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Sales Report

Once tainted by get-rich-quick schemes, the direct-sales industry is changing its image. See what experts and business owners have to say about going direct.
July 1, 2004
URL: http://www.entrepreneur.com/article/71306

To buy and sell in the comfort of a home setting--that's the heart of the direct-selling industry. From kitchenware to vitamins to cosmetics to stamps--if it can be made, it can likely be sold via the direct-sales route. Today, direct selling is usually characterized by an independent consultant with a portable kit of wares. The sellers visits people's homes by appointment to have home shows where items are displayed; customers invite family and friends to share in the demonstration. The latest available figures from the Direct Selling Association (DSA) show retail sales of more that $28 billion for the direct-selling industry in 2002-and an estimated 13 million independent direct salespeople across the country. This is an increase from about $22 billion in 1997, with 9.3 million salespeople.

How has this industry evolved? "There are five elements I see," says DSA president Neil H. Offen. "We have a lot more people involved, we're more sophisticated as an industry, we have more college graduates [as consultants], we're very global and international, and we're [now] very attractive to Wall Street investors and VC groups."

Direct-sales consultants, though still primarily made up of women, are becoming more diverse. Offen notes that the male contingent is steadily growing; 25 percent of consultants are men, compared with 10 percent in 1990. Offen attributes this change to the pervasiveness of new products on the market--vitamins, food supplements, long-distance telephone service, etc.--that are not seen as typically female-centric products like cosmetics or housewares.

The Stigma

Even with all the growth, entrepreneurs in direct sales often have to deal with the stigma that direct-sales opportunities are like pyramid schemes. Pyramid schemes require participants to lay out cash for the right to recruit others. Usually, no product is involved, and profits for those at the top levels of the pyramid come solely from new recruits who join at the bottom. Direct sales, on the other hand, involves selling legitimate products or services, the profits from which go to the seller and his or her recruiter. At the higher levels of a direct-sales company, consultants usually have a group of recruits selling below them, from which they receive commissions--also known as a downline.

Savvy direct sellers would benefit from distinguishing themselves from pyramid schemes. The DSA can help them do this: According to Offen, the DSA acts not only as an industry advocate in Washington, DC, but also as a watchdog. It helps set the standards by which direct sellers should abide, from instilling a 90 percent inventory buyback clause for all DSA members (meaning consultants don't lose huge amounts of money on unsold merchandise if they choose to leave) to issuing warnings about high-pressure selling and pyramid schemes. The result is more entrepreneurs coming into the direct-selling fold.

Leslie Caperton, an executive-director-level entrepreneur with The Pampered Chef in Gainsville, Virginia, entered the direct-selling field part time in 1994. Selling specialty kitchen and cooking aids, Caperton, 40, came from an insurance background. After attending a Pampered Chef home show in 1994, she was impressed by the array of products as well as the discounts and rewards she received as a hostess a few months later. "That got my attention," she recalls. "I said, 'I think I'm going to do this.'"

Wanting to try something with a flexible schedule, the direct-selling avenue seemed to be a perfect fit for Caperton--though she confesses that, at first, balancing her time between planning, doing home shows, and recruiting and training new consultants was a big challenge. Since her business is equally involved with selling directly to customers and recruiting new consultants, she has been able to go from merely supplementing her income to grossing a projected $3.7 million in sales with her group of consultants this year. And she debunks the notion from outsiders who think only a few people at the very top levels of the company make money: "The first month I was in [the company], I made our [monthly] car payments."

To alleviate customer concerns and distance her business from any possible stigma, Caperton emphasizes customer satisfaction and product warranties. "In selling something," she says, "I want the [parent] company to back that product."

That's key in whether or not a company is legitimate, says Offen, DSA president. Ask them what kinds of warranties and protections they offer; ask their current consultants and customers how their problems and issues are treated. And even if a company has a good track record, make sure you absolutely love the product or service you'll be selling, because that will determine how successful you are.

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Loving the Business

It was after falling in love with the decorative baskets from The Longaberger Company that Lisa Lashley decided to become a consultant. She started collecting the baskets from home shows she attended in 1995 and took the leap into her own business in 1998.

All the research Lashley did on the company, and her years of being a satisfied customer, helped her make the decision. Today, she recruits and trains consultants working under her supervision to grow her Salisbury, Maryland, business--in addition to working full time as a social worker for the state of Maryland. Lashley, 44, says the fun, warm atmosphere of selling Longaberger baskets and home decor is a pleasant contrast to the gravity of her day job.

Her biggest challenge, though, is expanding her client base and introducing Longaberger to more people. How does she prevent negative impressions about direct selling? "I try to head that off before really getting started--to share information and to establish [good] customer service," she says. "To really ease someone's mind by not being a pushy salesperson, you establish a rapport and trust with your customers." The focus on customer service has helped Lashley and her consultants grow the business to $100,000 in projected sales for 2004.

Though sales estimates range widely within the industry--because of varying products and work scenarios (being part or full time, or managing consultants and receiving a portion of their sales)--Offen notes that the average annual sales figure falls at about $13,000. But he says that figure encompasses the highest earners with large full-time businesses and a bevy of consultants as well as people who only do it for a few months out of the year to earn extra holiday cash. Be wary of inflated earnings claims from direct-selling companies, though, says Offen. Be sure that the company and consultants are upfront about how long it took them to reach a certain selling point.

Reaching on of the highest levels in Mary Kay Cosmetics took Lise Clark of Greenwood Village, Colorado, nearly 20 years. She started her business in 1984, when she was 26. Initially, she only planned to sell Mary Kay products over the holidays; but as she started to sell, she saw her income outstripping what she would earn working several jobs at once. She soon went into the business full time and, today, expects her area unit sales to hit nearly $2 million by the end of 2004.

Organizing the needs of her business is her biggest challenge, says Clark. "You have to set yourself up to have a checklist of what you're doing. If you have to [take] a 'power hour' to make calls, [then do it]," she says. Today, she coaches the sales directors who work under her (who are all over the country) via phone, e-mail and conference calls.

Despite any negative associations consumers might have with direct selling, the entrepreneurs we've spoken to attest that the industry is alive and well. Find the right company with a great product or service and the highest ethical standards, and this could be just the opportunity you're looking for.

Truth or Dare

Get the facts before deciding if your direct-sales opportunity is legitimate.

According to Neil H. Offen, president of the Direct Selling Association (DSA), there are a few questions you can ask to find out whether a company is shady or just plain wrong for you.