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5 Steps for a Successful Start in Direct Selling
Direct selling, the classic work-at-home business for parents, provides a way to earn extra money while maintaining home-life balance and a flexible schedule. It has many advantages: It scaleable to the amount of time available. It doesn’t take much upfront investment. And it can be a fun and social enterprise, particularly when home parties are the sales outlet. Your friends and family become not only your customers but perhaps your colleagues too as you recruit new sales consultants to your... team.
If you think this business might be an earning avenue for you, read on to see what to consider before getting into direct sales, how to determine your goals and product and ultimately how to create a successful sales plan for your business.
Continue to 2 of 6 below.
Understanding How Direct Sales Works
Deciding What You Want From Your Business
Choosing a Product
Learning About Costs and Compensation
- Creating a Business Plan
02 of 06
How Direct Selling Works
In direct selling, also known as multi-level marketing or network marketing, consultants (or distributors) sell products and services directly to customers without the use of a physical retail outlet. Typically sales take place through one-on-one contact--such as parties in the home--but sales also can be done via phone, in a customer’s home or office, through social media or on the internet.
Direct selling companies typically are structured as multi-level marketing (MLM) organizations. This... means that compensation for sales reps is based on both product sales and recruiting other sales reps. Consultants who bring new associates into the fold then receive commissions based on the new reps’ future sales and their recruits’ sales. Pyramid schemes actually work the same way, except that the difference between a pyramid scheme and an MLM is that a pyramid scheme relies on recruitment only, not product sales for revenue. For this reason, avoid direct selling operations that emphasize recruitment over sales.
In an MLM, your recruits and their recruits are your “downline,” and the person who brought you in (and those before her) are the “upline.” Typically there are limits to how extensive the upline and downline can be. Learn more about direct selling terms.
Most direct sales consultants work part-time, only supplementing their family’s income. According to Direct Selling Association, direct selling consultants earned a median income of $2,400 a year in 2011 (the last year the DSA released this information). In 2014 the DSA reported that 94 percent of direct sales consultants worked 29 hours or less per week.
Typically new direct sellers buy a start-up kit, most likely from the person who introduced them to the product. Costs of kits vary considerably, based on the price of the products sold. Typically kits start around $100 and go up from there. Fees and upline commissions may be deducted from sales, and products may have a variable wholesale pricing structure based on volume. Also each company has its own set of rules in regard to selling back unsold inventory to the company.
To best understand how direct sales works you must read contracts and documentation carefully and ask lots of questions before you start.
Next: Deciding What You Want From Your Direct Selling BusinessContinue to 3 of 6 below.
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Determine What You Want From Your Direct Selling Business
Now that you have a solid background on what direct selling is and isn’t, ask yourself some questions about why you want to get started in direct sales and the amount of time you want put toward this endeavor.
Do you enjoy the idea of entertaining in your home while at the same time making some money to offset the cost?
Would you just like to earn a little extra cash without a big commitment of time and money?
Are you trying to build a full-time business and hope to earn a significant portion of... your family's income from direct selling?
Is it that you love a particular product and mostly just want to buy it at a discount?
There are no right and wrong answers to these question. These are all legitimate reasons to get started in direct sales. Knowing what your reasons are, though, will directly affect the product you choose, the business plan you make and your overall success.
Whatever scale you determine for your direct selling endeavor, the determining factor in its success will be you. Do you have the personality of a salesperson? Consider whether you have the skills to be a home business owner and if you will like working from home. Can you balance family and work all in one place?
Do you have the right personality for a career in sales? You must be persuasive and pleasant mannered. You need to work to overcome objections while still gracefully handling (and learning from) rejection. You must be self-motivated and able to set and reach goals for yourself.
This type of self-assessment is a good start. However, the initial investment in direct selling is typically pretty low, so this may be a good way to see how much of an entrepreneur you really are.
Next: Choosing a ProductContinue to 4 of 6 below.
04 of 06
Choose a Product to Sell
For some new direct sellers, choosing a product is not an issue. They love a particular product and want to sell it (and buy it at a discount). But even when that is the case, in order to be successful you need to critique the pros and cons of your product choice.
First, ask some questions about the product:
Do you think highly of the product? It’s much harder to sell something you don’t feel strongly about. Most likely you are beginning by selling to your friends and family, so be sure that you... are willing to stand behind the product. Be especially careful with products that make health claims.
Is the product consumable? Clearly a product that gets used up has the potential for repeat customers in a way that durable goods do not.
What is the quality of the product? Whether a product is consumable or not, quality and reputation are important factors in building a base of repeat customers.
What is the price of the product? Non-consumables like jewelry and home goods tend to priced higher and therefore offer the opportunity for greater revenue per sale.
Who will buy this product? While it might seem ideal for a product to appeal to a broad segment, goods with a narrower customer base can be successful if that base lines up with your own personal network of friends and acquaintances. For instance, if you are the mother of preschoolers, toys and books aimed at that age will appeal to the people you know, for now at least.
Is the product a luxury item or necessity? Luxury items obviously have a higher price point and will do well around the holidays. However, in tough economic times, sales dry up quickly.
Before you make a final decision on your product, be sure you understand the company’s costs and compensation.
Next: Costs and CompensationContinue to 5 of 6 below.
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Understanding Costs and Compensation
Understanding compensation is key to choosing a product and making a business plan. Some compensation plans emphasize sales and others recruitment.
Unilevel Plan - In this plan you recruit as many people as you can to your downline, and they will stay in your downline as long as you are selling. This is what is often known as a party plan. In this plan, recruitment as much as sales, both for you and your downline, drives monetary success.
Stairstep or Breakaway Plan - In this the most common... plan, new distributors that you recruit can eventually break away from your downline when they reach a predetermined volume or number of downline distributors of their own. On the flip side you can break away from your upline too. This plan emphasizes sales over recruitment.
Binary and Other Compensation Plans - In the binary plan, you are limited to two distributors at the top of your downline and sales volume in their downline is the source of success. Typically these plans have weekly payouts. Plans with other variations as to the number of distributors and levels of downline abound.
What is the cost of the starter kit? It should be in line with the cost of the product and, more importantly, affordable to you.
What is the commission structure? Seems like higher commissions would always be better, but a commission that is too high could signal that the product is overpriced, making it not a good long-term opportunity.
What are the monthly maintenance fees or other costs? If you only plan to sell on an occasional basis, this question becomes even more important as fees can eat up your profits.
What limitations are there on selling back unsold inventory? Also consider whether there are large incentives for you to pile up inventory because of volume discounts. This is a red flag.Continue to 6 of 6 below.
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Create a Plan for Your Direct Sales Business
While direct selling is in some ways less complicated than many other home businesses, you still need a plan. Setting goals, sketching out steps and drawing up a plan can keep you on track. This simple business plan outlines the basic steps any entrepreneur should take in outlining a new venture.
You have actually already begun this process by reviewing your reasons for getting into direct selling, thinking about your own strengths and weaknesses and determining the scope of your the enterprise.... You understand compensation structures and know what to look for in a product. You are ready to begin setting out the steps you will take.
After realistically determining the amount of time you can devote to direct selling and speaking with others who sell this product, set short-term and long-term sales goals. Set goals on recruitment as well.
While you were making your product choice, you most likely came up an idea of whom you might sell to, but now look at that market more closely. Are there many other sellers of this product in your personal network? Where can you find a new market segment? Perhaps, in the long run you will need to create a website or market using social media. What are the steps to doing thing? What new skills might you need to gain? In the short term how will you begin making sales?
Write down the answers to these questions and outline a timeline. When you have done all this, purchase your start-up kit and start selling!