Direct Sales: Golden Opportunity or Hype?
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Selling clothing, housewares, beauty products and other goods through in-home parties and one-on-one consultations can be big business for entrepreneurs and moonlighters alike. Last year, the 16.1 million direct sales representatives working in the United States generated $28.3 billion in revenue, according to the Direct Selling Association (DSA), a national trade group.
Take Elvi Valenzuela, for example. Like many recession casualties, the 27-year-old Edison, N.J.-based car salesman, working entirely on commission, saw his income slow to a trickle in 2008. Valenzuela agreed to join his mother in selling women's cosmetics at house parties for JAFRA Cosmetics International, Inc., the direct sales firm she has been working with for more than a decade. Less than two years later, he’s bringing in $12,000 in monthly sales and has received a $40,000 Mercedes from JAFRA in recognition of his efforts.
But despite what some evangelists tell their recruits, most direct sellers don't come close to the numbers produced by Valenzuela, who works at least 40 hours a week. The DSA reports that roughly 90 percent of direct sellers are moonlighters who, by choice, work only part-time.
So, what does it take to make it in the direct sales world? How can a newbie tell the legit opportunities from the bogus ones? Here's what to consider before jumping in.
Be Realistic about Sales
Most direct selling companies pay representatives commission on their own sales and on the sales of any reps they recruit (as well as the sales of their recruits' recruits) -- hence the moniker "multilevel marketing," or "MLM." As a result, a common complaint is that representatives, in their zeal to sign up new recruits, skew toward the hyperbolic, promising five- and six-figure revenues that multiply exponentially while you sleep. But that’s usually not the reality.
The median income for direct sellers is about $2,400 a year, according to DSA spokesperson Amy Robinson. Valenzuela, for instance, spent nearly two years as a full-time direct seller before he was able to match the $45,000 gross annual income he made at the height of his stint as a car salesperson.
Other five- and six-figure success stories exist, but they're rare. Just 8 percent of direct sales reps gross more than $50,000 in annual income, the DSA says.
Researching direct sales opportunities
A number of online resources can help you learn more about MLMs and steer clear of scams. A few to get you started:
Direct Selling Association The go-to source for U.S. direct selling practices and ethics.
Direct Selling 411 Helpful FAQs and glossary for would-be direct sellers.
World Federation of Direct Selling Associations Trade association of national direct selling associations throughout the world.
HomePartyPlanNetwork Tips and community support for would-be direct sellers.
Set Your Own Hours
To be fair, many people don't enter the direct sales market looking for a full-time job. Instead, most are moonlighters who are looking for supplemental income. They usually work only about 10 hours per week, Robinson says.
Leanne Sabo, 49, of Lakewood, Calif., thrives by setting her own hours, including early mornings, nights and weekends. "I was able to make an income that allowed me to stay home with my kids instead of going to a job," says Sabo, who grosses as much as $50,000 annually as a direct seller. "With a job," she adds, "you go to work and always make the same amount of money. But with direct sales, you create residual income. You work smarter, not harder."
Equally appealing as the flexible hours are the low startup costs. Take Jockey Person to Person, Inc. (Jockey P2P), the five-year-old direct sales division of underwear maker Jockey International, Inc., which Sabo currently sells for. The startup investment is $199, which covers samples for the rep’s first party. After that, products can be purchased at a 25 percent to 50 percent discount, depending on how many recruits a rep brings into the company.
Weed Out the Scams
Not all direct sales companies are honest. Pyramid schemes and other bogus opportunities are common.
Red flags to watch out for include direct selling revenues that are exclusively dependent on recruiting people instead of selling products. Another warning sign is recruiters who are unwilling to share details of the compensation plan. Likewise, your initial investment should immediately yield something tangible, be it product samples or training and marketing materials, the DSA's Robinson says. Getting started shouldn’t cost you thousands of dollars.
Robinson also recommends that you make sure the direct sales company has a buy-back policy, meaning that it should refund you for any unused or undamaged inventory you've purchased if you decide to quit.
Perhaps the biggest misconception is that you can get rich in a matter of weeks or months without lifting a finger or selling anything. Nothing could be further from the truth. Like any business, you have to hustle for each and every dollar you make.