MLM Bankruptcies: Losing Money in Network Marketing

During the past few weeks, I’ve read several online stories and blog posts from people claiming that their MLM experience forced them into bankruptcy and financial ruin.  These stories make me really sad.  Starting a business of ANY kind can put you in financial risk if you don’t have a good game plan, don’t have sufficient capital, and don’t know what you are doing.

The real beauty of our industry are the low start-up costs and low monthly overhead. Compared to any type of traditional business, network marketing offers a very affordable business opportunity to create a successful business from home, while you keep your day job.

No, I cannot guarantee your success in the industry, but if you build your business the right way, you should never lose a penny, let alone be forced into bankruptcy.

In nearly 13 years in this industry now, I’ve learned a few things.  I’ve learned that:

  • Most people in our industry don’t have any retail customers
  • Most people in our industry don’t have a written business plan
  • Most distributors never sponsor even ONE person
  • Most people in our industry don’t even go on autoship
  • Most people in our industry don’t treat their business like they had a million dollars invested in it
  • Most people in our industry know NOTHING about running a business
  • Most people in our industry have no sales, marketing or entrepreneurial experience
  • Most people in our industry don’t work their business consistently for any period of time

If you aren’t generating leads, sponsoring people and acquiring new customers, you will not make any money in this industry.  You will spend more than you make in commissions. PERIOD.

It doesn’t matter how much you THINK about your network marketing business.  If you aren’t doing the work on a daily basis, nothing else matters.  If you aren’t focusing on business building activities that grow your business (prospecting, showing the plan, following up, getting customers), your business won’t grow and you won’t make money.

But please keep in mind that this advice applies to any type of business, not just network marketing.  If you opened a restaurant and only had it open for business 1 hour a week, how much money do you think you would make?  If you had a barbershop and only worked 15 minutes a day, how much money would you expect to make?  NOT MUCH!

While many distributors lose money in their business, it’s not a new concept.  In fact, it happens in EVERY industry.  It’s a proven fact that close to 90% of all businesses fail, regardless of their industry.  Don’t believe me?  Just drive through your local town and look at all the closed down businesses.

And when you fail with a traditional business, you normally end up LOSING YOUR SHIRT.  Most traditional business owners have TENS OF THOUSANDS or even HUNDREDS OF THOUSANDS of dollars invested in their business.  So when they fail they often end up bankrupt and/or financially destitute.

Businesses fail for a variety of reasons. Normally, it’s because the entrepreneur didn’t know what they were doing. They probably focused on the wrong activities, didn’t manage their cash-flow properly, or didn’t know much about sales, marketing or entrepreneurship.  Or, they made bad decisions that negatively affected their business.  

Failure is a normal part of being an entrepreneur.  Most entrepreneurs fail SEVERAL times before they eventually succeed!  Don’t believe me?  Just ask any entrepreneur!

When it comes to network marketing, most people who fail in our industry blame everyone but themselves. They blame their failure on the company, the products, the industry, or even their upline!  Rarely, will you ever hear a network marketer blame their own failure on themselves.

If your MLM experience forced you into bankruptcy or financial failure, IT IS YOUR FAULT, not your upline’s fault and definitely not the company’s fault. I know that sounds harsh. But, as an entrepreneur, you are responsible for managing your cash-flow effectively. It’s your business. You’re the captain of the ship and it’s your job to know when to “stay on course” and when to “make adjustments on your route,” and when to “ground the ship.”

Anyone that’s lost thousands of dollars in MLM is personally responsible for that happening. If they would have done what is taught: to retail products and build a team, they wouldn’t have failed or lost money. And if they were tracking their monthly cash-flow every month, like any smart business owner should, they would know when/if they were losing money. And they could make adjustments in the following months to offset those business losses.

To be quite frank with you, there’s no reason to go bankrupt in MLM!  It’s normally less than a $100 to join.  You have no employees, no inventory, and no monthly overhead.  Your only monthly costs SHOULD be your auto-ship, which you are using for your own personal use anyway.  Any if you have any other expenses, they should be covered from the profits from your RETAIL SALES.

If you are spending hundreds (or thousands) of dollars a month on other things to build your network marketing business, you are really missing the boat and messing up!  You don’t need any of these other things.  Make sure you evaluate EVERY expense in your business before you spend a penny!  Make sure your expense will give you a positive return on your investment, or don’t spend the money!  And if you need money to grow your business, make more retail sales. 

My final thought is that you need to be LOGICAL about your decisions, not emotional.  Many network marketers are so EMOTIONALLY involved in their business that they can’t think straight.  If you owned a restaurant, and you couldn’t get it profitable within a few years, you would shut it down and move on to something else!

My advice for you is to treat your MLM Business the same way.  Give it your all for two to three years and then make the decision to keep with it or quit.  Until you’ve given it your all you will never know if you can make it work.   However, don’t stick with a sinking ship just because you are obsessed with the business.

Final Thoughts

In summary, if you are one of the people blaming the MLM industry for your financial failure, or are claiming that MLM forced you into bankruptcy, my advice to you is to stop it. Start taking accountability for your own actions and decisions. Learn from your mistakes. Be smart about your business. Treat it like a real business.

Never just throw money at your business.  Be smart about every penny you spend and monitor your profit and loss statement every month.   Work diligently for a couple of years.  If you still can’t make a profit after 2-3 years, move on to something else, just like any other smart entrepreneur would do.

What are your thoughts?  Leave a comment and let us know what you think.  I look forward to hearing from you.

chuck holmes


Chuck Holmes
Network Marketing Professional

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4 thoughts on “MLM Bankruptcies: Losing Money in Network Marketing”

  1. It is just hard to imagine that being a part of an MLM could force someone into bankruptcy. In most cases there are very little investments a person will have to make to be part of an MLM. More than likely, these people were in terrible financial conditions before they joined, and as you stated, the choices they made means the bankruptcy is their fault, and no one else. So often people tend to blame there problems on other things than the true problem, the face in the mirror.

    Great post.

  2. When I was part of a cosmetics MLM, what I saw lead to the failure of at least a few of my fellow recruits was over-extension. They would sign up, get the initial package, and have a party or two with great sales. Then they would be so excited that they would place huge orders to fill the shelves in their home office. Of course, they were encouraged to do so with motivational meetings and small token prizes. Once they realized that they had hundreds or thousands of dollars of unsold makeup and lotions on their shelves, and their credit card bill was due, they were frantic.

    You just need to keep your cool, and your wits about you when you are starting out. It is good to be excited and motivated, but continue to think with your head.

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