Despite the appeal of the multi-level marketing (MLM) model, according to Exploding Topics (2025), approximately 10% of network marketing companies close within their first year, and an additional 70% fail between years two and five. Ultimately, about 90% of these startups do not survive in the long term. An MLM business, especially at the startup stage, requires precise calculations, systematic approaches, and a robust strategy. Most mistakes occur not due to a poor idea but from a lack of preparation. In this article, we analyze 10 common errors that lead to the failure of MLM cosmetic companies, MLM makeup companies, and other MLM startups—and explain how to avoid them.
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1. Lack of Clear Product and Target Audience Understanding
A successful multi-level marketing company is always built around a product that genuinely meets market needs. Mistakes begin when entrepreneurs choose a niche based on trends without analyzing real value or demand.
Common Issues:
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Overly broad or poorly defined niche focus;
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No analysis of competitors, seasonality, or target audience behavior;
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Unclear what problem the product solves for the end customer.
Without clear positioning and consumer understanding, building a sustainable structure is impossible: distributors simply won’t know what to sell or how to sell it.
2. Weak or Copied Marketing Plan
According to a Direct Selling News (2023) study, a balanced compensation model is a key factor in the survival of network marketing companies in their first year.
Imagine a startup chooses an MLM investment plan with high bonuses at initial levels without calculating profitability. As a result, partners aggressively recruit, but the company quickly faces a cash flow gap.
A compensation plan is not just a bonus table; it’s the core of the entire motivation system. Many startups copy other companies’ schemes without adapting them to their economy or product.
What Goes Wrong:
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The plan doesn’t account for product specifics or distribution model;
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Imbalanced payouts: skewed toward leaders or insufficient motivation for active partners;
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No unit economics calculation: how much you earn/lose per sale or partner.
Without a financial model, launching becomes a gamble, and the company may not withstand even minimal growth.
3. Unsuitable IT Platform
MLM requires a robust, reliable, and flexible IT platform. Attempting to cut costs on the technical foundation often leads to system failure at the launch stage.
Common Mistakes:
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Using generic network marketing software open source solutions without scalability;
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Missing key features: statistics, reporting, integrations;
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Weak security, technical glitches, or slow data processing;
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Lack of a tailored MLM website, adapted to the marketing plan and distributor needs.
The platform is not just a “website”; it’s the core of your operational model.
4. Underestimating the Role of the Team
The MLM model is a team game. Even with an excellent product and marketing, the business may fail without key specialists.
Typical Problems:
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Overestimating personal expertise: founders take on sales, legal, analytics, and more;
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Lack of professionals in legal, technical, marketing, and product areas;
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No structure for interaction, processes, or accountability.
The market doesn’t forgive chaos or uncertainty, especially in the early months.
5. Weak Branding and Lack of Trust
Trust in a company forms within the first seconds of interaction. If the website looks amateurish or the brand fails to evoke emotions, people won’t join.
Reasons:
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Outdated visuals, no mobile version, poor navigation;
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No brand story: why you’re in the market, who’s behind you, what your goals are;
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Lack of social proof: certifications, reviews, case studies.
MLM is a business of trust. Without proper branding, partners won’t join.
6. Ignoring Legal Aspects
Many startups delay legalization “for later”—and this becomes the reason for bans, fines, or inability to scale.
Mistakes:
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No company registration or legal agreements with distributors;
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Using prohibited claims in promotional materials (e.g., “income without effort,” guarantees);
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Ignorance of local and international regulatory requirements.
Legality is the foundation of reliability. It cannot be ignored at any stage. Read our article on the legal foundation for multi-level marketing companies: how to prepare for launch and scale in international markets, what to consider in different countries, and which mistakes can lead to bans and fines.
7. Communication Errors with Distributors
According to WinSavvy (2024), partner retention in network marketing companies is around 60%, highlighting the fragility of retention systems without support and motivation.
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Even a great idea and product won’t work if distributors lack attention, support, or a clear system.
Common Issues:
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Promises unsupported by systems (e.g., “you’ll earn $5,000 a month”);
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No training materials, chats, or promotional tools;
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Ignoring feedback and team requests.
MLM is, above all, about relationships. Stable communication is essential for retention.
8. Lack of Focus on Retention, Not Just Recruiting
Many startups bet on “explosive growth” and overlook that the funnel must be deep, not just wide.
Typical Mistakes:
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Focusing only on invitations without creating value for existing partners;
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No internal loyalty programs, development systems, or support;
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Prioritizing external funnel growth over internal structure quality.
Recruiting is the start. Retention is the business.
9. Unrealistic Launch Timing
Launching an MLM company is often seen as a quick and easy process. However, without phased progress, startups face time crunches—and mistakes multiply.
What Goes Wrong:
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Attempting to launch everything in 2–3 weeks;
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Simultaneous development of product, platform, logistics, and marketing;
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No MVP testing phase or initial feedback collection.
A reliable launch isn’t a weekend sprint. It’s a plan, a team, and iterations.
10. Lack of Experience or Reliable Contractor
Imagine a network marketing company hires a freelancer or a development team without MLM experience to build its platform. As a result, bonuses are miscalculated because developers don’t understand binary or matrix MLM investment plan principles. The personal dashboard architecture fails to display structure, ranks, or internal accrual logic. System errors demotivate early partners and leaders, leading to complaints, and the company loses precious time and reputation. Within months, the project must be halted and rebuilt from scratch.
Working with unsuitable contractors is a key reason for missed deadlines, technical failures, and implementation chaos.
Problems:
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Developers without MLM experience who don’t understand business logic;
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Platforms unable to adapt to the marketing plan;
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No post-launch support, with errors left unresolved.
Choosing a contractor is a strategic decision. It impacts timelines, implementation quality, and active company growth.
How to Avoid These Mistakes and Where to Start
Launching an MLM business requires a systematic approach and precise calculations. Start with a clear understanding of the product, target audience, and business model. Test an MVP, conduct financial calculations, and ensure legal protection.
Don’t try to do everything alone. Engage experts who understand the inner workings of network marketing companies. Build a system—then scale.
FlawlessMLM as a Technological and Strategic Partner
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FlawlessMLM helps launch multi-level marketing companies from scratch: from developing a marketing plan to creating a reliable IT platform with partner dashboards. With deep industry expertise, we eliminate critical errors before launch and support clients at every stage of their business growth.
Summary
The mistakes we’ve outlined are not exceptions but typical scenarios for unprepared teams. However, with a systematic approach, experienced specialists, and a reliable IT platform, the likelihood of success significantly increases.
If you’re planning a launch, start with preparation. Here’s a step-by-step guide to creating an MLM company from scratch, helping you avoid most pitfalls.
