If you have a friend who has been selling Stella and Dot jewelry and accessories on their social media channels, you might be wondering about the company itself and about the "opportunity" that friend is likely constantly raving about. Stella and Dot's website invites people to become "brand ambassadors" for them by promising you can "earn extra cash and free product credits while becoming part of an inspiring community" (via Stella and Dot). All this for an "enrollment fee" of just $59. We can certainly see how this might seem like an eye-catching proposal if you're someone who is passionate about fun accessories and looking to make a little extra money.
But what are the chances this investment of time and money will be worth it? The first thing you should know about Stella and Dot is that it is, in fact, a multilevel marketing company (via Scam Risk). While the company is considered a legitimate business and not an illegal pyramid scheme, there are some very valid reasons MLMs like Stella and Dot are controversial and get a bad rap.
According to Investopedia, a multilevel marketing company, or MLM for short, is a business model that "encourages existing members to promote and sell their offerings to other individuals and bring on new recruits into the business. Distributors are paid a percentage of their recruits' sales. New recruits become the distributor's network or downline and are, in turn, encouraged to make sales to earn money." In other words, the more people a seller can recruit to sell the company's products underneath them in their downline, the more money they can make. This is why the business model is often compared to a pyramid.
MLMs like Stella and Dot, however, are considered legitimate businesses rather than illegal pyramid schemes because the brand ambassadors do actually sell a tangible product to their customers. That said, it is very difficult to make a profit by selling the products alone. In order to make any significant profit in this business model, sellers generally need to keep recruiting more and more people underneath them. In fact, only about 25 percent of MLM sellers ever make any profit at all (via Fundera). This means that roughly 75 percent of MLM sellers never make a profit; most people that sign up with MLMs lose money thanks to upfront costs and the need to stock product before selling it. This is why MLMs have a sticky reputation.
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