Are you thinking about getting rich by direct selling weight loss supplements, designer jeans or alternative energy? Here's what you need to know before jumping into the world of direct sales.
My name is Maryalene, and I am a serial direct sales representative.
For reasons I can’t quite remember, I first signed up with Tupperware. Then, I thought I would feed my candle addiction by signing up as a rep for Eclipse Candle Co. That dream abruptly ended when the company went out of business. Now, I am all about Thirty-One Gifts, but must admit to being slightly smitten with Mary & Martha.
If you’ve been to a home party, looked at the sign-up kit and thought “What a deal!” I can relate. So too can apparently 16.8 million other people. According to the Direct Selling Association, that was the size of the direct-selling sales force in 2013. The industry group estimates that 13.8 percent of U.S. households include a direct sales representative.
Direct selling can be a good way to bring in some extra spending money, or it can be a good way to drain your bank account. Here’s what you need to know before jumping in.
Is the focus on direct sales or MLM?
First, is the company you’re considering more a direct sales biz or a multilevel marketing firm? MLM companies typically place a greater emphasis on bringing in new recruits and creating a downline from which your earnings will be based. While some companies can be categorized specifically as MLM firms, many direct-selling companies include some MLM elements.
I’ll let the Better Business Bureau explain. This is how it describes the difference between direct selling and MLM on its website.
Direct selling refers to a distribution method, whereas multilevel marketing refers more specifically to a type of compensation plan found in direct selling. A direct selling company that offers a multilevel compensation plan pays its representatives/distributors based not only on their own product sales, but on the product sales of their “downlines” (the people representatives/distributors have brought into the business, trained and developed; and, in turn, the people they have brought into the business).
Some companies are very upfront about the fact there is little selling involved and all you need to do is “share the opportunity.” These are firms with a definite MLM focus. For other companies, you may need to read between the lines on their promotional materials or talk with a current rep to get a better feel for how the business operates.
MLM-driven companies aren’t necessarily bad, but they aren’t for everyone. Be sure you understand what you’re signing up for before forking over any money.
Ground floor vs. established biz
The next consideration is whether the company is a “ground floor” opportunity or an established business.
There can be a lot of hype about getting into a brand-new company on the ground floor. If the company takes off, you take off with it. You may find yourself one of only a relatively few reps selling a hot item. Founding members with ground-floor businesses may also find it’s easier to build an impressive downline if there are fewer sponsors available in their area.
However, ground-floor businesses come with risks and drawbacks. Try as I might, I couldn’t find any hard statistics on the failure rate of direct sale or MLM firms. Anecdotally, there are plenty of examples of startups that end up shuttered.
Beyond the risk of closing, ground-floor businesses may not have the infrastructure in place to provide professional marketing materials and representative training. The brochures I received from the fledging Eclipse Candle Co. lacked photos and had a decidedly amateur feel. There were no in-person training opportunities either. On the other hand, 11-year-old Thirty-One offers bimonthly training meetings, free amenities and polished catalogs, fliers and promotional videos.
If you’re self-motivated to create your own marketing plan and materials, a ground-floor business might be a good opportunity. If you prefer to have everything laid out for you, stick to an established company.
Investigate these details
Once you narrow your choices, it’s time to take a hard look at the fine print in those representative agreements.
Before signing on, make sure you know the answer to these questions:
- What is the selling platform? Are you expected to sell door-to-door, in a home party or using a different format?
- Can you promote your business online? Some companies have very strict rules about what you can and cannot say and do online and on social media. In fact, at least one company I know of won’t let you even post its name online.
- How much does it cost to sign up? The average startup kit seems to run right around $99. Typically that will provide some marketing materials, business supplies and inventory, if applicable. If the company is asking for hundreds upfront and not offering much in return, be careful. That could be a sign it’s a pyramid scheme rather than a legitimate business.
- Are there recurring fees? The $99 kit may seem like a deal, but will you be nickel-and-dimed after that? Common charges include website fees, membership fees and auto-ships, which is where the company sends you new inventory regardless of whether you want it.
- What is the quota? Most established companies have a minimum amount its reps are required to sell. For example, one mandates its consultants sell $200 of product in a rolling three-month period. At another, the requirement is only $50 a year. Some startups might not have any quota in an effort to encourage sign-ups.
- What training is available? Does the company have a formal training program or do you rely on your sponsor for that? Is there a way to easily reach the home office if you have a question or problem?
Only people persons need apply
Growing up, my mom was the local Avon lady. She had a basket of carefully arranged items she would take door-to-door and on visits to her regular customers. That was the only way to make sales back in the day. Today’s Avon lady can set up a personal website to display products and watch the sales roll in.
Or can they?
In the Internet age, it may be tempting to think direct sellers no longer need to have personal interaction with their customers. However, my experience has been that websites alone won’t garner purchases. In fact, I’ve never once had an order placed online from someone I didn’t know or previously have contact with.
The way people order has largely changed, but the way they buy is the same. In other words, people may be making their selections online, but they’re often buying only after someone asked them to consider a purchase. The very best direct sellers I know are the ones who aren’t afraid to strike up a conversation with the clerk at the store or compliment a stranger on her purse and then hand her a business card.
If the thought of talking to a stranger about your business makes you want to curl up in a fetal position, direct sales may not be for you.
But can you make money?
Let’s get to the nitty-gritty: Can you make money in direct sales? Of course you can, but it might not be much.
According to this Forbes article, the median income for direct sellers in 2011 was $2,400. There are superstars who make a full-time income off their business, but we need to be real here and admit that those folks are the exception, not the rule. The rest of us might make some pocket change if we’re lucky.
The following are some indications you might make money:
- You sell a product or service you personally use and are passionate about.
- The product or service is something in demand in your area.
- The price point fits the economics of your area.
- You market to those beyond your circle of family and friends.
As a final note on income, don’t forget that all those prizes, amenities and incentives you receive from a company can be taxable income.
As for the question in the headline, only you can answer that for certain. If you’re looking for a way to make lots of money with minimal effort, I don’t recommend direct sales. If you’re looking for a way to earn some spending money while getting discounts on your favorite products, direct selling could be a winner for you.
What is your experience with direct sales? Tell us in the comments below or on our Facebook page. However, Money Talks News is not the place to promote your business so no links please.