How do MLMs in Singapore work? 5 red flags to watch out for

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A long lost friend contacts you out of the blue and asks you out for coffee. You accept, jumping at the chance to rekindle an old friendship.

But as the coffee date progresses, your "friend" utters those dreaded words: "Are you open to exploring a new business opportunity?"

Most Singaporeans have been solicited at least once in their lives by a friend or relative who works for an MLM. Then there are rumours of people who've lost thousands after investing significant upfront capital on MLM products.

WHAT'S THE MEANING OF MLM OR MULTI-LEVEL MARKETING?

MLM is a type of marketing strategy which lets a company earn money by recruiting salespeople. These sales people are not paid but instead earn through commissions.

In practical terms, MLM companies in Singapore usually get their members to pay an upfront fee for their products. They are then told that they can make back this money from commissions earned by recruiting new members. The company's main source of revenue is thus not the sale of actual products, but rather the recruitment of salespeople.

Remember, most MLMs will vehemently deny that they are MLMs, but if their mechanisms sound like the pyramid structure mentioned above, then they probably are one.

ARE MLMS ILLEGAL IN SINGAPORE?

MLMs or pyramid schemes are technically illegal in Singapore. However, there are certain companies that use MLM-like mechanisms that do operate legally.

There are two types of companies that are excluded from the MLM ban, namely direct sales companies that are registered with the Direct Selling Association of Singapore (these include big names like Tupperware and Amway), and master franchises.

Direct selling comes in many forms as well. If the distributor does not earn commission from recruits, it's technically not an MLM and is allowed in Singapore. You may have heard about a scuffle breaking out among Singaporean influencers surrounding WoWo products in 2018. The sale of WoWo products is based on different tiers of profit, which vary according to how much minimum order you can afford.

Although it's not technically an MLM, you will still have to pay significant upfront capital to start selling these products.

MOST PROMINENT MLMS IN SINGAPORE

Some of the top MLMs in Singapore are practically household names. How many do you know?

HERBALIFE: This company sells products like nutritional shakes, weight management tablets and dietary supplements. You join the company by buying their products and then trying to resell them.

AMWAY: Amway is like an MLM version of P&G, and their products include protein powder, energy drinks, makeup products, shampoo and home cleaning products. Members must pay a subscriber's fee as well as purchase their own household products from the company, and then try to generate revenue by recruiting more members.

MARY KAY: Sounds like a normal beauty and cosmetics brand, but this company actually operates by selling starter kits and products to members who then go on to try to resell them.

ATOMY: A skincare line where you make more money by recruiting people. With no sign-up fee, this makes it a zero-risk MLM if you really want to join one. But you'd still have to influence people around you to buy in order to make profits. [Update 22 May 2019: In a previous version of this article we stated that there is a sign-up fee and a monthly membership fee. Atomy is free to join with no sign-up fee, free cancellation and monthly costs.]

ELUSYF: They sell antiaging and skincare products to their members, who then try to make their money back by recruiting new members.

RIWAY: Their main products are a placenta supplement that's supposed to be anti-aging, and a perfume. Not the easiest products to sell, which is why their members try to recruit new members to make back the money they've spent.

RED FLAGS OF MLMS

Companies who are MLMs can be surprisingly slick, and their marketing materials very professional. But if you spot any of the following red flags, you're dealing with an MLM and should avoid forking out a single cent no matter how good they claim this "business opportunity" is.

1. DODGY RECRUITMENT TECHNIQUE

MLMs often use sneaky ways to recruit new members, not being transparent about their scheme until you show up at their office. If you receive dodgy-looking invitations from a stranger or an acquaintance about a great but vague business idea they want to share with you, it's almost certainly an MLM scheme. Don't be afraid to say no if you feel uncomfortable at any point, even if they apply pressure tactics.

2. HAVING TO RECRUIT OR SELL TO FRIENDS AND FAMILY TO EARN MONEY

Once you join an MLM, which also means you have paid some amount of upfront cash, you will then be asked to influence people around you to buy their products or join them.

3. PROMISE OF PASSIVE INCOME THE HIGHER UP THE RANKS YOU CLIMB

While you'll probably be forced to buy some of their products to join their programme, the recruiters will lure you with evidence of their own purported wealth and success to believe that you can earn passive income as you rise up the ranks in the company. How this is done is by recruiting new members, who will then earn you a commission. This is usually the main draw of MLM and what dupes people into thinking they can really become rich.

4. THEY'LL CALL YOU AN ENTREPRENEUR

After you join on the promise of easy money, MLM companies will then use materials from successful entrepreneurs like Robert Kiyosaki and Jim Rohn to share inspiring platitudes about believing in yourself, risking the unusual and disciplining yourself to justify the steep upward climb to wealth. That's right, suddenly it won't be easy.

More than that, if the potential of being an entrepreneur of your own right is tickling your fancy, remember that you did not create the product and do not have complete control over the actual business model. By a strict definition, you are a salesperson who paid to own products. Sure, you can find interesting channels and means to sell and recruit, and that'll make you a very entrepreneurial salesperson, but don't be fooled.

5. THEY CONSTANTLY TRY TO SHOW OFF THE WEALTH AND SUCCESS OF THEIR MEMBERS

One MLM technique is to try to dazzle you with the wealth and success of their existing members. So don't be surprised if you listen to speeches by members who claim they now earn five figure sums passively, and try to impress you with the cars and properties they've bought thanks to the MLM. MLM recruiters also organise events and make constant social media posts of themselves in fancy cars and posing with important people and celebrities, just to create the illusion that they're living the high life.

MLMs are quite common in Singapore and people just keep falling for them, lured by the promise of easy money. The sad truth is that the majority of these people end up losing money and getting stuck with a surplus of useless products.

This article was first published in MoneySmart

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