Debt and Multi-level Marketing

Debt and Multi-level Marketing

Stories about participants in MLMs getting into debt are pretty common. We took a look and found lots of information. We learned how common debt is for MLM participants, why people turn to borrowing, and that it’s not a good idea.

In a survey of over one thousand participants, more than 30% reported using credit card debt to pay for multi-level marketing program expenses and inventory. Around 10% used a personal loan, and finally 20% borrowed money from friends or family.

Why is debt so common?

Distributors often join multi-level marketing companies in order to make ends meet, earn extra money, or otherwise earn money. Because people are looking to earn money from MLMs they often look to borrow (with credit cards or loans) to cover up front and operating costs.

excess inventory needed to liquidate
Inventory loading can lead to excess inventory that’s difficult or impossible to sell, and spiraling debt.

There is usually a requirement that distributors purchase or sell an amount of product each month to maintain their rank. This is referred to as the personal volume requirement. Leaders will also have volume requirements for their team. This leads to leaders (uplines) pressuring their team to purchase even more. To make these purchases and meet these requirements people will often use debt and credit cards with the hope they will be able to eventually sell the products. These costs can lead to a spiral of debt.

Return policies and procedures are usually long, complicated, and strictly enforced.

Some uplines will encourage distributors to purchase extra products on credit because there’s no risk. Usually, they are talking about a company’s buy back policy. Be sure to read this policy carefully. They are often complicated and strictly enforced.  Most companies will not pay back 100% of the cost. Policies will often have time limits and strict product condition requirements. They also may be subject to change.

Conclusion

MLMs commonly encourage participants to purchase excess inventory by using their credit cards or borrowing money. This inventory loading said to be good for the distributor but is really only good for uplines, or it’s unsustainable bonus buying. Avoid borrowing to purchase extra inventory or starter kits.



Leave a Reply

Your email address will not be published. Required fields are marked *