01How Direct Selling Works
In direct selling, also known as multi-level marketing or network marketing, consultants (or distributors) sell products and services directly to customers without the use of a physical retail outlet.
Typically, sales take place through one-on-one contact—such as parties in the home—but sales can also take place via phone, in a customer’s home or office, through social media, or on the Internet.
Direct-selling companies typically operate as multi-level marketing (MLM) organizations. This means that compensation for sales reps is based on both direct product sales and recruiting of other sales reps.
Consultants who bring new associates into the fold then receive commissions based on the new reps’ future sales and their recruits’ sales. Pyramid schemes actually work the same way, although the difference between a pyramid scheme and an MLM is that a pyramid scheme relies on recruitment only, and not product sales, for revenue. To avoid pyramid-like structures, avoid direct-selling operations that emphasize recruitment over sales.
In an MLM, your recruits and their recruits are your “downline,” and the person who brought you in (and those before her) are the “upline.” Usually, the company places limits on how extensively you can build out your upline and downline.
Most direct sales consultants work part-time to supplement their family’s income. According to Direct Selling Association, direct selling consultants earned a median income of $2,400 a year in 2011 (the last year the DSA released this information). In 2014 the DSA reported that 94 percent of direct sales consultants worked 29 hours or less per week.
Typically, new direct sellers buy a startup kit from the person who introduced them to the product. Costs of kits vary considerably and are based on the price of the products sold. Kits often start at about $100 and prices go up from there.
Fees and upline commissions may be deducted from sales, and products may have a variable wholesale pricing structure based on volume. Also, each company has its own set of rules in regard to selling back unsold inventory to the company.
To best understand how specific direct-sales operations work, read the contracts and documentation carefully, and ask lots of questions before you start.
02What Do You Want From Your Direct Selling Business?
Now that you have a basic understanding of direct selling, ask yourself why you want to get started in direct sales and the amount of time you want to put toward this endeavor.
Do you enjoy the idea of entertaining in your home while at the same time making some money to offset the cost?
Would you just like to earn a little extra cash without a big commitment of time and money?
Are you trying to build a full-time business and hope to earn a significant portion of your family's income from direct selling?
Are you primarily interested in direct selling because you love a particular product and want to buy it at a discount?
There are no right or wrong answers to these questions and all legitimate reasons to get started in direct sales. However, knowing your primary reasons for getting into direct sales will help determine the product you choose, your business plan, and your overall goals.
Whatever scale you determine for your direct selling endeavor, the determining factor in its success will be you. Do you have the personality of a salesperson? Consider whether you have the skills to be a home business owner and whether you will like working from home. Can you balance family and work all in one place?
Do you have the right personality for a career in sales? You must be persuasive and have a pleasant yet persistent manner. You need to work to overcome objections while still gracefully handling, and learning from, rejection. You must be self-motivated and able to set and reach goals for yourself.
If you are unsure about your skills and aptitude for sales, direct selling can be a good place to put them to the test because of the relatively low initial investment.
03Choose a Product to Sell
For some new direct sellers, choosing a product is not an issue. They love a particular product and want to sell it and also buy it at a discount for themselves. Even when that is the case, though, in order to be successful you need to think through the pros and cons of your product choice.
- Do you think highly of the product? It’s much harder to sell something you don’t feel strongly about. Most likely you will begin by selling to your friends and family, so be sure that you are willing to stand behind the product. Be especially careful with products that make health claims.
- Is the product consumable? A product that gets used up has the potential for repeat customers in a way that durable goods do not.
- What is the quality of the product? Whether a product is consumable or not, quality and reputation are important factors in building a base of repeat customers.
- What is the price of the product? Although non-consumables like jewelry and home goods may not have repeat sales, they tend to be priced higher and therefore offer the opportunity for greater revenue per sale.
- Who will buy this product? It might seem easier to sell a product that appeals to a broad segment, but goods with a narrower customer base can be successful if that aligns with your own personal network of friends and acquaintances. For instance, if you are the mother of preschoolers, then toys and books for young children will appeal to the people you know, for now at least.
- Is the product a luxury item or a necessity? Luxury items usually have a higher price point and do well around the holidays. However, in tough economic times, sales of luxury items become much more difficult.
04Understand Costs and Compensation
Understanding compensation plays a very important role in choosing a product and formulating your business plan. Some compensation plans emphasize sales, while others focus on recruitment.
Unilevel plan: In this plan, you recruit as many people to your downline as you can, and they will stay in your downline as long as you continue selling. This is often known as a party plan. You'll derive monetary success as much by recruitment as by sales, both for you and your downline.
Stairstep or breakaway plan: This is the most common type of plan. New distributors or associates that you recruit can eventually break away from your downline when they reach a predetermined volume or number of downline distributors of their own. On the flip side, you can break away from your upline, too. This plan emphasizes sales over recruitment.
Binary and other compensation plans: In a binary plan you are limited to two distributors at the top of your downline, and sales volume in their downline is the source of success. Typically these plans have weekly payouts. There are many similar types of plans with various numbers of distributors and levels of downline.
In addition to choosing a type of plan, research the terms and fees associated with specific plans, starting with a few essential questions.
- What is the cost of the starter kit? It should be in line with the cost of the product and, more importantly, affordable for you.
- What is the commission structure? It may seem like higher commissions would always be better, but a commission that is too high could signal that the product is overpriced, making it a harder sell and a poor long-term opportunity.
- What are the monthly maintenance fees or other costs? If you plan to sell only on an occasional basis, this question becomes even more important, as these fees can eat up all of your profits.
- What limitations are there on selling back unsold inventory? Consider whether the company offers large incentives for you to pile up inventory through the offering of volume discounts. This type of arrangement can be a red flag; don't be persuaded to buy a lot of product you can't return.
05Create Your Direct Sales Business Plan
While direct selling is less complicated than many other home businesses, you still need a plan. Setting goals, sketching out steps, and drawing up a plan can keep you on track. A simple business plan outlines the basic steps any entrepreneur should take in outlining a new venture.
You have already begun this process by reviewing your reasons for getting into direct selling, thinking about your own strengths and weaknesses, and determining the scope of the enterprise. You also understand an overview of the compensation structures and know what to look for in a product.
After realistically determining the amount of time you can devote to direct selling, and speaking with others who sell your desired product, set short-term and long-term sales goals as well as recruitment goals.
While making your product choice, you most likely came up with ideas of your potential customer base, but now look at that market more closely. Are there many other sellers of this product in your personal network? Where can you find a new market segment?
In the long run, you may need to create a website or market your products using social media. What are the steps to doing this? What new skills might you need to gain? In the short term, how will you begin making sales?
Write down the answers to these questions and draft an initial timeline so you navigate what lies ahead.
5 Steps for a Successful Start in Direct Selling
Direct selling, the classic work-at-home business for parents, can be a great way to earn extra money while maintaining a desirable home-life balance and a flexible schedule. Direct selling offers many advantages, such as the ability to adjust your business to the amount of time available, a minimal upfront dollar investment, and the potential fun and social benefits, particularly because home parties are your primary sales outlet.
Your friends and family become not only your customers but perhaps also your colleagues, as you recruit new sales consultants to your team. Getting started in direct sales can be broken down into a five-step process.