The multilevel marketing (MLM) business model is in a period of transition. In the last three months, Rodan + Fields, Seint Makeup, and Beautycounter have all transitioned away from the multilevel marketing model that made them millions.

Rodan + Fields transitioned from MLM to an affiliate-commission structure and program in the immediate aftermath of a $75 million funding round. Seint Makeup made a similar switch earlier this month, announcing that its representatives will no longer be rewarded for their recruiting efforts. After a $600 million investment from the private equity firm the Carlyle Group went south, Beautycounter is still months away from the relaunch promised by its founder and CEO, Gregg Renfrew, who regained control of the brand from foreclosure by private equity in April. Beautycounter entered Ulta Beauty stores nationwide last year, where its still being sold today.

Why is the MLM model failing, and can the beauty brands that were built on this model find success in the competitive retail and affiliate marketplaces? BeautyMatter spoke to MLM and beauty industry experts to explore the future of MLM beauty brands.

The Rise and Fall of MLMs

The MLM model and the beauty industry have always been intricately intertwined. One of the first multilevel marketing style businesses was the California Perfume Company, which later became Avon. The business model involves selling products or services through a network of independent sales representatives. Each representative is encouraged to recruit new sales representatives to their “team.”

In recent years, MLMs have come under fire from critics who believe that the MLM model is inherently exploitative and designed to benefit a small percentage of individuals at the top. “The income promise is not about ‘selling’ products, but enrolling people in the ‘endless’ recruiting chain,” Robert L. FitzPatrick, author of Ponzinomics: The Untold Story of Multi-Level Marketing, tells BeautyMatter. “That is the heart and soul of MLM, not brand and products. It’s a pyramid recruiting scheme, in which only a few at the top can ever make a ‘profit.’ That ‘profit’ only comes from the losses of all the others.”

Proponents of MLMs say the business model offers a level of autonomy and flexibility that would otherwise be difficult to find in the traditional job marketplace. MLMs have minimal start-up costs, creating a low barrier to entry and providing an opportunity for entrepreneurship to those who may not have had the opportunity before. The MLM model, advocates argue, is built to scale. As representatives recruit more individuals into their "downline," their earning potential increases without a corresponding increase in workload.

MLM beauty brands like Avon and Mary Kay have seen incredible growth under this model. Avon is one of the largest direct sales companies in the world and sells products in over 100 countries. Brazil is Avon's largest market, surpassing the United States in 2010. Other large markets for Avon include Poland and Latin America. In 2022, Avon generated about $1.33 billion in revenue from Latin America. As of November 2023, Mary Kay has over 3.5 million independent sales representatives globally, and in 2022, it had a revenue of $2.7 billion.

The success of these MLM beauty brands almost certainly played into Rodan + Fields decision to move from the traditional marketplace business model to the MLM model in 2007 after founders Dr. Katie Rodan and Dr. Kathy A. Fields (the dermatologists who created Proactiv) bought back their brand from the Estée Lauder Companies, believing that direct sales via network marketing was a better way to spread the word about their products than traditional retail.

Since relaunching under the MLM business model in 2007, Rodan + Fields has become one of the most well-known MLM brands in the world. The company had a $4 billion valuation when private equity firm TPG bought a 25% stake in Rodan + Fields for $1 billion in 2018. However, under the surface, there were signs that the brand was struggling. According to a 2016 income disclosure statement, Rodan + Fields assessed that 90% of its members made less than $200 monthly.

Last fall, Rodan + Fields eliminated 75 jobs at the brand's San Fransisco office, but layoffs weren’t enough to keep the brand afloat. Moody’s, the leading global provider of credit ratings, downgraded Rodan + Fields to C, its weakest rating, and said that the outlook on Rodan + Fields' debt was of poor standing, citing declining revenues and earnings. Moody’s predicted that Rodan + Fields’ revenue is likely to decline to $600 million this year from $870 million in 2021. TPG increased its stake to a majority for an undisclosed sum at the end of 2022.

In a press release announcing its shift away from the multilevel direct selling model, Rodan + Fields announced 100 more job cuts as part of its corporate restructuring process. The company plans to transition to “a simplified business model to unlock growth and reach new customers.” The new affiliate program will take effect on September 1, with additional support through a broader array of marketing and advertising across traditional channels and social media.

“We are simplifying our business model to make it easier for customers and consultants alike to discover, share, and access our innovative products and expertise,” Rodan + Fields shared in a statement to BeautyMatter.

Under the new model, existing Rodan + Fields consultants who continue to sell products will receive increased commissions on customer sales and product discounts. Recruitment and commissions consultants receive through product sales by those they have recruited will no longer be rewarded. Rodan + Fields believes the new model will better position the brand “to meet customers where they are discovering and buying beauty products.” TikTok Shop and Amazon are powerful selling channels for businesses, with both emerging as major e-commerce threats.

“We are confident these changes will enable us to meaningfully expand the lives we can impact and—importantly—allow us to continue to provide our passionate consultants with a modern and meaningful earning opportunity,” Dimitri Haloulos, CEO of Rodan + Fields, says in a statement.

Rodan + Fields reportedly reached an agreement with its current minority investors that will provide up to $75 million in funding to strengthen its capital structure and financial position. The transaction is expected to close later this year.

On July 2, Seint Makeup announced on Instagram that the brand would be making a similar pivot. "Artists will no longer receive compensation for recruiting or team building efforts; instead, they will be exclusively rewarded through our affiliate program based on their dedication to sales and exceptional customer service,” the post read.

Effective October 1, 2024, Seint is transitioning from a direct selling model to an enhanced affiliate commission structure and program, which means that current artists have three months to shift their sales tactics to maximize sales. Seint’s affiliate program will offer 25% to 45% commissions on sales and provide a bonus pool for qualifying sales levels, further boosting earning potential.

Founded in 2013 by Cara Brook, Seint Makeup gained popularity last year on TikTok with the “demi method,” a makeup technique similar to color correcting that achieves an even-toned complexion without foundation or concealer. Seint Makeup sells “demi correctors,” or pigments in a variety of shades that can be purchased individually and incorporated into a custom palette.

According to a 2023 income disclosure statement, 46% of Seint artists in the United States earned an average annual income of $77. Seint operated slightly differently than other MLMs in that the recruitment element of its direct selling model was optional.

"Most of our artists currently only sell to customers without building teams of their own,” the post read. “For this group, the overall changes will be minimal but are expected to provide even greater rewards for their efforts right away." 

Why MLMs Are Pivoting Their Selling Strategy

The shift to affiliate is one strategy MLMs are utilizing to reinvent the direct selling model in the face of mounting pressing from e-commerce, social media, and beauty retailers. Omnichannel partnerships with retailers can also help introduce a new group of consumers to MLM brands. Beautycounter experimented with pop-ups in Sephora, 

J. Crew, and Target before entering into a nationwide wholesale partnership with Ulta in February 2023. While the future of Beautycounter is still up in the air, it’s still available in Ulta stores through July and the retailer’s website indefinitely.

The fact that a change in business model is happening across multiple MLM brands is proof that the MLM model as we know it is starting to show signs of strain. “Changing models is a code for failing,” argues FitzPatrick.

Beautycounter launched as a direct retail brand, selling through independent distributors before opening its first brick-and-mortar store in Manhattan in 2018. The company eventually expanded to stores in Denver; Los Angeles; and Nantucket, Massachusetts.

In April, Beautycounter’s entire distribution network received an email notifying them of their termination, effective April 17, 2024. Distributors were told to immediately cease sales, and that they were not entitled to “bonuses, commissions, or other compensation following the Termination Date.” The email said that Beautycounter was “shutting down its operations.” On April 18, the Carlyle Group confirmed it was selling the company back to its founder, Renfrew, for an undisclosed amount. Renfrew originally claimed to relaunch the brand within a few weeks, but by early May, she backtracked, saying her original timeline was “too aggressive,” and postponed the relaunch until late 2024. In an email to Beautycounter consultants, Renfrew warned the company might look different when it eventually launches.

Avon is also going through its own major transformation after debuting an expensive global marketing rebrand in 2023. The next phase of bringing this 137-year-old beauty brand into the modern era includes embracing new social selling opportunities and expanding its retail footprint of franchise stores. Last year, Avon entered into UK beauty retailer Superdrug and 50 Naima Allscent stores (a perfume chain) in Italy. The brand also launched on Amazon.

“While direct selling is still relevant for a highly personalized beauty customer service and flexible earning in the gig economy for its consultants, it was time for Avon (after 135 years of mono channel) to shift to an omnichannel approach—integrating retail, social selling, online marketplaces, and AI-powered technology—enhancing and opening up its high-touch shopping experience and in parallel enriching (not abandoning!) the representative's role, ensuring continued relevance and competitiveness in the evolving market,” Angela Cretu, ex-Global Chief Executive Officer at Avon tells BeautyMatter.

Avon also operates under the affiliate model, which allows representatives to earn a commission on products they recommend and share with their networks. Cretu notes that the affiliate model is still a form of direct selling, the sales strategy on which many MLMs are based. The shift to affiliate is simply an evolution of direct selling to engage with the customer on their terms.

"In the beauty industry, it's extremely important to meet the customer where the customer likes to shop," says Cretu. "Customers nowadays, especially in the beauty sector, are very savvy and want to have an omnichannel experience ... There is clearly a trend from direct sellers to explore omnichannel but not shift away from direct selling. The MLM [model] is no longer, in my opinion, a proper or modern response to both the gig economy and [changing] customer [behavior]. In the era where there is still a need for hyper-personalization, a modern model of direct selling through affiliates is the best way to respond to the new emerging needs."

The biggest problem MLM brands are facing is recruitment. The rise of anti-MLM documentaries like LuLaRich and (Un)Well and anti-MLM podcasts like The Anti-MLM Podcast, Opportunity Cost, and The Dream have helped to educate consumers about the truth of MLMs. Gen Z and Gen Alpha aren’t buying the false promises of financial freedom that MLMs claim to offer. Only in the last decade has this information been widely disseminated—mostly by women because women are the main target for MLMs. Many women who have fallen victim to MLM sales tactics and want to prevent others from making the same mistake are the loudest voices in the anti-MLM movement. In the book Hey, Hun: Sales, Sisterhood, Supremacy, and the Other Lies Behind Multilevel Marketing, Emily Paulson details her experience as a former top consultant for an MLM brand, which helped her earn over a million dollars, and the events that led to her eventually discovering the dark side of the MLMs.

“The truth about these schemes is finally getting out there, and recruiting is affected,” says FitzPatrick. “MLMs need ‘momentum.' The truth is countering that. So, it is women spreading the truth to other women, resulting in MLMs focused entirely on women that are the first to go down.”

Overall, FitzPatrick argues, MLMs are in decline, pointing to decreased sales at big MLMs like Amway, Nuskin, and Usana as proof that the model is failing. As more information about the dangers of MLMs spreads, sales suffer. MLMs market themselves as opportunities for people to own a business and be their own boss, with the potential to earn “unlimited” income, but they fail to warn potential consultants about the reputational and social risks associated with network marketing.

“Women are very good historically at social relationships, but they really don't want to damage their social network,” Daryl Koehn, a Professor of Ethics at DePaul University, tells BeautyMatter. “Because for many women, that's really a safety net that they'll depend upon at crucial moments in their life.”

The anti-MLM movement gained traction online in recent years. The r/antiMLM subreddit has 840,000 members. In 2020, TikTok banned content promoting pyramid schemes and multilevel marketing companies. Its updated community guidelines asks users not to post or share content that "depicts or promotes Ponzi, multilevel marketing, or pyramid schemes."

"We do not permit anyone to exploit our platform to take advantage of the trust of users and bring about financial or personal harm," the new guidelines read.

Many MLM sellers rely on social media sites to recruit new consultants, but at least on TikTok, they’re limited to only selling products. As TikTok Shop sets its sights on global e-commerce dominance, MLM brands that want to remain on the platform must comply with the new regulations if they want to benefit from social commerce.

“I don't think that we're going to have MLMs disappear anytime soon,” predicts Koehn. Barring a massive scandal, MLMs will continue to operate within the e-commerce and retail sectors alongside traditional brands. The MLM beauty brands that are dropping the MLM element are now in competition with every other beauty brand, trying to earn customer loyalty and generate sales. To survive in this competitive market, brands must adapt to changing consumer behaviors by adopting an omnichannel strategy and developing affiliate programs that meet consumers where they shop.