Multi-level Marketing (MLMs) in Malaysia – What are They, Are They Legal and What are MLM Alternatives?

Multi-level Marketing or more commonly known as MLMs, are one of the first things you may come across when you’re looking to start a business or make extra income in Malaysia.

They are attractive because MLMs usually provide things like

  • Ready made products to sell
  • Marketing materials
  • Testimonials
  • Business packages
  • Mentorship
  • Enticing rewards

To the inexperienced person who doesn't know what to sell or how to sell to make extra money, MLMs can offer a very attractive solution.

On the outset, MLMs can be a no-fail strategy of making extra income. This is  especially true when there are constant displays of people just like you who have become successful at making a few thousand ringgit a month in less than a year of joining the program.

On top of that, MLMs also appear to provide an opportunity to make extra income with flexible hours. You can sell products in your spare time. For people thinking about transitioning out of your current 9-to-5 job, this can be an appealing offer.

But, can MLMs really live up to their promises of helping you make a lot of extra money within a short period of time? Maybe enough to quit your job one day?

In this article, we will take a brief look at what MLMs are, how they make money and explore if you can really make money from them. If you've thinking about joining an MLM, we hope you'll be able to make an informed decision about them by the end of this post.

Let's get into it:

What are MLMs and How Do They Make Money?

MLMs are also known as direct marketing. They are similar to conventional marketing in that in both cases, products are being sold by a company.

Where they differ is how they are sold.

While products sold conventionally are usually found in retail shops, products sold by an MLM company can only be sold directly from an independent distributors  of the company and the buyer.

According to the Direct Sales Association of Malaysia, direct selling refers to:

"The distinguishing characteristic of this method of marketing is that the direct seller or retailer initiates contact with the potential customer instead of waiting for the customer to come to a store or some permanent place of business.

The direct seller or direct retailer, therefore, is a person who sells consumer products and renders a service by direct personal contact with the consumer – usually, but not always in the consumer’s home."

Independent distributors of MLM companies make money using a few ways:

1. Recruiting new members into the company

2. Commissions from sales they make

3. Commissions from sales made by sales reps under them

4. Bonuses

As can be seen, an MLM independent distributors  can earn money with a few revenue streams.

Are MLMs Legal in Malaysia?

MLMs or direct selling companies are totally legal in Malaysia. They are seen as just another way of distributing products by cutting out the middleman.

Some legitimate well-known MLMs in Malaysia include Tupperware, Avon, Forever Living and Nu Skin.

These companies have legitimate products with a fair markup and use independent distributors to sell their products.

When Illegal Pyramid Schemes Hide Behind MLMs

MLM's multi-tiered structure make them particularly susceptible to being used as a legitimate front for illegal pyramid schemes.

Pyramid schemes are illegal in Malaysia under the Direct Sales and Anti-Pyramid Scheme Act (1993)

While on the outside, pyramid schemes may look like MLMs, their intentions and operations are far different.

According to the Direct Sales Association Malaysia, pyramid schemes...

"often disguise high entry fees as part of the price charged for required purchases of training, product inventory etc. Pyramid schemes make virtually all their profits from recruiting."

Basically, a company is running  a pyramid scheme when their main focus is on recruiting new people, rather than sell products. While they usually do have products, these products have a very high markup which makes them totally overpriced and used mainly as a front to look like a real business.

While legitimate MLM companies focus on the long-term sales of their products, a company running a pyramid scheme usually focus on short-term get-rich-quick goals. They are not real businesses and can be considered as 'money games' or scams.

As such, most people who invest in pyramid schemes often find themselves coming out with less money than they went in with. Some people even lose their entire life's savings to pyramid schemes when they buy into the company's promise of large gains in a short amount of time.

Of course, not all MLMs are pyramid schemes, but a lot of pyramid schemes disguise themselves as MLMs.

Who will make money from an MLM?

Like any role, not everyone is suited to be part of an MLM. Since MLMs rely on their independent distributors to sell products directly to customers for them to make money.

As such, if you want to be successful in an MLM, you'll need to have

  • Very good sales skills - if you're shy or don't like talking to people, you'll unlikely to be successful, and
  • A large network of friends, or a way to keep adding more people into your circle - otherwise you’ll quickly exhaust them and annoy your existing circle by pestering them

Most importantly, you need to be sure that the products you are selling comes from a legitimate MLM company. Otherwise, you'll lose money no matter how good your sales skills are or big your network is.

Common MLM Myths

Myth #1: MLMs are Businesses

MLMs are classified as direct selling. While the company itself is a business, the distributors in MLMs do not actually own a business, per se.

Instead, they take on the role of sales consultants, earning a commission each time they make a sale.

While there is nothing wrong with this structure, MLMs are often marketed as 'business opportunities', which hints that the distributor as a business owner.

This is misleading and are meant to draw in individuals who are very interested to start their first business.

Myth #2: MLMs Provide Passive Income

On the outset, it may look like MLMs can provide passive income. You only have to recruit enough people to sell under you and you can make money even when you don't sell the products yourself.

In reality though, it will take years before you can even achieve such a level of passive income. This is why you see even independent distributors at high levels still working hard after achieving some level of success in the MLM company.

Additionally, you are usually required to maintain some level of sales monthly in order to keep earning the commissions.

Alternatives to MLM: Other Money Making Options

By now, you might be able to make an educated decision on whether you can make money from an MLM. If you really want to go ahead with an MLM investment, be sure to make sure you're making the bulk of your money from selling products and not from recruiting new people into your company.

But if you are considering other options before jumping into an MLM, here are some suggestions you can consider:

1. Start an online business

More and more Malaysians are going online to make purchases. What this means is you have a good opportunity of making money if you started an online business.

This doesn't mean online businesses are get-rich-quick schemes, however. Sustainable online businesses still require your time and effort to build.

If you don't know how online businesses work or what kind of online business to start, take a look at these articles to get a better idea:

6 Ways to Start an Online Business in Malaysia: Opportunities in 2019

24 Ways to Make Money Online in Malaysia Anyone Can Start Doing (+5 You Should Avoid)

2. Become a franchisee

A big reason why people buy into MLMs packages is that they are ‘turn-key’ opportunities. This means that instead of starting from scratch, MLMs provide products, marketing materials, mentorship and support which can help newbies to get started quickly.

If this is you, you might want to also consider becoming a franchisee of a well-known franchise brand. Franchises offer not only a known brand name, but also an entire system, procedures, training and support to launch and run the franchise.

The only catch is that franchises can be pricey to start and we would only recommend people with a large amount of capital to go ahead with such an investment.

If you are interested to explore franchise opportunities but don't know what franchise to start, here are some franchise brand offers you can consider:

60 Popular Franchises in Malaysia and How Much They Cost [Updated 2019]

Conclusion

MLMs or direct selling companies are legal and provide legitimate ways of selling products directly to customers. However, the structure of MLMs can make them easy fronts for illegal pyramid schemes that don't have any products for sale and rely on member recruitment to make most of the money.

If you are interested in investing in an MLM, be sure that it has a legitimate structure and isn't a pyramid scheme where you have to keep relying on member recruitment to make more money.

MLMs are not the only way to make extra income, however. With the online buyers growing rapidly in Malaysia, you can consider starting an online business also. 

On the other hand, if you're mainly looking for a turn-key business, consider become a franchisee of a well-known brand.

Over to you: have MLMs worked for you? Let us know what your experience with MLMs have been like!

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Lu Wee here, and I am the pen behind Entrepreneur Campfire. I like diving deep into business trends, review business tools and create in-depth tutorials for people just like you.

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