Direct Sales 101 | What is the difference between direct sales, network marketing and multi-level marketing (MLM)?
|March 28, 2014||Posted by Krista Dial under Direct Sales, MLM, Multi-Level Marketing, Network Marketing|
Prior to starting my direct sales business in 2009, when I initially thought of this industry, I recollected a variety of in-home “party” experiences from my youth – TupperWare parties, beauty consultations with BeautiControl and Jafra, kitchen gadget demos and tastings with Pampered Chef and more.
I never really “saw the money”, if you will, from a career perspective. These seemed like fun things to do on the weekend and the reps seemed to enjoy themselves and genuinely care about the customer experience, but I never had an interest in “partying and peddling” as a career option.
Fast-forward to September of 2009 when I’m newly-engaged to a co-worker and our employer starts down-sizing…I was open to options. I re-discover the direct selling industry via a perfect stranger at a local networking event. I learn that the two dermatologists behind the well-known, billion dollar acne brand that sky-rocketed to fame and fortune via the infomercial world and spokesmodel/celebrity endorsements have just started a new company focused on anti-aging and I can help them grow it. How? Via direct sales and network marketing. (Cue the scary music.)
What? Really? I was definitely skeptical. This stranger and I swapped information and I agreed to take a look and do a little research. She followed up with me tactfully and in a timely manner (the fortune is in the follow up, friends!) and I agreed to meet her over lunch to learn more. In my research prior to our lunch, I discovered that MUCH had changed since those home parties of my youth. Granted, there are still many companies that thrive on the party-plan, however, with the rise of social media and online technology…I found that many new companies (like this one) were doing things differently. I decided to make the leap, commit to learning this industry front and back and the rest is history. This complete stranger changed the trajectory of my career path and I am SO thankful she had the courage to embrace this industry and “put herself out there” to share with me.
As I shared in my last Direct Sales 101 post, my goal here is to clear the air and clarify how powerful and life-changing this industry can be. Many people are simply misinformed or uneducated on how it works.
Direct sales, network marketing, multi-level marketing (aka MLM)…these phrases illicit many different responses and most folks don’t know the differences. Let’s define them.
According to Wikipedia, direct selling is the marketing and selling of products directly to consumers away from a fixed retail location. It is the direct personal representation, demonstration and sale of products and services to consumers, usually in their homes or at their jobs.
There are many, many companies in the direct selling arena and the idea behind direct sales is to pick a great product you enjoy sharing and get paid for building a client base and selling that specific product. It could be a medical device, household appliance, investments, cookware, jewelry, insurance…the list goes on. You might sell to your warm market, jump into the cold market and/or the company may provide leads for you. It could be B2B or B2C. Every company is different.
Network marketing is similar to direct sales, in that, you are representing a company’s products and getting paid on the sales of those products, however, with network marketing, the idea is that you start sharing with your warm market – your existing network. Many of us already do this naturally and don’t get paid for it. Think how many times per week or month you recommend seeing a movie, reading a new book or trying a particular restaurant you recently enjoyed. We don’t think twice about making those referrals, yet those companies don’t pay us to promote our experiences. It’s human nature to share the products that are working for us with the people we know either online or in-person.
Multi-level marketing (or MLM) takes the network marketing/direct selling mindset to a whole new level. In multi-level marketing, not only do you get paid on your personal sales, your own client base, but you may also work with other reps, train them, help them become profitable and earn commissions on their sales as well. As you build your team, you teach these individuals to duplicate your system and become business-builders as well.
As your team begins growing a client base and working with other independent distributors, duplicating the whole process, these new representatives remain within your umbrella and their profits feed into your payout as well. As their profits increase, your profits increase.
All of these representatives, including those introduced by someone else on your team, are a part of your business. In industry terms, these people are called your “downline”. A downline is comprised of many levels or layers – thus the term multi-level marketing. Pay percentages as a team grows will vary greatly per company and there are different types of compensation plans, which we will cover in a future blog post.
As John D. Rockefeller so brilliantly stated, “I would rather earn 1% off 100 people’s efforts than 100% off my own efforts.” With this business model, Rockefeller’s quote easily becomes a reality.
This concept has been around for many years and is really a similar idea to the franchise model, with many differences, of course. Let’s compare. I’ll use the Jimmy John’s franchise as an example. I LOVE them. (Seriously…go try the #5…the Vito is delicioso!) Okay…so Jimmy John’s started in 1983 and today has more than 1,600 locations thanks to their independent business owners. The franchise fee alone is $35,000. You can see the list of other fees required in the initial investment here. There’s a lot to think about – real estate, building, inventory, equipment, employees, etc. The beautiful thing about a franchise, however, is that they have a tried and true business plan that, if you are coachable and commit to following, will yield significant results over time. You pay the fees for their system and resources, you run the business, you make the profits from your business.
It’s the very same idea with multi-level marketing, without the required physical storefront, staff of employees and large up-front investment. Most multi-level marketing businesses can be started for $1000 or less. Like the franchise model, direct sales/network marketing/MLM companies offer a business plan, training and support to help you accomplish your goals. You’re in business for yourself, but by no means by yourself.
What I love about the company I represent is that we have a very generous payout for both personal sales and team sales. Some of our reps focus solely on building a client base and supporting those customers. Other reps focus largely on team-building and helping their team become successful. Many are like me and focus on a nice combination of the two. I LOVE our product and have amazing customers I’m so blessed to work with. I also LOVE leveraging our compensation plan and helping my business partners build profitable businesses so they can accomplish their goals. It’s a win-win.
I hope that defining these terms provides a deeper understanding regarding this industry.
Tell me, did this teach you something new or provide a new perspective for you? I’d love your feedback.