Q: I'm looking at a part-time opportunity in sales, but I'm confused by the different types of business opportunities available. What's the difference between direct sales, party-plan selling and multilevel marketing? How do I determine which approach is the best for me?
A: Companies that have traditionally sold their products through "conventional" distribution channels (people going to the product) are now recognizing the potential of direct sales, party-plan sales and multilevel marketing to achieve spectacular sales momentum. There are subtle but important differences between these three methods of person-to-person selling.
Direct sales income is earned from the sales commissions earned from each individual sales effort.
Party-plan sales commissions are earned from leveraging your efforts through group selling and combining multiple retail commissions earned from a single sales presentation.
MLM sales commissions are earned by personal sales commissions in combination with the geometric growth generated by sponsoring others who make sales and sponsor others, thus creating an ongoing multiplication effect. Here's a more detailed look at these three selling methods:
Direct sales: A direct-sales representative is typically a commission-based independent contractor. The salesperson writes up a sales order and sends it to the company; the company normally ships the product directly to the customer. Usually there is no need for the salesperson to stock any products other than demonstration items.
Most direct-sales products require a reasonably sophisticated level of training on proper sales presentation techniques. Most experienced direct-sales representatives tend to be full-time direct-selling professionals on a career path. However, many people initially try direct selling on a part-time basis. In either event, your income is only based on sales you personally produce. If you become a sales manager, you receive a commission override on the sales efforts of those you train and manage.
Party-plan sales: There are few women over the age of 30 who haven't attended a home party offered by Tupperware, Home Interiors, Discovery Toys or other successful party-plan companies. In comparing direct sales to party-plan sales, two significant differences exist.
First, the distribution channel is simplified because the product moves directly from the distribution company to the party-plan host or hostess to be distributed to customers. The host or hostess is a volunteer ambassador for the products who can earn gifts, cash or credit toward the purchase of his or her own product selections. The independent representative is ultimately the catalyst for the retail sales of the product at the party.
Enticing the party customers to return to future parties is critical to ongoing growth. This is accomplished by introducing new products, offering discounts to past customers, and making sure the customers have fun and look forward to a repeat performance. The sales representatives can recruit customers to act as hosts for their next party. In addition, they can sponsor new independent sales representatives, usually the hosts themselves, on whose future sales they will realize a small return. This recruiting effort is more aggressive than a typical direct-sales model but much less aggressive than a typical MLM recruiting model.
Rather than a single-level direct-sales style commission, look for a progressive party-plan company that combines the multilevel marketing compensation model with the time-tested and proven party-plan concept.
Multilevel marketing: MLM companies account for billions of dollars in annual sales and are estimated to influence one out of every three homes in America with a marketing-related contact. The Direct Selling Association reported that MLM sales in the United States represent nearly $25 billion annually and could soon approach $100 billion worldwide. Today, virtually any consumer product or service is open to multilevel marketing distribution.
Through MLM, also called network marketing, the direct-selling process is duplicated by salespeople who sponsor and train others. An ever-increasing income stream can be generated through bonuses on sales made by several levels of downline distributors. The commissions and bonuses are paid directly to the MLM representatives, rewarding their efforts for selling products and sponsoring others who sell products and sponsor others and so on. The vast majority of MLM representatives work part-time to build a second income while continuing their full-time jobs. However, MLM leaders with hundreds or even thousands of part-timers in their organization can truly earn incomes beyond anything seen in traditional business, direct sales or party-plan sales.
Caution: Take a look at April's explanation of what to look for in a good MLM company.
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Michael L. Sheffield is the founder of Sheffield Resource Network, a full-service multilevel marketing consulting firm in Tempe, Arizona. He is also the co-founder and chair of the Multi Level Marketing International Association (MLMIA), whose members represent companies throughout the world.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.
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