America's Favorite Side Hustle Is Not What You Think
WHY YOU SHOULD CARE
Because it’s all over your Facebook feed.
By James Watkins
In this original weeklong series, The Evolution of the Side Hustle: How Gigs Are Killing the 9-to-5, OZY charts the past, present and future of the side hustle. Do you have a unique side hustle that OZY should know about? Let us know at email@example.com and we might feature your gig.
The “gig economy” is taking over the world. But you probably didn’t need to be reminded of that as you order your Uber driver or book a handyman on TaskRabbit. If you’re not a gig worker yourself (full time or on the side), then your employer probably has relied on them at some point by paying for survey respondents or contracting out data entry. Earning cash through an app isn’t confined to Silicon Valley’s tech heads either — you can get paid to drive with Didi in China, Ola in India, Aventones in Mexico and much, much more.
Believe it or not, though, one side hustle blows the gig economy out of the water, and it’s been around for decades:
More Americans are involved with network marketing schemes than all online “gig” jobs combined.
That statement derives from a comparison of the Direct Selling Association (DSA) research on the number of U.S.-based direct sellers (also known as network marketers) in 2015 (20.2 million) and the Pew Research Center’s surveys on the number of adult Americans who earned money from all online job platforms in the past year (19.4 million). Admittedly, margins of error in survey data mean the conclusion is tentative, and the Pew figure includes only gig labor, not sharing-economy rentals and sales with companies like Airbnb or eBay. Still, the trend is remarkable. Uber had some 160,000 drivers in the U.S. in 2015; Herbalife, a network marketing company, had more than 550,000 U.S. distributors in 2013. Also known as direct sales and multilevel marketing, network marketing is not just an American phenomenon. There were more than 100 million network marketers worldwide in 2015, according to the World Federation of Direct Selling Associations, excluding an unknown number in China, which has a direct sales market that matches or exceeds the United States.
For the uninitiated, network marketing involves selling products through an independently contracted sales force that is paid on commission. In years gone by, network marketers were door-to-door salespeople or Tupperware party throwers; today, it’s those high school friends who clog up your Facebook feed with special deals and promotions. Health and wellness is the largest product sector in the U.S., although services like signing up homeowners for solar energy are increasingly sold in this way. “The typical direct seller is a woman, always has been,” says DSA president Joe Mariano, and “the clear majority are working on a part-time basis, so it’s supplemental income.” According to the DSA, the median earnings of network marketers in the U.S. is $3,400 per year.
You have to be good at selling, at identifying people who might be good at selling and at training them to be good sellers.
Kent Grayson, marketing professor, Northwestern University
While millions may make a small amount of money selling to one or two friends, or join a network in order to buy products for themselves at wholesale prices, it requires a lot of time, effort and personal skill to master a “sales entrepreneurship” business that generates substantial income, says Kent Grayson, professor of marketing at Northwestern University: “You have to be good at selling, at identifying people who might be good at selling and at training them to be good sellers.”
Only a small fraction of those involved make it a full-time hustle, but for a select few who do, it can be hugely profitable. Financial analyst Heather Richmond signed up in late 2014 for a company marketing nutritional supplements; 15 months later, she was making enough money to quit her day job. Now the San Diego resident manages 1,500 people in her “downline,” around 50 of which are “product sharers” who also sell. “You have to keep growing your [personal] network” to continue expanding your sales base, Richmond says, noting that she exhausted her original network of Facebook friends within about a year.
However, the industry regularly comes under attack for being a scam. “If you’re getting paid a lot of money to recruit people and not getting paid a lot of money to actually sell product and manage people who are selling product, then you’re in a pyramid scheme,” says Grayson, referring to the infamously unsustainable con in which participants all make money by recruiting additional participants … until a “saturation point” is reached and those at the bottom of the pyramid lose everything. If done well, the network marketing model can be a legitimate sales tool, says Grayson (the DSA says that it is “absolutely committed to prohibiting pyramid schemes”). But with a diffused sales force comes diffused control, says Grayson: If an upline seller starts inflating product credentials, focusing on recruiting over selling or making claims about get-rich-quick schemes, there’s little a company can do.
As the gig economy proves to be an increasingly appealing alternative to the 9-to-5, perhaps it can learn something from the larger and more established side hustle. Founded in 1910, the DSA has spent a substantial proportion of its time since then asserting its legitimacy — and legality — as a business model. While no one is accusing Uber of being a pyramid scheme, it could be a sign that its issues surrounding employee benefits and disgruntled drivers could continue to dog the company for years — or decades — to come.
* The original version of this article mistakenly referred to the Direct Selling Association as the Direct Sales Association.