How Multi-Level Marketing (MLM) Works

Many people may already be familiar with how MLM works, so this article is more for those who have yet to fully come out of society, or are just fresh out of school and about to come into contact with this world of scam. The points and knowledge mentioned below comes from my own personal experience.

When I was a student, I tried looking for my first (part time) job during my school holidays. I had no experience about the working world, and somehow ended up in a multi-level marketing (MLM) company’s recruitment drive. These companies were recruiting whole year round anyway. I forgot the company’s name, but I remembered it packaged itself as a Japanese company with a Japanese work culture, in which the sky is the limit and your success is dependent on your capabilities. It was a place where your academic qualifications did not matter.

First the supposed director of the MLM company introduced us to the company and the culture to us. It did not occur to the teenage me of the oddity that the director himself would come down and give the new recruits an introductory tour of the company. Anyway, it was impressed upon us that we were quite lucky to be able to work for a foreign company. Now to a teenager (of course there were other older people around) the idea of working for a foreign company which is ‘technically’ a multi-national company (MNC) was very appealing. As for company culture, not much, but just a superficial thing that says when we see the other directors we just greet them a ‘Good morning Mr John’, or something like that, because the Japanese culture emphasise on respect to the seniors. Now that I look back, it is the basic respect we give to any of our bosses or even colleagues wherever we work.

Intention: Creating an impression on us that this is a legit foreign company and that is our good fortune to be able to work for them.

They then introduced the products to us. The products they sold that time were items infused with magnets. Magnetic beds, magnetic pillows, magnetic bracelets, magnetic necklace, whatever. Each of these magnetic products have the supposed scientifically-explained healing properties of detoxifying your body brought about by the magnetic fields generated by those magnets inside. The health effects were tremendous, from resolving body aches to becoming more refreshed everyday, from curing cancer (no joke people actually told me that) to preventing kidney failure, a $1500 queen sized bed ($1500 of nearly 20 years ago was quite a sum) was simply a small price to pay for a healthy lifestyle. The questions were then turned to us. If today we have the money to buy this bed, who would we buy it for? Some said buy it for themselves, some say buy it for parents (buying for parents is the correct answer). Yes! If we have the money, buying such a product for our parents is a very good way to show filial piety and care for those who raised us up.

Intention: Not everyone has the capability to make sales. While the idea is still fresh, imprint it into the potential new staff. Turn these staff into their own customers first and sell them a few products. If in the end they did not join the company, at least they clocked some sales. New potential recruits are always a target of sales.

After introducing the products to us, they brought us around to the company, introducing the other directors as we go. It was here that they knocked into us the idea that our success depended on our own capabilities. Director Tom only has a Primary 6 level education, yet he is a director now. Director Harry joined the company in his 30s, making a mid-career switch into a totally unrelated field, yet he has achieved outstanding results. As long as we worked hard, the company provided equal opportunities to all. Naturally I learnt much later that in the world of sales, this applies everywhere. As long as you can clock the sales without breaking the law, that is all that matters.

Intention: Trying to smoke us that we have a future in the company. If we are capable, we will definitely achieve success. Now every young person wants to believe he can reach for the sky, that he is different from the others, that he is special, that he will definitely make it in the corporate world. Reality sinks in much later after we bang a few walls in society. We are not that special afterall. But at this point, saying this definitely holds certain appeal to the young people.

We were then brought to another room where the people now split us into small groups (in some companies they split you up to the individual level) to explain to us the finer details of the job. The standard fare of taking out a blank A4 paper, a pep talk with intense passion and a whole bunch of scribbling of numbers and graphs. In summary, for every product you sell, you are able to get a certain good commission. To add on to that, if you bring your friends in, for every product they sell, you get a cut of their commissions too! If your friends brought in further friends, and they sell products too, you can also get a cut! To put it simply, you get a portion of all the sales your down-line make. This is the dream job. You work hard for a bit, bring in your friends and you can see much income rolling in as they work for you. By bringing in more of your friends, you are also doing them a favour by introducing them to this good opportunity.

As a side note, for new recruits who just entered the line, they are always encouraged to bring in their friends. You might suddenly hear from a not-so-close friend inviting you for a dinner, after which you for some reason get dragged into one of the many MLM recruitment drives. You then sit in horror as some weird guy took out a blank piece of A4 paper and talk to you passionately about the financial freedom you can achieve by selling their magnetic beds while your friend sit at your side smiling happily. These MLM companies know that the new recruits probably have no talent in recruiting even newer people, so these directors told them to just bring in their friend and they will settle the rest for them. These newer people will be the new recruits’ downline, giving them the motivation to burn down a friendship for the sake of getting one more source of passive income. After all, their job is to bring friends into the recruitment drive and they could potentially earn more. Everything else including the job of convincing their friends is done by their up-line.

Now do not just laugh at the people who fall for it. While I never fell for it, the sheer number of people working for MLM companies till today proved that it is successful to quite an extent. These directors who made it to the top talk well. They are at times charismatic, and they are good at cooking up your emotions and motivations on a short term basis in order to secure a deal, be it selling a shit product to you on the spot or getting you to sign on the dotted line as one of their staff. In fact, being able to talk like that is a very useful skill not many have.

Intention: Probably one of the first form of passive income introduced to me. Join the company, sell some products and bring in friends. If your friends (down-line) are productive after you ‘train’ them, you can even earn money without making any efforts down the future. This is what you deserve for having train them. Now these salespeople are drawing you a picture of bright future and having you picturing rolling in the money when you have not yet started work. This is quite similar to many sales line and other segments in the private sector: work hard and success is yours. But wait just till you join and see the pressure they give you, the coaching they give you to help you get more sales and finally the gaslighting that you are one big failure for not being able to close a single sale despite all the help they give you.

But the pep talk by all these recruiters who were also salesman in the company trying to recruit you as their down-line did not stop there. You are not alone. In fact you will never walk alone. You have a team with you providing the support and coaching required for you to achieve success. Team members will share their experience, your up-line (whom you will be giving a cut of your commissions to) will train and guide you. You are set up for success.

Intention: Creating an impression where everyone cares for your success and will actually help you achieve them. With such an idea implanted in you, you will be more willing to try it out. You will feel more confident knowing that your success is guaranteed. Much later in the working world I learnt that only I will care for my own success and that your successes are other people’s failures. Your success will not be achieved easily.

The last point to drive it all in is telling you that you own the business. You are not working for the company. The company simply provides the platform and network for you to conduct your business. Your customers remain as your customers, and the company has no access to it. The company provides you a reputable platform for you to anchor your business on, the company provides the necessary training to help you be equipped with the necessary skills, the company provides you with the products which you buy from only when you complete a sale, the company provides you with everything you require, all for free or for only a token sum of few hundred dollars, depending on how the company operates.

Intention: Even before joining the company, you have now been promoted from a salesman to a business owner. That kind of naming gives people a different feel. You are now not a mere worker, but a businessman. A young, promising businessman with a bright future. But you are just a bloody salesman selling shit products. In the end if you sell it to your friends, you are the one who answers to them when they realise the magnetic beds cannot cure their stage 4 cancer. And for some of the companies, even if you never clock a single sale, your membership fee is already in their pockets. Either way they win at your expense.

Following my experience 20 years ago, there were many other kinds of MLM which came up later on. They came with a bang and went out after cheating many people of their money too. From Enyouth selling the same magnetic products to Amway selling overpriced household items to World Ventures selling holiday packages, these companies all used the same tactic as above.

The new recruits come in thinking they will succeed. They have also been brainwashed to buy at least one or two of the products they are selling. Afterall, it is easier to convince others to buy if the salesperson uses the very products he or she is selling. I buy it, I find it useful and now I am recommending it to you for your own good. It is not that I want to earn money, but rather I want to spread the good around. The salespeople will then tap on their warm market first, as advised by their up-lines. The warm market is the pool of people from your personal network, be it family or friends or colleagues. The cold market is the pool of people whom you do not know, ie strangers, which you normally have access to by doing cold-calling or by referrals. Generally, after the salespeople dried up their warm market, they realise that they are unable to capture the cold market, and had no choice but to quit the job as a failure which had no capability to succeed after all the support provided by the company and the team.

The MLM company now earns from the new recruits themselves and from the warm markets of the recruits. Once they have dried up the warm market and resigned, the next batch of new recruits will repeat the cycle all over again. That is why MLM companies always are recruiting all year round, as frequent as they can. It is not like batch B of recruits will replace batch A once batch A is done, but rather there is a constant stream of recruitment activities and new recruits joining, making it a continual process over the long term. For all the team assistance you were promised, you will in fact always walk alone.

Luckily for me, I was simply bad at sales and I know selling things was not something for me. In the end although I did not understand why, but I had a not-so-nice feeling at that time and dropped the idea of joining the MLM company. I ended up working in a place which is a restaurant in the day and a bar at night for my first job.

After I have described the above, you may have realised that one other prominent sector around us uses the same tactic: the insurance line. The insurance line operates in almost exactly the same way as the MLMs. From the up-line and down-line commission structure to the constant recruitment, from telling the new insurance agents that they are running their own business to the belief that the product they are selling is good, from exhausting the warm market of the new agents and dumping them if they are dried up and unable to capture the cold market to the idea that they sky is the limit for you, the insurance line is one big MLM selling generally crap products. We still need to buy the basic term and hospitalisation insurances, but now the insurance industry has deviated from its original insurance coverage and branched off to savings and investments, legacy planning and financial planning. It is all these non-insurance financial products which nett in the most money and which the companies and agents pushed with the most enthusiasm.

As a twisted turn of events, I found myself sitting inside one of their recruitment drive again. The recruiter told us a story, in which we are to imagine we have 80 chips in the casino, one chip for a year of our lives. We bet one chip and spend one year in the line trying to make it. If we win, we will reap the rewards many times the worth of one chip. If we lose, we lose only a maximum of one chip. A worthy bet with very limited risk and unlimited upsides. I remembered that story till today, and it had guided me in my life whenever I wanted to try out new things. But for the context of recruitment into the MLM or insurance line, it has one critical flaw.

For those who do not understand the flaw of the logic, let me explain further. Insurance companies know that only a minority of the agents will make it in the long term. If that is so, it is good for them as they continue to make it a career and get more sales. The majority are doomed to fail after all their family and friends are exhausted. In the end did the new agent really just lose one chip – one year of his or her time? No. He or she lost not only time, but the trust of others and the relationship he or she had with others, all for the sake of gaining that one extra sales order for the company. Did the company lose out? No. Insurance commissions are typically paid out over a period of 3 to 5 years. After the agent quit during the first year, the company now could save on the salary from the second year onwards. The company earned at their expense.

Fortunately for me, my sales technique was so bad I resigned without clocking a single sale, despite multiple coaching and pushing by my up-line (boss). But not many are fortunate to get out like me without any cost. For those who are coming out into society, or for those who do not know how does the MLM system work, be careful before you join. Know the cost involved and determine for yourself if it really is suitable for you.

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