Direct sales can be simply defined as sales to the consumer. Typically a manufacturer relies on direct selling to its customers. This means there isn’t a middleman involved. Companies like Tupperware, Pampered Chef, and Avon are examples of companies that rely on direct sales. However, these are not the only types of direct sales. There are three main types of direct sales: Party plan, network marketing, and a blend of both or hybrid. Let’s look at the direct selling channel and how it can be used in modern applications.
What Are Direct Sales?
The classic or textbook definition of direct sales includes the caveat that this type of selling happens away from a retail location. With that in mind, internet sales can be considered direct sales. Manufacturers or service providers that use a sales force can also be considered direct sales.
The main characteristic of direct sales dates back to early American history. The act of showing goods to one customer or groups of customers was commonly known as peddling. A peddler would visit customers in their homes or in the town square and demonstrate their wares.
Companies like Avon, Amway, and Tupperware use the party plan sales strategy. In this format, an independent sales consultant demonstrates products to a group of participants in the home of a host or hostess. The atmosphere is party-like in nature and the host often treats participants to snacks and beverages. In recent years, companies have been using the party plan method to sell everything from lingerie to adult novelties to stun guns. Direct Selling News compiles an annual list of the top-selling direct sales organizations in the world. Avon Cosmetics is the top company with annual sales topping $11.3 billion.
Also known as multi-level marketing (MLM), network marketing companies can also be party plan companies and vice versa. MLM and network marketing companies operate on the concept that compensations happen on multiple levels and rely on a network of consultants, distributors, and other personnel.
For example, a new Mary Kay consultant is brought into the business under a director or manager. This person is said to be in their downline. Every sale that the consultant makes generates revenue for the manager. All the consultants in a manager’s downline add to his or her compensation. In turn, the manager has an up-line. He or she has several layers of people above them. MLM and network marketing companies are not pyramid schemes which are illegal in the United States. However, consumers should always investigate any MLM organization prior to making investments of time or money.
These are companies that are a blend of other sales channels. Internet and catalog companies can fall into this category. MLM giant Avon could be considered to be a hybrid although they are a self-proclaimed MLM organization. Customers can purchase without going to a party. Buyers can select products from a catalog or on a consultant’s website.
How Can Direct Sales Benefit Me?
In a 2013 case study, researchers for the Small Business Institute documented some of the mishaps that occurred with a direct sales start-up company. The lessons provided in the case can be instrumental in determining if a direct sales strategy can benefit your company. The study centered on a Wyoming-based jewelry business. The principals created a jewelry design business using a party plan concept. Party participants could design their own bracelets. Initially, the idea generated a modest income for the original designer. After seeking investors, and coming to market with 22 independent distributors, the company experienced a number of critical business issues. Most of the issues were personnel issues. It is important when creating a direct sales organization to clearly define the responsibilities of independent contractors.
What are Independent Contractors?
The IRS defines an independent contractor relationship when the “payer has the right to control or direct only the result of the work and not what will be done and how it will be done”. Further, earnings are subject to self-employment tax.
3 Ways Direct Sales Can Be Beneficial
Direct sales can be beneficial to your business. Whether you’re a startup or an existing firm, direct selling could be a viable sales strategy. If you choose to operate an MLM or some other type entity, there are aspects of this strategy that has proven successful for over 20 million people.
Getting into an existing MLM can be inexpensive. Most MLM companies have a starter kit that contractors will use when just starting out. The kits contain marketing materials, some inventory (product based), sales slips, contracts, etc. For a person interested in this type of company, direct sales can be an easy way to quickly earn profits
You don’t have to re-invent the wheel
Most MLM companies provide you with training, and personal attention from managers or coaches. Consider the success of Mary Kay or Avon or Tupperware. All are based on a similar concept of promoting products to customers.
You have unlimited earning potential
There are no salary caps when you work for yourself. Most MLM or networking companies offer attractive commission plans. The more products or services you sell, the more money you earn. Likewise, adding more consultants to your business generates additional revenue for you.
Direct sales is a $30-billion dollar industry in the United States. Face to face interactions with prospects and customers have significant advantages. And most MLM businesses can be easy to start. Hundreds of direct sales organizations exist. If you are serious about starting your own business or even adding a revenue stream, direct selling could be a viable strategy.
Do you like talking to other people? Are one of those people who “never met a stranger”? Are you interested in earning unlimited income? Do you have MLM success? Take the next step and investigate how direct sales can be beneficial. Comment below with any positive experiences you have with an MLM company.
Images taken from depositphotos.com.