MLMs make most of their money from their own distributors, through starter kits, product purchases, monthly fees and events, which is why 86% of distributors earn nothing in commissions and the money pools at the very top. Multi-level marketing promised freedom: be the boss, work from anywhere, earn unlimited income. A couple of decades ago MLMs were everywhere, and now you hear much less from them.
The case made here is that they did not disappear. They got exposed, and the same model returned under new names. This article covers how the money flows, how the old MLMs fell, and how the model is rebranding.
Watch the full video here, or skip to the breakdown below.
How MLMs work at a glance
- How MLMs actually work (0:31)
- The storefront pitch: be your own boss
- The backroom pitch: identity, purpose and community
- The downfall of traditional MLMs (6:52)
- How the internet changed the game
- How MLMs are rebranding (12:19)
- Two cases from the new wave
- The red flags and what real entrepreneurship looks like
1. How MLMs actually work
A normal business earns money from customers and uses it to pay employees and grow. An MLM earns in several ways and does not pay everyone from those profits. The first source is you. You buy the products with your own money, buy a starter kit with a training manual, samples and marketing tools, and pay a monthly fee to keep your account active.
The second source is you again, as you move up. You pay for workshops and conferences, sometimes across the country, which means flights and hotels. The MLM offers small discounts if you book through it, then pockets a percentage because it typically gets a bigger group discount. The third source is customers who actually like the products.
Only top-level employees and upper management get paid from that money. Most people who say they work for the company do not. That is why 86% of distributors make zero dollars in commissions and usually end with a negative balance, 10% make less than $100 a year, and the remaining 4% live like kings.
That 4% is the face of the pitch, and the pitch comes in two forms.
2. The storefront pitch: be your own boss
The visible pitch is an advert promising you can answer to nobody and live on your own terms. All you have to do is sell supplements, skincare, essential oils or kitchen gadgets. Your job is to buy the product yourself, sell it to friends, family and social networks, and recruit more distributors under you, called your downline.
It is called multi-level because you earn from the products you sell, a small commission on sales made by the people you recruited, and a percentage from the people they recruited. MLM companies call this leveraged income, meaning you earn from other people’s efforts. In normal business that phrase means using other people’s money or time, whereas in an MLM it means commissions on the recruiting and selling of people you brought in.
Companies also call it residual income, which the video says is not quite true. Real residual income is passive, like royalties or rental income. In an MLM it depends on constant recruitment and sales, so nothing about it is passive.
3. The backroom pitch: identity, purpose and community
The second tactic is subtler. Think of it as the backroom party for people who get invited in. Everyone is friendly, encouraging and always around to chat. When you move toward the door, they talk you into staying, and those who do leave are cut off and never spoken to again.
None of it is really about money. The people who stay beyond a year are mostly stay-at-home moms, military spouses and young people just out of college. Those are the groups most likely to need what MLMs really sell: identity, purpose and community. Parenting at home can be isolating and financially dependent, military families move every 2 to 3 years, and graduates are still finding their way. They also have big networks of acquaintances, which suits selling and recruiting.
The ideal recruit has two needs: to make money and to have friends. People with enough of the second need are more likely to be among the 47% who drop out in the first year. For those who stay, leaving gets harder, because it means walking away from a community that made them feel seen.
The emotional pull is what keeps people in, long after the money stops adding up.
4. The downfall of traditional MLMs
MLMs began in the 1930s with American Carl F. Rehnborg, who got interested in vitamins after spending time in China. His supplement company Nutrilite could not afford advertising or shelf space, so he sold direct and persuaded customers to become sellers. To drive recruiting, Nutrilite paid commissions on the sales of recruits, beyond a seller’s own sales.
Amway’s founders, Rich DeVos and Jay Van Andel, were top Nutrilite distributors. Amway reached $7 billion in revenue at its 1997 peak. Its top distributors Dexter and Birdie Yager are said to have made more than $460 million over their lifetimes, and Asia’s top pair, Barry Chi and Holly Chen, around $75 million. A few others have passed $100 million.
So you can make money, with one catch: you had to get in early and understand the model from the start. The top earners began in the 1970s and 1980s and knew the money was in recruitment, not sales. The market was wide open, and successful early members were then used as examples to pull more people into their downline. In 1979, after a series of lawsuits, the FTC ruled that Amway was not a pyramid scheme because it sold real products, which gave the industry the green light.
As the US market saturated, companies expanded into Latin America, Eastern Europe and Asia, where middle classes were growing and consumer protection was weaker.
5. How the internet changed the game
At first the internet made the marketing flashier, with feeds full of beach offices, luxury trips and limo rides. Then forums, blogs, Reddit and YouTube let former participants share stories of losing thousands of dollars, damaged relationships, and being ignored when they asked for help.
Under pressure from regulators and courts, MLMs had to publish earnings statements on their websites. Those showed over 99% of participants losing money and only a tiny fraction at the top earning serious income. MLMs had relied on information asymmetry: everyone heard the few success stories repeatedly and assumed that was normal. Now you can search the company name plus the word scam and find lawsuits, exposes and income disclosures.
The video notes the FTC sued Herbalife for $200 million, describing it as operating as an illegal pyramid scheme that paid distributors only for recruiting, and that Vemma was sued for $238 million and Advo for the same reason. MLMs are privately held, so true earnings stay hidden. All we have is the industry’s own forecast, a compound growth rate of 6.5%. Millennials and Gen Z are harder to convince, which is why the companies have had to rebrand.
Once information stopped being controlled by the companies, recruiting got harder.
6. How MLMs are rebranding
Rebranding takes two forms. Old-school companies now call themselves network marketing or direct selling. They stress retail sales to real customers and add compliance training for distributors, but everything else stays the same. In 2021 the Direct Selling Association reported almost 14% industry growth, the biggest jump in 20 years.
The second approach is new. It goes by affiliate marketing, influencer marketing or social selling, and shows up in crypto and forex trading groups. Forex, or foreign exchange, is the trading of one currency for another, and moves over $7 trillion a day. Until 1996 only big banks and hedge funds could afford it. Then a site called Global View let people follow prices and learn from each other, and online brokers opened trading to ordinary people.
Companies saw they could sell forex or crypto education or automated bots using the same recruiting model. You pay $100 to $300 a month for signals telling you when to buy and sell, then earn commissions for recruiting others into the same package. Income comes mostly from signing people up, not from trading profit, and the people at the top earn millions from you and the people you sign up.
7. Two cases from the new wave
The video describes Christopher Terry, who founded IM Master Academy, and whose net worth is reported anywhere from $2 million to $90 million. The company charged $275 to join and $250 a month to stay active. It had 68,000 members in 2018 and half a million by 2022, with at least a billion dollars in sales. Its own documents show top earners were people with big teams, and over 95% of people earned more from recruiting than from trading or using the product. The video notes Terry previously worked at Amway Group and that the company has since rebranded under names such as IYOVIA and iMarketsLive.
It also describes Johann Steynberg of South Africa, who ran Mirror Trading International. People sent bitcoin to be pooled and traded by algorithms, with claimed daily returns of 0.5% to 1.5% (over 500% a year) plus commissions for recruiting. By 2020 MTI claimed over 280,000 members from 170 countries and more than 23,000 bitcoin, worth over $1.1 billion then. Most payouts came from new deposits. In December 2020, a year after starting, MTI stopped paying, and Steynberg now faces over $3.4 billion in restitution and penalties.
One notable shift: old MLMs recruited mostly women, promising connection, flexibility and empowerment. The newer groups mostly recruit men, promising control, status and freedom, with hustle culture and alpha-male imagery.
8. The red flags and what real entrepreneurship looks like
The top-line message is not wrong. Being financially free and building something of your own is a healthy goal. The system underneath is the problem. The video lists three red flags: you have to pay to join, you are pushed to recruit others, and the real money is in recruitment.
Real entrepreneurship means creating something people want or need, delivering value before promises, and relying on customer loyalty instead of recruitment.
Fast money and a tribe of positive people are the hook, and real businesses take time.
MLMs did not disappear
They got exposed, and then a new group of internet-savvy sellers took the same business model, changed the product and the language, and found a new generation to target.
The real grind takes time, innovation and resilience. The place to invest is your own education and growth, not someone else’s downline.
FAQ
How do MLMs actually make money?
Mostly from their own distributors, through starter kits, product purchases, monthly fees, and paid workshops and conferences. Sales to customers who like the products are a smaller third source.
What percentage of MLM distributors make money?
The video says 86% earn zero in commissions, 10% make under $100 a year, and the other 4% live very well. It adds that earnings statements show over 99% of participants lose money.
Why do people stay in an MLM even when they are losing money?
Because the MLM sells identity, purpose and community. Leaving means losing a tribe, and those who do leave are reportedly cut off.
How are MLMs rebranding?
Some now call themselves network marketing or direct selling. Others appear as affiliate, influencer or social selling groups, often built around forex or crypto signals paid by monthly fee and recruitment commissions.
What are the red flags of an MLM-style business?
You must pay to join, you are pushed to recruit others, and the real money is in recruitment rather than in selling to customers.
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