Subscribe to Entrepreneur for $5

Direct Sales vs. Network Marketing

Understanding the difference will help you determine which opportunity is the best fit for you.

Opinions expressed by Entrepreneur contributors are their own.

Many of us who make our living from this arena still debate what the difference between network marketing and is. Even so, the vast majority of experienced network marketers would define these terms this way.

Most experts would agree that network marketing is a part of the concept where products or services are offered on a one-on-one basis and sold directly by the salesperson to the consumer. However, the two approaches offer very different benefits to the salesperson.

Direct sales companies are known as "seller-based," which means they give more income to the distributor when he or she makes a sale at retail. Direct sales companies usually market higher-ticket, one-time-sale, durable items such as air and water filters, cookware, art, home accessories, etc. With the direct sales approach, the majority of the available profit designated for the salesperson's commission goes to the person who makes the retail sale. That person usually earns a significantly higher percentage of the designated sale commission than does the that may be supervising his or her work.

Unless they have been appointed as sales managers, successful direct sales people are paid based on their personal sales rather than on building an organization of other salespeople. And since most products marketed by direct selling companies tend to be durable goods rather than consumable goods, there usually is limited potential for residual income. Obviously, there are exceptions, such as the residual income experienced in insurance sales, but usually when the sale is consummated, the salesperson is moving on to the next person and potential sale. Immediate commission checks are usually higher than in network marketing, so if you want quick money, direct sales is your ticket.

If you want to build a long-term residual income, however, you should consider network marketing. Network marketing distributors still sell, but the sales process usually begins with their "warm" market of friends and relatives. Network marketing companies typically offer retail commissions that are much lower, since more of the available commissions are directed toward bonuses paid to various upline management people in the sponsor tree.

In turn, you can also sponsor a downline of distributors that not only sell but also consume products, making them your customers as well. If the company has high-quality products that are fairly priced and offer obvious benefits, the distributor has the real opportunity of building a "lifetime customer." Ongoing customer use creates residual income. Residual income is money you earn from your initial sales and reorders and the sales and reorders made by those you recruit and the ones they recruit, etc. This process continues to generate earnings for you long after your day-to-day attention to the "sale" or your sponsoring efforts has ended. For example, the royalties a writer or performing artist earns on his or her creation is an example of residual income. So is the interest earned on stock investments. Consumable products such as vitamins, personal care, cosmetics, etc. are more compatible with the network marketing business model, since reorders create the residual income driving the program.

Having spent most of my working life in direct sales and network marketing, I have found it easier to attract people to a network marketing opportunity for a number of reasons. Residual income is one; here are some others:

  • It usually costs less to get involved. Other than samples of the products and an at-cost distributor kit, there is usually no investment. Customer orders can be drop-shipped by the company, and customers can usually reorder company direct or on the company Web site with the designated bonuses going to the person that made the original sale. Consequently, this doesn't require major inventory. And that means ...
  • More people can become involved, since the concept embraces the part-time salesperson along with the full-time career builder.
  • There's potential for exponential growth. Distributors can leverage their energy and efforts through a small number of people they train who manage to in turn train and manage their own people and so on. In this way, sales create bonuses for the sponsor and upline.

If you enjoy people, are a good communicator and a hard worker, either direct sales or network marketing can provide an accelerated income potential. It's ultimately up to you to figure out which best fits your needs and goals.

Michael L. Sheffield is the CEO of Sheffield Resource Network, a full-service direct sales and multilevel marketing (MLM) consulting firm. He is also the co-founder and chairman of the Multi Level Marketing International Association (MLMIA). He can be contacted through

Entrepreneur Editors' Picks