money. Of the quarter that made a profit, 14% made less than $5,000, 6% made between $5,000 and $9,999, 3% made between $10,000 and $24,999, 3% made $25,000 or more, while just .05% made $100,000 or more.
When most people think of multilevel marketing, they think of pyramid schemes and jokes on TV. But the MLM industry in the United States is quite large and doesn’t fail at quite the rate most people expect. You shouldn’t get involved with MLM without doing the research first to understand pricing tiers, what you must do to get paid, and verifying that companies are members of the DSA—but it is possible to make money through MLM. Hopefully, these statistics will help you make informed decisions.
Read more helpful business-related statistics and data:
Nick Perry is a freelance writer based out of Boston. After working in Hollywood and Silicon Beach, he launched his own small business and frequently referenced Fundera’s resources. Now, he’s a contributing writer at Fundera. Nick has written extensively about small businesses, ecommerce, the restaurant industry, and entertainment. His work has appeared on Entrepreneur, Digital Trends, Toast’s On The Line, and more.