MLM, network marketing and direct sales, which is best for you?

People say that the Internet has changed everything! I say that some things never change. For instance, whether you’re selling online or face-to-face; people do business with other people. Your customers are people you are selling to people even if you are using the Internet as the platform.

Recently we talked about ways to make money on the side while still keeping your regular job and some of you have asked for examples of how to do this.

Apart from getting a part-time job; we keep hearing that there are all these job vacancies that can only be filled by EU recruitment. I’ve mentioned plenty of online money-making ideas, such as Amazon and Ebay, so I wanted to give you a few offline ideas for those of you who prefer more traditional face-to-face sales.

Over the last 50 or 60 years one of the most popular ways of earning extra money is to join a network marketing or direct sales company where you sell products and recruit people on a self-employed basis.

One of the main advantages of joining such an organisation is that you don’t have to do any of the R&D, product development marketing and set up in order to get started. You can basically sign up and get started. It’s a bit like a franchise where much of the work has been done for you. In general, you have more chance of surviving under a good franchise system than you do starting-up your own business from scratch. There are, of course, disadvantages like the fact that you have no control over the business.

I know people have made millions from network marketing. Jim Rohn made his first fortune working in Amway, the largest network marketing company which started in America in the 1950s. But I also know hundreds of people who have made nothing or have lost quite a lot of money. I still remember the look on the face of a restaurant owner in Swiss Cottage, when a lorry turned up to deliver a large consignment of water filters.

So what’s the difference between MLM, network marketing and direct sales?

The main difference is that network marketing involves recruiting and building a team whereby you earn commission from your downline. This should not be confused with the illegal pyramid schemes where the sole purpose is to recruit people and get their money from people who then recruit more people to get more money.

Direct Sales simply involves selling products for a commission.

• Direct selling

There are hundreds of companies that sell low-cost products through a network of self-employed agents. Long established companies which come to mind include Betterware and Ann Summers.

Ann Summers have been going strong years and have thousands of female agents or “ambassadors” who make part-time living selling their products through party plan systems(similar to the old Tupperware parties). They run a staggering 7.000 parties every week in the UK and Ireland and have made the old-fashioned sleazy sex shops more palatable to the High Street. It has worked very well and the company is very successful.

Ann Summers started in 1970 with a shop in the west end of London. It was acquired by Ralph and David Gold (some of you may know him as the joint chairman of West Ham FC) in 1981.

David Gold’s daughter Jacqueline Gold, the current Chief Executive, started the party plan concept. I have met Jacqueline on a number of occasions and she is a fascinating lady. The story goes that she was originally introduced to the company on a work experience basis and paid just £45 a week. She says that the experience of working in one of her father’s sex shop was not very pleasant due to the male-dominated atmosphere and the way the shops were perceived at that time. She was invited to attend a Tupperware party and immediately saw the potential of selling sexy lingerie and sexed toys to women in the privacy of their own homes. Her genius idea took off and changed everything for the company.

The company now has 144 retail outlets across the UK Ireland, the Channel Islands and Spain.

Jacqueline Gold is repeatedly worth £500 million.

Betterware started in east London in the 1920’s and still sells basic hardware and useful gadgets and household goods. Typically, their army of over 7000 agents would distribute a brochure and order form door-to-door in their area and ask customers to leave the brochure with any order form for good they wish to purchase. They then go back on a designated day to collect the forms. Orders are then hand-delivered by the agent who earns a commission.  Years ago, my partner had a Betterware round. She did okay and sold lots of small priced products.

• Network Marketing

Network marketing, also called multi-level marketing (MLM) and referral marketing, is a marketing strategy for the sale of products or services through a network of self-employed agents where part of the revenue is distributed to agents and up/downlines through a pyramid-style binary compensation plan. Whilst individual company compensation plans differ, the basic principle is that you can earn money from two sources, one through selling products and to earning commissions based upon the wholesale purchases of distributors you have recruited in your network or downline. In theory, because the company does not have any retail outlets and far fewer staff and overheads than a traditional company, the majority of the profits should be distributed to its agents.

Many Vitamins companies such as Herbal Life have made billions off of selling supplements via MLM. A company I have been using sells quality supplements through MLM and are still around after 20 years. I get a discount on the products as an agent but do not actively recruit other agents.

One of the early MLM or direct sales companies is Avon, which has been around for donkey's years selling cosmetics through the network of mostly female agents. I personally know many people have made modest but decent living part-time on selling Avon and similar products.

Things to look at if you are going to join a network marketing or direct sales company.

1. Is the company financially stable?

Is the company you’re signing up with financially stable and likely to be around for the longer term? Do your due diligence before parting with your money and getting all your friends involved, as I have seen many companies come and go. I’ve been there in a big hotel room at Heathrow Airport with 2000 people or eager to sign up with a company from America that had a “ground floor” opportunity. Unfortunately for me, most of them never got off the ground and some went bust taking my money with them.

2. Is it a reputable company and a member of any Direct Sales Association or similar body in your country?

Look up the company and find out how long they have been going. Most are private so it is difficult to get any detailed financial information.

Other things to look for is the viability of the product range, whether or not they make any wild claims about how much money you can make and whether they require you to purchase large amount of stock or expensive starter kits.

3. Repeatability of the products

Do they sell a product which is ‘repeatable’ and likely to be bought on a regular basis. For instance, if the company selling vitamin supplements or utilities then there’s a good chance that customers will come back to buy more and stay with you for many years.

4. Does the company have a fair and understandable compensation plan?

Make sure you understand the compensation plan, as some can be extremely complex. I found that even existing agents don’t fully understand their plan. Make sure it is not a pseudo-pyramid scheme. 

5. Are the products any good?

You can’t make a silk purse out of a pig’s ear, as the saying goes. People are so eager to get rich quick often overlook the actual product and even sign up to schemes it don’t even have a real product. Network marketing companies which have stood the test of time all have a good consumer product range with a reasonably priced entry level.

You have to make your own decision based on your research. There are thousands of companies out there selling all kinds of products and services. Find the one that suits you best.

You can also sign up as an agent to purchase specialised products for yourself at a discount.

Remember, you can only go so far by cutting back and saving money. You have to generate extra income to build wealth, just as a business needs sales and customers.

I would add that I am not promoting these schemes and you should take legal and accountancy advice before entering into any business transaction. I’m just giving you information here. However, if you’d like to know more about how you can earn a bit of extra money on the side, please feel free to drop me a line at charles@charleskelly.net.