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7 Deadly Mistakes People Make When Starting with Direct Selling

7 Deadly Mistakes People Make When Starting with Direct Selling
7 Deadly Mistakes People Make When Starting with Direct Selling

Direct selling comes in many forms. It’s used in the sale of products from virtually every industry.

Direct sellers can work with tangible products like jewelry, cookware, nutritionals, makeup, housewares, as well as the sale of services like energy and insurance. Girl Scouts, selling cookies door-to-door, and less adorable solicitors: they qualify as direct sellers, too.

Direct selling is also the key hallmark to hundreds of “multi-level marketing companies”, or MLMs. MLMs operate on the company’s choice to forgo traditional advertising and brick-and-mortar shelf space by moving their product through the power of a grassroots distributor network.

The best known MLMs include companies like Amway; Rodan + Fields; the cosmetics brand Mary Kay; Herbalife Nutrition; and the women’s fashion brand LuLaRoe. Each company brought in over one billion dollars in revenue in 2017, with the top grosser, Amway, bringing in just shy of $9 billion. All by the power of their distributor network.

Each of these groups’ products are marketed and moved entirely by individual distributors. Characteristically unpaid, these marketers take their share of the profit from whatever net is left between the wholesale price and the retail price. Distributors buy—in bulk and often at a decreasing price per unit as they purchase more wholesale product—their company’s product or line or products, in order to sell to independent buyers interested in the product. Ostensibly, not simply as an adjunct to the business opportunity of joining as a seller.

The majorly part-time distributors find customers in their friends, family, and co-workers from a day job. Not to established businesses or stores that would resell the product themselves.

It sounds so simple. So profitable. Could it really be?

Yes, if done well.

But, what is painted as an exponentially growable earning chain as both recruiter zero and his or her recruits make more retail sales is, in fact, financially detrimental if approached incorrectly. And, unfortunately, it’s the brands reaping the greatest profit, with the highest profile names, that often do the greatest damage.

It’s not just shady. It’s deadly. You’re about to learn the seven ways how.

1. Overlooking misleading entry terms

Most multi-level marketers, former and current, attest that the majority of the profit they earned (for those that earned profit) came from selling product, not to unaffiliated customers, but to their new recruits, so that those recruits could to sell to others.

MLM products are typically far too expensive to compete with products purchased from standard retail outlets. Thus, the only common incentive to purchasing an MLM product comes in the elaborate culture pitch of the company itself.

The selling scripts personalized to each company, plus the plethora of up and at ‘em language animating the company enrollment literature, paint the undertaking as the most profitable side venture, even full-time gig, the prospective distributor has never heard of.

Roped in by big (painstakingly worded and as such legally non-binding) promises, new recruits enter on the premise, among other insinuations, that joining the company as a dispenser will grant them the freedom to work from home and still earn as much or more than at a 9-to-5; to be their own boss; and to name their own hours — even as past and current sellers around the globe tell a different, far darker story.

Unfortunately, merely selling the product is often far less important to participating distributors than attracting new distributors. Distributors are, thus, chiefly acting recruiters, on-boarding others—largely the same people they’ve sold product to—to become distributors with the company as well.

They do this because, in recruiting more sellers, the original recruiter gets a share of their recruitments’ sales, as well as a share of the sales made by those their recruits recruit. This creates the predatory endless cycle that merely shuffles in and out innocent hopeful salespeople, who are only turning a profit by seducing others to sell (and buy their wholesale product).

2. Too ready accepting elaborate promises of wealth

Even more florid are the promises made at conferences and summits annually hosted by many MLM companies. Here, “success story” keynote speakers and MLM CEOs have historically qualified the promise of wealth & success. They do this by elaborating a scenario in which distributors finally, for instance, “tell it” to their current boss before quitting and getting rich on their own terms.

3. Ignorning ongoing evidence of deception

In short: the compensation plan of the most successful MLMs isn’t designed, nor does the practice in any legitimate way intend, to incentivize retail sales.

Rather, the recruiting of additional participants comprises the main fuel for any given MLM enterprise, in that wholesale purchase of the product by grassroots sellers is asterisked with the assurance that getting involved with the company will function like an entrepreneurial venture.

4. ...and covered up wrongdoing and maltreatment

Converse to the claims made by MLM companies, and these guarantees of effortless, fluent income, worldwide feedback from MLM sellers suggests nothing of the sort. In fact, investigations into prominent MLM compensation structures overwhelming indicate that, more than describing the benefits unfairly or with flawed language, MLM companies are largely extremely viral, predatory and cause significant financial harm to the majority of their participants, leagues beyond a mere technical error of representation.

5. Accepting the mounting costs of participation

While start-up costs for most direct selling companies are a few hundred dollars or less, the cost of sustaining a certain selling status, as distributors with Mary Kay and HerbaLife Nutrition are pressured to do, or to receive an optimal discount on their wholesale purchase, are immense.

Costs mount over the course of time that a distributor stays with a company — for most sellers, without ever turning a profit, and drifting farther and farther from that potentiality as time goes on and expenses build up.

HerbaLife, in particular, was fined $200 million in July of 2016 by the Federal Trade Commission for, among other grievances, causing substantial economic injury to many of its distributors by maintaining a policy that rewarded them in response to how many new sellers they recruited to join and purchase products, not in response to actual retail demand for the product. The FTC probe concluded that whatever profit was taken in primarily benefited the coffers of the company and its founders.

HerbaLife, in particular, was fined $200 million in July of 2016 by the Federal Trade Commission for, among other grievances, causing substantial economic injury to many of its distributors by maintaining a policy that rewarded them in response to how many new sellers they recruited to join and purchase products, not in response to actual retail demand for the product. The FTC probe concluded that whatever profit was taken in primarily benefited the coffers of the company and its founders.

According to additional research at the FTC, observing MLMs broadly, 99% of recruited sellers lose money in an MLM venture.

6. Not acknowledging rarely make any profit

How many of those in the 1% out of 100 actually turn a profit? That’s another matter, as well as however little that profit may be, and how high up the recruitment structure the profiteer may be. Suffice to say, 99% aren’t actually making the lucrative business investment that MLM companies claim. Quite the opposite.

With just 1% walking away financially unharmed (not accounting for the cost of their time allocated to the venture) we know that the average person has a 4% better chance of beating the house in a casino (where doing so occurs about 5% of the time) than achieving an income from an MLM venture, let alone the substantial income that MLM companies assure is par for the course.

7. ...or that all profit often goes to the top

The only guarantee in these forms of MLM is that each new brand affiliate enters the company is a new customer, and a free marketing agent for the company.

That means that, yes, when, in 2017, MLM “Mastermind” event founder Art Jonak told a stadium full of people that the worldwide sales of network marketing distributors had grown to $189 billion that year, he was telling the truth. Just not a truth that virtually any person in the audience could testify had personally benefited them.

In the same speech, Jonak further calculated that, globally, each distributor generates about $1,600 in sales volume per year. Including, of course, the cost of products purchased by the distributor him or herself, whether or not it had been moved from their garage or not.

But we need not beat a dead horse: the bottom line is, mainstream MLM is a slippery, usually crooked, and almost invariably risky venture. However, what blends the majority of MLM companies into one pernicious, predatory amalgam in the eyes of a better educated public is precisely what distinguishes other groups that use network marketing techniques from that deservedly bad reputation.

Namely, that to participate in the income opportunity laid out by the most disreputable MLM giants requires that its participants first invest, and then continue to invest, personal funds to make the venture work. Conversely, network marketing unaccompanied by any fees flip the script and salvage at least some trustworthiness for the practice.

In its most successful form, network marketing reflects the age-old human behavior that the practice stems from: word of mouth recommendation. “Selling” friends and family on a product or service, not selling something with a price tag attached in a transaction that the seller with certainly benefit from, while the buyer’s benefit it not at all guaranteed.

Network marketing, in this sense, can be observed in any company that actively encourages fans of its product to spread the word to other consumers.

Ambassador programs, particularly with college students, have had huge success for companies like Red Bull (Wings Teams), and Yelp (Yelp Elite Squad). Countless more companies will use independent influencers on social media to promote their products to their personal network of friends and followers.

GoPro, Apple, and any major media outlet one could care to name, utilize yet another form of network marketing known as “user-created content”: characteristically unpaid, the company will feature examples of its customers enjoying one of their products as a prominent testimonial to the product’s excellence, while, at the same time acknowledging and commending the user. Perhaps most iconic of the bunch is the “Shot with an iPhone” campaign, which sought to sell consumers on the pro-grade quality of iPhone lenses.

In using this method, Apple incurred only the cost of the advertising space, while encouraging others to spread the word about Apple cameras simply by taking photos themselves, hoping to be included in the next one.

Most basic of all, though, are the word-of-mouth messengers not directly affiliated with a brand, nor necessarily distinguished by the company. Rather, these customers are enthusiastic about the product and happily “seed” a message in their networks by encouraging other consumers to try it out. Of course, that passionate individual’s motivation isn’t guaranteed to be honorable — he or she could simply be hoping to draw attention to themselves in order to receive complementary product, or to jumpstart an ongoing business relationship with the company that would be directly compensated. Regardless of the circumstances, however, the hazard to the recomendee is unchanged: they can choose to take the recommendation, or not. Either way, the decision made is based on trust in their recommender, their own appreciation for the product and the function they envision it performing in their life, and the relatively low, presumably one-time cost of a purchase.

Recognition is wonderful. As is sharing your passion for a product and appreciation for the company that made it. But there are certain network marketing trades you can get involved with that do have a real income opportunity, fee-free. At companies where sharing the word can earn you real money.

The most common, if not formally categorized as “network marketing”, are referral programs.

Companies like PayPal and DropBox have seen huge success from the double-sided referral program method, where both a referrer and their friend get rewarded with discounts and/or direct cash rebates from an invitation. Airbnb recently advertised that users a $100 travel credit for inviting a friend that ended up renting an Airbnb themselves.

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