March 01, 2016
Loud and Clear: Direct Selling’s Unparalleled Opportunity
by DSN Staff
Now in our 12th year as a trusted journalistic resource in support of the direct selling channel, we at Direct Selling News would like to turn up the volume about who we are and what sets our model apart. We believe that there are a few key components within the business model of direct selling that are nothing less than extraordinary attributes.
At DSN we are observers; we are not policy makers. However, we do represent a point of view that is aggregated from the many interviews we conduct, the many conversations we have, the stories we write and the observations we experience attending some of the most important events in the industry. We also benefit from the fact that we review and digest information about the industry on a daily basis. We take it all in when it comes to direct selling, and we are proud to write about what we believe is a unique business model in the free world. DSN, after all, is simply a reflection of collective thought in the channel.
Just what is the promise of the opportunity offered by any direct selling company? DSN‘s Ambassador John Fleming, retired executive from one of the largest and most successful companies with an over 100-year old history, and former Publisher and Editor in Chief of DSN, has perhaps the most compelling and expansive definition: “Direct selling companies offer an opportunity to people from all walks of life, regardless of background, education or skill level, the chance to own and operate their own business backed by material support from a larger brand and supported by a pathway of training.”
Who would not welcome the economic impact of such a proposition as Fleming describes? The definition appears to present multiple solutions to the basic economic challenges of our time.
This article offers our point of view on what direct selling companies offer to individuals and to the well-being of economies, both in the U.S. and on the global stage.
No. 1. Customers Are at the Heart of Direct Selling
Successful direct selling companies maintain an ever-present laser focus on their sales organizations. This group of independent business owners is the heart of the distribution of a company’s products or services. Without the sales organization of independent contractors, nothing in direct selling gets bought or sold. In fact, traditionally, direct selling companies had a hands-off relationship toward the customers developed by the company’s independent contractors because the relationships belonged solely to those who initiated and developed the relationship. Company involvement in that customer relationship was seen as meddling and intrusive.
As a result of this relationship with the sales organization, it is easy for those outside of the channel to see only a company’s effort to grow and nurture its salesforce and not the individual results of those who are selling products to customers. When that happens, those incomplete observations turn into criticisms that a direct selling company is not focused on selling products or services to end users, only on building a network of independent contractors.
While it may have been true in the past that a direct selling company would focus only on its independent contractors, the evolution of technology becomes a great enabler. The good news: Technology makes it much easier for a company to identify customers than in decades past. In fact, it is the widespread usage of technology that has spurred an evolution in the model itself. Before, the independent contractor was the one responsible for distributing goods across the customer spectrum, and independent contractors did not report those sales or provide detailed customer information back to the company. Now customers can go directly to the company through a website that is company branded but owned by a direct seller, and they can even shop on a smartphone.
Direct shipment to a customer is possible with most direct selling companies, and e-marketing tools provide a link between the company and the customer that did not exist in previous years. This new ability to connect directly with customers no longer interferes with the company/direct seller/customer relationship. Customer purchases can be automatically attributed to their direct seller, while at the same time the company can collect specific customer information. The direct selling business model has improved dramatically over the past 10 years, and both independent contractors and consumers are experiencing the benefits.
Customers are always the heart of any successful enterprise, and the new possibilities for greater customer focus through technology serves to position direct selling companies to really become best-in-class when it comes to personalized customer service. Why? Because direct selling companies today, through technology, can identify all of their customers, those inside the compensation plan functioning as business builders as well as those who only are being served as actual customers by the business builders.
Direct selling companies also are paying far more attention to the number of actual customers being served per business builder. This new focus is serving to strengthen the earnings opportunity, the manner in which incentive dollars are allocated, the relationship between customer and brand, and, we believe, the increased success of direct sellers themselves in accordance to time invested.
No. 2. Personal Growth Is Hard-Wired into the Opportunity
An oft-repeated phrase in the companies that make up the direct selling channel is “leave people better than when you found them.” Nothing fulfills this mantra better than the personal development opportunities hard-wired into most company offerings. Indeed, the fundamental concepts of bettering oneself and one’s place in life are woven into the very fabric of direct selling. Personal growth is something individuals keep with them the whole of their lives, whether or not they stick with the direct selling opportunity that provided the materials for that growth.
Often called “soft skills,” goal setting, time management, handling rejection and selling techniques are only a part of the education provided by most companies within our channel. Becoming an empowered individual, believing that you can be more and do more than your current circumstances would allow, taking charge of your life and helping others to do the same—these are the transformative pursuits that create a ripple effect throughout one’s life that can never be undone.
Personal development is a journey. And yes, it’s a journey that must be undertaken by the individual; no one can grow on another’s behalf. But no other business opportunity offers, as a basic component, such easy access to books, articles, videos, audios, even live training and coaching, as this great channel. The outcomes are as unique and personal as the people involved, but the desired end result is the same: Discover the highest and best version of you, and impact the world for good with this new self.
No. 3. Recruiting Is Essential to Successful Direct Selling
Regardless of the words used—recruiting, sponsoring or building a team—this activity is a vital part of the direct selling business model. Direct sellers have two key paths for developing their independent businesses: sell products or services to customers, and, if they wish to build a sales organization, recruit others who will also sell products and services to others as well as share the earning opportunity with others. Direct selling compensation plans reward a distributor for both opportunities.
The preceding is a wonderful business model and, through a direct selling company of their choice, is available to a most diverse population. There is no discrimination relative to gender, age, past experience or inexperience, nor current economic or professional status. Most importantly, direct sellers have fun doing what they do, and that is why direct sellers share with others (recruitment) what someone shared with them. We know that when a company only pays for the recruitment of others this becomes the identification of a pyramid scheme. Products and services being sold by everyone recruited makes for a most unusual and rewarding business opportunity. Those who make it work often refer to the business opportunity as their dream come true, irrespective of whether the direct selling business is being worked part-time or full-time.
Those who misunderstand the direct selling business model attempt to characterize recruiting activity as somehow sinister because the direct seller earns more money with a team than by selling product alone. It just makes sense that this is how it works. Every organization that sells something leverages multiplication and duplication of effort, whether it’s a franchisee purchasing multiple locations, a bank that desires to expand, a store opening new properties in the chain, or a regional sales manager hiring a team of salespeople. In direct selling, when the independent contractor grows a sales organization in which other people also sell products and services of value to end consumers, that distributor is appropriately rewarded with higher earnings, as is the head of any business organizational structure that rewards multiplication and duplication of effort.
No. 4. Direct Sellers Do Not Have to Make Large Investments in Inventory
It would be unthinkable to start any type of traditional business focused on consumable products without some level of inventory. However, you can start a direct selling business with minimal investment in inventory, and there are virtually no minimal requirements.
Prior to the e-commerce era, nearly every direct selling products company sold physical inventory to distributors, who kept it on hand to sell to their customers. This is simply how the process worked. And it worked well when distributors pursued a base of customers and appropriately maintained inventory in service of those customers. As a best practice, most direct selling companies have long maintained a generous buyback policy—often 90 percent or more—to ensure that no one in the sales organization is ever burdened with product they cannot sell or do not wish to use.
The risk is even more minimal today, as direct-to-customer shipping practices and online ordering technology have all but eliminated the need for an individual distributor to hold onto large quantities of product. Many distributors today do the bulk of their business by taking customer orders and having product shipped directly from the company to the customer. This, in turn, has put pressure on companies to provide excellence in delivery. Amazon has set the standard for efficiency in customers’ minds, and if a customer has to wait too long for product, their enthusiasm can diminish quickly.
Of course, some direct sellers may choose to carry inventory at some level to facilitate “cash and carry” sales, because some customers prefer to take their product home at the point of purchase rather than wait for it to be shipped. Many companies find that it works well to have a mechanism in place so that the distributor can decide how much inventory is a reasonable amount. One distributor may want to bring samples of product to a party or a gathering and to place orders for each customer from those samples or supplemental catalogs. Another may choose to have an inventory from which to draw. This empowers direct sellers, giving them the flexibility to work their businesses in the way that works best for them.
No. 5. Direct Sellers Earn in Proportion to Time and Effort Invested
The opportunity within the direct selling industry is not one that advocates that all who enter will become successful, but that all who enter will be rewarded in proportion to their successful efforts in selling and servicing customers and recruiting others who do the same. The access to a direct selling business opportunity offers a very diverse population a favorable chance to learn basic business fundamentals associated with opportunity. When compared to many other new business offerings, such as purchasing a franchise, being solely responsible for designing a business on one’s own or taking advantage of the new U-economy, the direct selling opportunity affords any individual a low-cost option for entry into entrepreneurship and a pathway to success with a specific startup process and ongoing training and development.
DSN’s research with Harris Poll on the topic of earnings through direct selling opportunities revealed that 70 percent of people surveyed who identified themselves as current direct sellers devoted 15 hours or less to their business and the median income level was $6,200. In other words, the research indicated that part-time hours produced part-time revenue for most people engaged.
The research also indicated that in the 12 months prior to the survey, 27 percent of respondents earned less than $1,000, 51 percent earned $1,000 to $49,000, and 15 percent earned more than $50,000. This data supports what we believe about direct selling opportunities: Some smaller percentage will earn a sustainable and large income, and the greater percentage will earn part-time income. This data should not be much of a surprise to anyone, as it is one of the attributes direct selling companies take pride in. No other business model provides as much opportunity in relation to startup costs and risks.
The economy of the United States has its own inherent risks if people were to simply look at the numbers. Information found in the Social Security Administration’s report on Wage Statistics (Most recent numbers are for 2014) show that Americans are very diverse in terms of what they actually earn through traditional jobs and career opportunities. If you earn:
- $20,000 per year, you make more than one-third of all Americans
- $30,000? You make more than one-half of all Americans
- $40,000? You make more than 60% of all Americans
- $50,000/year? You make more than 70% of all Americans
- One in five Americans makes between $50,000 and $100,000 each year
- 8% of Americans bring home more than $100,000 per year
- Only 2% of all of us get paid more than $200,000 annually
Clearly no one would be motivated by statistics that reflect averages. Those who do not completely understand the direct selling business model often forget to look at the diverse segments within the ranks of every direct selling company. Averages computed by dividing revenue by total numbers of independent contractors become the precursor to misinformation and misunderstanding. Direct sellers, unlike employees, actually choose how they desire to work and what amount of time they are willing to invest. It’s a beautiful business model.
No. 6. Self-Regulation Is Important to the Future of the Direct Selling Industry
It is an unfortunate truth that fraud and deception exists in every industry. This is a fault in human nature, not in a specific type of business model. Therefore, wherever there are individuals or companies that attempt to use deception as a means to success, they will always be eventually removed or penalized, often by the regulatory agencies that uphold the laws of the community and country where business is being conducted. Fair, unfair and unclear use of laws will remain an ongoing challenge in the democracy in which we live, which is why self-regulation is such an important component and attribute of the direct selling industry.
Bad actors have the ability to hurt the reputation of independent contractors as well as peer companies, no matter what the industry or channel. It is therefore of utmost importance that the direct selling community exercise tight regulatory control over itself. Independent contractors who misrepresent either industry or company codes, policies, principles and values should be held accountable to the highest ethical standards and consequences.
Companies, of course, must lead by example, and whenever a company practice violates a code of conduct itself, we know that it is virtually impossible to hold the sales organization accountable to any ethical standard. The U.S. Direct Selling Association’s Code of Ethics offers a strong framework for behavior and practice. How codes and policies are implemented and integrated into the fabric of the entire training and development process ultimately determines the quality and effectiveness of how all involved hold themselves accountable.
Summary of the DSN Point of View
The direct selling business model currently engages close to 100 million people globally who generate close to $180 billion in sales, most of whom are women. With an opportunity to start a business with modest investment, learn basic business building principles and skills, and earn in proportion to effort invested, direct sellers and this industry represent a unique opportunity. Those who learn to sell products and services as well as recruit others who desire to do the same, have an opportunity to build a successful part-time business and potentially a larger and significantly rewarding full-time business. Other benefits, some of which are nonfinancial, include enhanced skills related to business building, personal development opportunities, ways to create a blueprint for greater achievement in life, ways to better balance life and work, understanding of the value of entrepreneurship, recognition of achievement and bonuses for overachieving, along with the camaraderie of being around others who are learning this themselves.
There is no other business model based on individual entrepreneurship and ownership that comes close to the business model direct selling companies offer. Products and services that benefit from the personalized introduction and presentation of an individual is a major reason why a company chooses direct selling as their preferred way of conducting business. When people from all walks of life can become involved in a channel of distribution without discrimination or judgement based upon past experience or inexperience, all people benefit.
Direct selling as a business model provides more opportunity for easy engagement than any other channel of distribution in existence. Not all will succeed. Those who do not succeed in business terms (receive a profit) may still succeed in knowledge gained, experiences that were valuable and a new belief in one’s ability to achieve more of their human potential.
One final thought: Direct selling as channel of distribution will continue to grow, continue to serve consumers in even more effective ways as a result of technological innovation, and therefore, continue to support even more effectively those who choose to build direct selling businesses as part-time or full-time entrepreneurs. Direct sellers will continue to compete more and more effectively for market share that traditional retailers are struggling to keep.
Direct selling as a channel of distribution and as a business opportunity is unparalleled. This is our point of view.