Have you ever seen a long-lost buddy bragging on Instagram Stories about how they made a few thousand dollars in one day without working hard?
Or have you had peers who flaunt the fact that they drive a Ferrari or frequently travel in business class as they are an ‘entrepreneur’?
But when you slide into their Direct Messages (DMs) and ask them about it, they will invite you to a ‘sharing session’.
Only after attending that you realised things are not what they seem.
You might have been asked to join a company that employs Multi-Level Marketing (MLM).
Well, this is called Multi-Level Marketing (MLM).
Most Singaporeans have at some point in their lives approached by a friend or relative who works for a company that employs MLM.
But should you be wary? Here’s what you need to know!
TL;DR: What is Multi-Level Marketing (MLM)? Can You Really Succeed in MLM?
- What is MLM and how do they operate?
- Can you succeed in this line of business?
- What are the red flags of MLM companies?
- Should you join this industry?
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Multi-Level Marketing (MLM) & How It Works
Network marketing and direct selling are other terms used to describe multi-level marketing (MLM).
Simply put, MLM involves Person-to-Person sales of the company’s goods and services and also assembling a group of salespeople that distribute their goods to numerous targeted clients.
Members of these network chains receive compensation for both the goods they personally trade and the goods sold by their downline, often known as team members, where those who’re managing the teams can earn a commission percentage from their team members’ sales.
At times, there are recruitment bonuses when you recruit someone new into your network.
The items sold can range from mattresses to health supplements.
How does MLM work?
Well, the higher your tier, the cheaper you can the products from the company, and you will be able to make a higher cut of the commission.
To make it to the higher tier, you would likely have to meet a minimum order when you place an order.
With the network you have, your team members (aka distributors or downline) can sell these items, and the more distributors you have to sell, the more sales you have.
And most often than not, the more your distributors sell, the cheaper the product becomes.
Is MLM a Pyramid Scheme?
Pyramid schemes and MLM are always put together.
Such tiering schemes are frowned upon as top members of the company may receive the majority of the profits, leaving the lower-level employees with little.
A business may be running a pyramid scheme if it places more emphasis on recruiting new members than on selling goods. These schemes occasionally include hundreds or even thousands of participants.
Then there are reports of people losing thousands of dollars after spending a sizable amount of money upfront on MLM items.
So, if a business operates where the distributor does not receive a commission from the team members, it’s not officially an MLM.
Is MLM Legal in Singapore?
Yes, you read that right.
MLMs are actually illegal in Singapore.
Under the Multi-Level Marketing and Pyramid Selling (Prohibition) Act, those who promote or participate in MLM schemes are liable to a fine of up to S$200,000 and/or a jail term of up to five years.
That said, there are two types of companies that are exempted from the MLM ban. These companies either (1) operate in a direct-sale manner and are registered with the Singapore Direct Selling Association (DSA), or (2) are master franchises.
And as a result, there are some businesses that employ MLM-like mechanisms that operate legally in Singapore (note: I said MLM-like and not MLM).
Businesses That Employ MLM-Like Mechanisms
You would’ve heard some of these names:
- Amway: The company sells mainly household and lifestyle products where members will pay a subscriber’s fee to purchase the products from the company, and they can earn more by recruiting new members
- Atomy: A skincare business where you may increase your income by recruiting staff
- Herbalife: Sells health-related products such as diet and weight management pills where you buy the products and can resell them
- Mary Kay: Mary Kay distributors, also known as beauty consultants, generate revenue by offering their products directly to customers and earn commissions by encouraging others to join their distribution network
- Nefful: The company markets a range of “negative ion” clothing, bedding, and accessories. Distributors are known as affiliates who purchase Nefful products and get paid to recruit others who do the same
- Riway: Main product is a placenta supplement
Spot These Red Flags Before Joining
1. They Require You to Pay Money to Join
They might just call you an entrepreneur and this is your time to shine doing this line of business.
Well, know that this actually just means you’re a salesperson because technically, you didn’t develop the products from scratch.
But, regardless of what they call you, there is no bearing on how much you earn, right?
Not if you are required to sell or recruit people in order to earn money!
2. The Promise of Easy Money And Higher Income as You Advance in the Ranks
It goes without saying that this is a BIG red flag 🚩.
If wealth creation were so easy, anybody would be doing this business.
Sure, you can earn a commission when you recruit new members, but any blanket promises such as easy money and making individuals believe they can actually become wealthy easily, are no-nos for me.
3. Show off the Wealth and Success of Their Members
Remember I mentioned the Ferrari earlier?
Not saying that it’s bad, but this is a common recruitment technique I observed when recruiters were being downright flashy.
They might just boast on their social media and show their followers that they are living the high life, and claim that they are earning five or six figures within a month.
Can you really do that? Your investment in stocks might not even earn so much…
4. Unfounded Product Claims
You wouldn’t want to be selling products that seem too good to be true and have your name tied to a product that has issues.
If you’re not convinced by the products you’re selling, how would you persuade your customers to do it?
5. No Transparency And No Communication
There should be good communication between the management and the sales team.
If the company is not providing you with the details about compensation, the commission scheme, employment benefits etc. you might want to look elsewhere.
Also, if you’re pressured to pay and attend training sessions or the company’s business conventions (which can be expensive), it might be good to give the company a miss.
Final Thoughts on MLM Companies
Once you’ve spotted any of the red flags mentioned above, you know it’s time to kiss goodbye to the company that’s trying to recruit you.
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