Are MLMs Bad, Illegal, Unethical Pyramid Schemes?

Is Beautycounter an MLM and is that bad? Are Beautycounter products worth it? Is Beautycounter actually clean? All answered below.

Are MLMs Bad, Illegal, Unethical Pyramid Schemes? It depends.

I used to think so. But the more I learned, the more I realized what I didn’t know or fully understand.

In the first legal decision ever decided by a court on direct sales (also called Multi-Level Marketing [MLM] or Networking Marketing), the judge’s decision denied every single claim the FTC brought – including the argument that the company in question was operating an illegal pyramid scheme. I can finally show legal proof, Beautycounter is a direct sales brand. But, no, not all MLMs are bad, illegal, unethical pyramid schemes. Not just my opinion, decided in a court of law. (1)

And, when I think about where I want my money going the choice is clear. Do I go with my friend down the street who is the sales force for a sustainable, ethical, B Corp selling clean products and  I don’t have to leave my home? Or instead put my cash directly into a Billionaire’s pocket?

I have no problem clicking the link of my favorite influencers, so why not my friends’?

While there are a lot of people giving their opinion on this, the recent court analysis provides an opportunity for a clear measure. I would also suggest you consider your source.  If someone is using fear they’re trying to control. If they’re using hope, they’re offering the freedom of personal choice. And, what is their goal? Often I see articles saying “Don’t do that!” Only to be sold something else instead.

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What could they be selling you?

The way SEO works is to predict questions asked, and proactively write answers. Notice when you Google a question you get results pulling phrases from articles with a direct answer? That’s intentional. And, the top result for “Is Beautycounter an MLM, Pyramid Scheme, or Legit Business Opportunity?” was written with motive. The author is broadly anti-MLM but – I kid you not – trying to sell you an “affiliate marketing diploma” course for over $150. *face palm*

I agree that affiliate marketing is great. But, she has an issue with starting a business that costs any money throughout the WHOLE article, but then gives you her code to sell you on something you do not need to start. If you want to do affiliate marketing, there’s plenty of blogs and YouTubes that will teach you for free.

What’s Affiliate vs. Network Marketing? I got you – I do both and explain them below.

How to Know if a MLM Company is Legal and Ethical

The term Pyramid Scheme has a legal definition defined in 1974. When applied to the September 2023 case, the court explained that “the primary focus in deciding whether a business is a pyramid scheme is whether the business focuses exclusively or almost exclusively on recruiting as opposed to sales.” (2)

After going from full-blown skeptic to leader in the industry, here’s how I personally decide if I will support a direct sales brand:
  • Q: Do affiliates (consultants) earn more income from selling product or must they recruit others to earn?
    A: use the Koscot test defined in (2).
  • Q: Do the affiliates need to purchase and sell from their own inventory?
    A: The brand is likely unethically “dumping” product that won’t sell if they aren’t shipping direct to clients.
  • Q: Are the affiliates forced to meet either monthly minimums or team building requirements?
    A: This leads to individuals spending their own money in order to maintain status.
  • Q: Is the brand transparent in how it functions, both with sales as well as with products, people, and sustainability?
    A: I want to support brands that align to my values; I look for B Corp or other certification.

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Is Beautycounter an MLM, Pyramid Scheme, or Legit Business Opportunity

While direct sales is not a panacea, it can open doors you weren’t considering. I never would have imagined all of my best friends would be colleagues I met and grew close to through our passion for a shared mission. Some people join just for the discount, others want more. The beauty of this business is that you get to decide.

15 minutes a day could increase your budget.

Consider this:

  • an annual 3% raise on a salary of $60,000 is $1,800
  • the average annual income for all Brand Advocates was $1,878 (3)
  • 76% of affiliates earn income, with the majority being over $500 (3)

It’s like giving yourself a raise. And, 76% vs the 25% average of distributors making income with other MLMs (7) shows how an ethical approach to direct sales is a completely different business model. And, if you’re here to consider me as your personal mentor (yay!), I will provide tools and templates as well as connect you with our greater community for trainings, etc.

I’d love to work with you! Join here, or e-mail (Stacy@RealEverything.com) or text me (703-634-9992) for more info.

Is Beautycounter Worth It

If you just can’t even with the daily grind, I HEAR YOU. Boss Bitch Hustle Culture is seriously toxic. And yet, adding in activity that provides meaning and purpose with a paycheck can have you doing well for yourself, while also doing good for the world. With the ability to work from anywhere, when and how much I want has been LIFE CHANGING for me.

Thanks to the growing ‘gig economy’ and the rise of social media, social selling businesses are thriving. (8)

Have you considered:

  • Earning $50 a week is a greater annual raise than most Americans are getting (3), which is $2600 annually
  • US inflation is costing Americans $709 per month more than 2 years ago (4)
  • Beautycounter’s compensation plan increases with activity; at $3,000 in retail sales a month, you’d earn $1,050 a month
  • You’d get early access at a deep discount to everything new. The number figures do not include value of trips, non-cash incentives, prizes, and free product.
  • Beautycounter purchases become tax deductible, saving you even more than our 25% daily discount (6)

The annual cost to run your business is only $50 and includes:

  • Beautycounter ships everything, NO inventory for you
  • Your personal web site to simply share a link
  • Behind the Counter, our CRM system
  • CounterUniversity, our skill-soft like training system
  • Free gifts, incentives and perks (from product and swag to cash bonuses and even trips)
  • If you don’t like it for any reason, you can go back to being a Band of Beauty member which will renew for a year when you downgrade (a $29 value).

I recently read an article focused on “most people cannot make a full-time income.” And, most people aren’t interested in it being a full-time job. And, as that article went on to admit, “Yes, you can make money selling Beautycounter products.” No, you don’t have to sell or buy anything other than your annual website renewal. In fact, I cannot think of any other businesses that I can start with these benefits for only $50. Let alone part-time, flexible work.

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Affiliate Marketing vs. Network Marketing

As the mother of 4 teenagers, I know the increasing popularity of wanting to be an influencer. And yet, when I ask my children what they think actually goes into it, they aren’t sure. Even though it’s my actual job! Here’s what you need to know:

Affiliate marketing

Partnering with a particular brand, product or service to make a commission from sales made as a direct result of your efforts. These can be tracked by links or codes, and may also include a flat fee for the effort vs. conversion (what actually turns into a sale). The most well known affiliate program is Amazon, which also allows that affiliate earning to be donated to charity through their Smile program. Other common networks include Awin, ShareASale, RewardStyle, and LikeToKnowIt. Similarly, vendors such as Rakuten are using these programs and giving you back a portion of their earnings.

Network marketing

Also known as multi-level marketing. An individual partners with a particular brand and becomes a consultant, reseller, ambassador, or affiliate. They then use their network to share about it. The business model earns income not only by recommending products to people, but when others join you in doing so, you then both earn on their sales. As noted above, ethical MLMs will not require you stock your own inventory or mandate that you must recruit a team to earn.

Direct sales

The general term for either of the above. Specifically, a reseller – either an influencer or consultant – is “directing” a customer to purchase a product, resulting in a sale. An individual focusing on affiliate marketing would need a lot of different partners to capture sales regularly to earn income (i.e. only earn income for what is sold daily), whereas an MLM allows for more passive income. In network marketing the customers are often tied to the affiliate, so even without a link or code the sale results in earnings. Accordingly, someone may have many affiliate partners but only one MLM they partner with.

What’s the Difference?

Biggest difference is that with MLM you are compensated for being a mentor – just like in corporate America where managers make more money. Those selling do not make less money if they have a mentor.

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BEWARE: Green vs Red Flags for Direct Sales

Affiliate marketing

  • Good affiliate programs will also give you a code since many shoppers either start carts but return after the affiliate link cookies expire, or reject all cookies for privacy reasons.
  • Ethical affiliate programs would give a long time for the affiliate link cookie, a minimum of 30 days or ideally 90.
  • Ethical affiliate programs do not ask you to work without compensation, avoid brands who “pay” in product (unless you’re happy without income).

Network marketing

  • Ethical MLMs will not require you stock your own inventory.
  • Look for an MLM that allows returns on product, by customer or consultant.
  • Good MLMs will be inclusive and not cost prohibitive (“starter kit” not required) and ideally offer scholarships.
  • Ethical MLMs will require that someone work to be paid. A mentor doesn’t earn without working, too.
  • Legal MLMs do not mandate that you must recruit a team to earn.

Anti-MLM Claims

As someone who went into debt in college by being sucked into purchasing a large kit of adult products as a means for “income opportunities,” these phrases are so icky to me. I get it. Direct sales can absolutely be predatory. Which is why it’s important to know what you’re looking for. To understand the nuance between ethical brands seeking to empower and elevate entrepreneurs using a century-old sales model (door-to-door with story best told person to person) versus a brand whose profit is dependent on recruiting more people (vs. actually selling product) takes thought. Unfortunately, many people (myself included years ago) are willing to throw the baby out with the bath water.

Let’s address some common claims I hear:

  • Claim: With Network Marketing you have to worry about sales quotas, but with Affiliate Marketing you can relax.
    My experience is the exact opposite, ethical MLMs don’t have monthly sales quotas and over time income is more consistent (passive) so I am able to relax more than when I was dependent on selling enough with affiliates monthly.
  • Claim: You need to spend money in order to maintain a networking marketing business.
    My experience is that the $50 annual renewal fees saves me way more than that in the 25% discount I get on products I genuinely use and love. There are no other business costs, whereas with affiliate marketing I was buying a variety of things to promote it to earn (think about how many new clothes fashion influencers are always showing you).
  • Claim: You can only work with one MLM while you can work with unlimited affiliates.
    My experience: ethical direct sales brands want their sales force to have flexibility, Beautycounter allows for multiple MLMs until at a high leadership level (because of access to exclusive information) and unlimited to any other non-MLM affiliate partners – so you can get all the benefits of affiliates, too.
  • Claim: No one makes money on an MLM, and most people lose money.
    My experience is that good MLMs don’t require you spend. And, the recent court case confirmed: many are happy with a discount.
  • Claim: All MLMs are a pyramid scheme. you will be making commissions from EVERYBODY. It’s a triangle because they are all in your direct downline.
    My experience is that most business models compensate leaders more. I spend a large portion of my time focused on mentoring, training, and creating resources for my team. I buy gifts for incentives, host events, hire experts for them to learn from. It doesn’t cost them a thing, and I am able to do it (the best part of my job) because of the compensation I receive. I find that ethical MLMs will ensure a mentor isn’t paid unless active, and personal sales earn more than the downline’s.
  • Claim: All MLMs are exploitative, there are no “good ones.”
    My experience is that making blanket statements and assumptions is dangerous. I’m capable of understanding nuance and think you are, too.
  • Claim: Most people in MLM companies prefer to recruit others because they stand to make a lifelong passive income from that person, whereas if they sell a product they will just receive a one-off commission.
    My experience is that when the product is actually good, people buy repeatedly (not one-off). I then get commission without having to market. And, only around 10% of people recruit so that’s hardly “most.”

For me?

I have pride about being part of a movement that is changing beauty forever and for everybody. Did I expect my Feminist degree would lead to running an MLM team? Absolutely not. Yet, when faced with facts – I can see how this work matters. When I’m holding my grandchildren in my arms, I’ll know I’ve made the world a safer place for them. And I don’t know of any other flexible work I can do that gives me that accomplishment. Whether someone sells one gloss or ten thousand, we are all part of a mission to get safer products into the hands of everyone.

Is Beautycounter Non Toxic and Truly Clean Products

Is a Certified B Corporation. Beautycounter meets the ‘highest standards of verified social and environmental performance, public transparency and legal accountability to balance profit and purpose.’ They are bound by regular review to be transparent and to do good by people and the planet.

  • Beautycounter has helped pass 14 health-protective laws in North America. These include the first US Federal update since 1938, MOCRA (as of 10/8/23).
  • EWG has certified Beautycounter meets their clean verification against the strictest safety standards. 125 of our products are EWG VERIFIED™
  • Named Fast Company’s Most Innovative Company as #1 in 2020’s beauty category. This marks the third year Beautycounter has received the honor of being included on this prestigious world-wide list.
  • By 2025, 100% of Beautycounter’s packaging will be recycled, recyclable, refillable, reusable, or compostable. We are on track to meet this goal.
  • Chemical Footprint Project has assessed Beautycounter as a top-scoring company since the assessment launched in 2014.
  • Full life cycle accountability includes responsibly sourced ingredients. Beautycounter is committed to protecting the people who help bring our products to market. Including the way ingredients are farmed, harvested, or mined. We use sustainable palm, responsibly sourced mica, and fair trade vanilla.

Learn more from Beautycounter’s Annual Social Mission Report.

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Press

While many other brands try to diminish their reputation as the Leader in Clean Beauty (as called by Sephora), the results speak for themselves.

About Stacy: Not Hiding My Bias

I am a Beautycounter consultant. One of the top sellers and leaders in the company, in fact. So, of course, I’m biased. Though, I was staunchly anti-MLM so I like to think that says a lot about how much I specifically love the brand and products. I have a passion for the mission. I resisted for years, based on a lot of assumptions many of us have (and reputations of the bad ones). Adding it to my business has been a wonderful experience for me. I aim to give a balanced perspective here.

Why Stacy is actually qualified to discuss this topic…

She led a 20-year career in Federal Regulation. As the Vice President of Contracts, the Compliance Officer, and the Small Business Liaison Officer, she worked extensively on legal matters and compliance on Federal projects, contracts, and countless lawsuits. She is certified as a Project Management Professional as well as by Harvard Business School in Power and Influence for Positive Impact.

She holds a Bachelor degree in English with a concentration in Cultural Criticism and a minor in Women’s Studies. As a college graduate focused on Feminism she uses her Enneagram 8 powers for justice to advocate and fight for marginalized voices. Her syndicated, top rated podcast The Whole View on the iHeartRadio Cloud 10 network has had more than 8 million downloads and focuses on the well being of everyone. And, she is a Treatment Resource Parent – with trauma-informed training with certification and literal license to parent.

That Means:

She cares deeply, which is why Beautycounter’s mission to put safer products into the hands of everyone (not just their products) resonates so much. She now leads a team of over 350 folk. While she never imagined working in direct sales (and actually abhorred the idea for years), being able to lift up and empower hundreds of women has aligned more to the goals of her idealistic youth and current values than any other professional thing with which she has aligned.

Keep in Touch

Want a sample? E-mail me – I’d be happy to put some testers in the mail for you!

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Sources:

  1. Neora Part I: The Decision and Its Implications
  2. Neora Wins Landmark Case Against FTC
  3. Beautycounter/ids
  4. CNN, US inflation means…
  5. Investopia, Average Raise Percentage
  6. Turbo Tax, Taking Business Deductions (always talk to a professional)
  7. Jobs in Marketing, MLM Statistics You Should Read in 2023
  8. Business of Fashion, Why Social Selling Still Works
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