If Most People Fail at Network Marketing, Does That Make It a Scam?

Here’s a question that seems to get people very angry in the network marketing world:

If most people who join don’t make much money, doesn’t that prove network marketing is a scam?

My answer is:

No.

It proves that most people don’t build successful network marketing businesses.

Those are not the same thing.

And I think we’re making a fundamental mistake when we judge network marketing by a standard we don’t apply to entrepreneurship generally.

What does it actually take to build a successful business?

Let’s forget network marketing for a moment.

Imagine you decide to start a traditional business.

You need an idea.

Then you need a product or service.

You need customers.

You need marketing.

You need sales.

You need accounting.

You need cash flow.

You need to understand your competitors.

You need to deal with suppliers.

You need to deal with customers.

You need to solve problems.

You need to make mistakes.

You need to learn.

And you need to keep doing all of this long enough to become good at it.

There is no guarantee that you will succeed.

In fact, most businesses don’t become spectacular successes.

According to the UK’s Office for National Statistics, only 38.4% of businesses born in 2019 survived for five years, meaning more than six out of ten did not.

And becoming a genuinely high-growth company is considerably rarer.

Of approximately 292,000 UK businesses with at least ten employees in 2024, only 14,330 — 4.9% — were classified as high-growth.

So here’s the question:

Do we call traditional business a scam because most businesses don’t become highly successful?

Of course we don’t.

We generally say:

“Business is difficult.”

Now look at the barriers to entering network marketing

This is where things get interesting.

In many network marketing businesses, the barriers to entry are extremely low compared with starting a conventional company.

You may not need:

• Premises
• Employees
• Stock
• A warehouse
• Manufacturing equipment
• A shop
• A large bank loan
• A business degree
• Years of industry experience

You may be able to start with a relatively small amount of money and access an existing product, website, ordering system, training and compensation structure.

That’s one of the attractions of the model.

But there’s a catch.

Lower barriers to entry don’t mean lower barriers to success.

And I think people confuse those two things constantly.

The barrier has simply moved

A traditional business may have a huge financial barrier.

Network marketing can remove much of that.

But then you run into a different problem:

Customer acquisition.

How do you find people?

How do you get their attention?

How do you explain the product?

How do you generate leads?

How do you sell?

How do you follow up?

How do you build trust?

How do you create repeat customers?

How do you recruit and train other people?

How do you retain them?

How do you do all of that consistently?

Those are not trivial skills.

And joining a company doesn’t magically give them to you.

This is the part nobody wants to hear

Joining a business is not the same as knowing how to run one.

Someone can register today and have a business opportunity by lunchtime.

That doesn’t make them an entrepreneur.

It gives them an opportunity to become one.

That’s an enormous difference.

Imagine giving someone the keys to a restaurant.

They now have a restaurant.

But can they cook?

Can they price the menu?

Can they manage staff?

Can they control costs?

Can they attract customers?

Can they market it?

Can they create repeat business?

Probably not without learning.

So why would we expect an entirely inexperienced person to join a network marketing company and immediately know how to generate thousands of pounds in income?

And then comes the failure

The person joins.

They tell a few friends.

Nobody is interested.

They post on Facebook.

Nothing happens.

They try a few messages.

Still nothing.

They perhaps buy some advertising.

Still no meaningful results.

Eventually they quit.

Then they say:

“It’s a scam.”

And sometimes they may be right.

There are certainly network marketing companies and promoters that have attracted serious regulatory scrutiny.

The FTC, for example, reviewed income disclosures from 70 MLMs and found that most participants in those disclosures received $1,000 or less per year, while many received no payments. It also found that expenses were often not properly reflected.

Those are serious findings.

But they don’t establish that every MLM is a scam.

Nor do they establish that someone who failed necessarily failed because the underlying business was fraudulent.

Those are separate questions.

Here’s the distinction I think matters

There are at least three different possibilities.

1. The business model is fundamentally bad

The economics don’t work.

The product has little genuine demand.

The compensation structure depends overwhelmingly on recruitment.

The costs are excessive.

The claims are misleading.

That’s a legitimate reason to walk away.

2. The business may be legitimate, but the opportunity was badly presented

Someone was promised easy money.

They weren’t told about the work involved.

They were shown exceptional earners rather than typical results.

They expected passive income immediately.

They quit when reality arrived.

That’s a problem with the marketing and expectations.

3. The person simply didn’t build the business

They didn’t generate enough leads.

They didn’t learn sales.

They didn’t follow up.

They didn’t understand their market.

They didn’t work consistently.

They tried something for a few weeks and stopped.

That’s not necessarily evidence that the business was a scam.

It may simply be evidence that they didn’t build it.

And this is where I take my side

I think network marketing gets blamed for something that happens in almost every form of entrepreneurship: people start businesses and fail.

I’m not saying the industry is blameless.

Far from it.

The industry deserves criticism when people make unrealistic income claims.

It deserves criticism when exceptional results are presented as normal.

It deserves criticism when costs are hidden.

It deserves criticism when recruitment is prioritised over genuine customer sales.

And it deserves criticism when people are encouraged to spend money they cannot afford.

But saying:

“Most people don’t make money, therefore the business model is a scam”

isn’t logically sufficient.

Most new businesses don’t become successful either.

Becoming a captain of industry is an extreme example

Think about what “captain of industry” actually means.

You’re talking about people who build companies capable of employing hundreds, thousands or sometimes tens of thousands of people.

They don’t get there because they discovered a secret opportunity.

They become exceptionally good at something.

They develop products.

They understand markets.

They acquire customers.

They build distribution.

They recruit talented people.

They create systems.

They manage capital.

They make decisions under uncertainty.

They survive mistakes.

They compete.

They adapt.

And they do it for years.

Sometimes decades.

Nobody looks at someone who opens a shop, fails after eighteen months and says:

“Retail is a scam.”

So why should a person who joins a network marketing company, makes no sales and quits six months later automatically become evidence that network marketing is fraudulent?

But there’s a sting in the other direction

This argument also cuts against network marketers.

You can’t say:

“It’s a real business, so treat it like one.”

and then simultaneously tell prospects:

“It’s easy.”

“Anyone can do it.”

“You don’t need sales skills.”

“You don’t need experience.”

“Just duplicate what I do.”

That’s contradictory.

If it’s genuinely a business, then business skills matter.

Marketing matters.

Sales matter.

Lead generation matters.

Persistence matters.

Numbers matter.

Customer service matters.

Learning matters.

And competition matters.

The low barrier to entry is both the opportunity and the problem

This is perhaps the most interesting thing about network marketing.

The low entry barrier means almost anyone can have a go.

That’s potentially a huge advantage.

But it also means enormous numbers of people can enter without understanding what they’re getting into.

Some will expect instant income.

Some will discover they hate selling.

Some won’t generate enough customers.

Some won’t put in the work.

Some will realise the particular company isn’t right for them.

Some will quit.

And some will actually build something.

That’s what happens when you make entry relatively easy.

So what should we actually ask?

Not:

“How many people fail?”

That’s interesting, but incomplete.

Ask:

“Why do they fail?”

Then ask:

“What does it cost them to fail?”

Then:

“What does the compensation plan actually reward?”

Then:

“Are there genuine retail customers?”

Then:

“What do typical participants actually earn after expenses?”

And finally:

“What would I have to learn and do to build this into a real business?”

Those questions tell you considerably more than simply calling something a scam.

My conclusion

I don’t believe a high failure rate, by itself, proves that network marketing is a scam.

It proves that success is uncommon.

Those aren’t the same thing.

But I also don’t believe network marketers should hide behind that argument.

If you want to call it a business, then treat it like one.

Don’t sell people a fantasy.

Don’t promise easy money.

Don’t pretend everyone is going to become wealthy.

Don’t hide the failure rate.

And don’t blame every failed participant for their own failure without examining the business itself.

The honest position is somewhere much more uncomfortable:

Some network marketing businesses may be poor propositions. Some may be legitimate businesses. Some promoters exaggerate. Some participants don’t put in the work. Some people are simply not suited to the model.

And sometimes all of those things can be true at the same time.

Perhaps the biggest mistake is expecting a business with a low barrier to entry to have a low barrier to success.

Getting in may be easy.

Building something substantial never is.