Direct Selling For Dummies. Ellsworth Belinda
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turning to your upline for support because the business model pays them commissions based on the success of the people in their sponsorship line. They are eager to see you succeed and they understand the details of your business better than anyone. Your success contributes to their success, so they have an incentive to provide you access to the tools and information you need to run your business well.
With a very low starter kit purchase, direct sales offers the average person a way to earn income with an established business model and a marketable product line. It works almost like a mini-franchise without the initial investment. It can cost a new business owner tens of thousands or even millions of dollars to open a brick-and-mortar franchise like a donut shop or fast-food restaurant. With direct sales, you benefit from your affiliation with a company that has created the concept, conducted research and development, incurred the manufacturing costs, and invested the money in starting the larger business and brand. This provides you with a low-risk opportunity to earn more money than you could realistically by starting from scratch alone.
The company also absorbs the ongoing expenses of warehousing the product, developing new products, creating marketing materials, complying with government regulations, and taking care of a number of other high-ticket costs that you’ll never even have to think about, let alone be responsible for. This arrangement removes some headaches for you and eliminates the need to hire a staff of your own or become an expert in these other areas. When things work well, representatives can focus solely on marketing the products, taking great care of their customers and teams, and recruiting new people into their teams.
So, what’s in it for the company? Independent representatives are the sales and marketing arm of the company, and the company only pays commissions for actual sales. Instead of paying for advertising and other expensive marketing, the company only pays the independent sales force after a sale has been made. That is appealing to companies, especially when they have products they believe will do better with word-of-mouth advertising and in-person demonstration.
Understanding the Three Different Direct Sales Models
Within the direct sales business model, there are three main kinds of company structures. They are called Network Marketing, Party Plan, and Hybrid. Chapter 3 goes into a lot more detail on these, but this section provides a quick overview.
Network Marketing refers to a company structure designed to move consumable products through a network of independent representatives, through both personal use and sales to end consumers. When a Network Marketing company is building its sales force, it is focused on building a network of consumers. The company doesn’t distinguish between those who join as independent representatives to earn money and those who join merely for a discount on their personal products.
(Network Marketing has also been referred to as multi-level marketing or MLM, but that is a misnomer – actually, all of direct sales is structured with multi-level compensation plans to pay their representatives, and all direct sales companies are therefore multi-level marketing companies.)
One strength of the Network Marketing model is that companies can grow very large and sell huge amounts of products through a vast network of people who have, in many senses of the word, joined as members. Many members set themselves up for a subscription to receive their products each month – an arrangement often called auto-ship. These continuous re-orders through a network of people affiliated with the company by choice can lead to consistent sales growth, as long as people in the network continue to see the benefit of the product.
Examples of companies that use the Network Marketing model are Isagenix, USANA, and Amway.
Party Plan refers to a model focused on efficiently selling to groups of people who have been gathered together by a host they know personally, either in person or virtually (online). These types of gatherings are typically referred to as parties. However, some companies personalize the term they use for their parties in order to make the experience more unique. For example, jewelry bars, tastings, cooking shows, makeovers, and so on.
These parties are hosted at a customer’s home, and this customer is known as the host. The host traditionally is rewarded with a series of discounted and free products as well as host-exclusive specials. The host invites her friends over as guests to attend the party. The party usually consists of light refreshments, socializing, and a presentation done by the representative. The purpose of a home party is to create a fun, relaxing, home shopping experience with friends.
Toward the end of the party, the rep collects payment (usually through credit cards or cash) for the products the host and her guests want to order. These orders are placed through the rep’s virtual office (which is provided to her through her company). Chapter 9 discusses in detail how to conduct a successful party.
This model lends the power of the host’s personal recommendation to the products and facilitates social proof, which means the weight of influence carried by a group of people. Once one person decides to buy, it increases the likelihood that the rest of the guests in attendance will also buy – that’s social proof in action.
The model is called Party Plan, but many companies who use this structure prefer different terminology. Some companies refer to the gatherings as parties, whereas others will call them shows, demonstrations, classes, mixers, tastings, trunk shows, or showcases. Some direct sales companies even actively discourage the use of the word party. Regardless of what they are called, Party Plan parties are quite effective in generating sales, attracting recruits, and teaching others how to sell.
One clear strength of the Party Plan model is the easy-to-understand emphasis on selling products to customers. This structure can include one-on-one sales and a variety of other ways to sell, but the majority of training conducted by these companies focuses on the most efficient and enjoyable method of sales – which is, of course, the party. New independent representatives can easily grasp the concept of this fun method of commerce, and that makes it a very accessible business model for the average person.
Examples of companies that use the Party Plan model are Jamberry, The Pampered Chef, Scentsy, and Stella & Dot.
This is the new kid on the block. As you might guess, it blends the practices of Network Marketing and Party Plan. In Hybrid companies, as with those in the Party Plan model, independent representatives have hosts gather their friends and family to experience a product demonstration, in-person or online. But with Hybrid, the emphasis is as much on the business opportunity as it is on sales of the product. The structures of the compensation plan tend to borrow traditional elements from both Party Plan and Network Marketing.
One significant difference is that with Hybrid companies, it is common for the representative to encourage the host to have an impromptu gathering, rather than scheduling it weeks in advance. They might say, “Sure, I’d love to demonstrate how this product works. I absolutely love it and I think you will, too. You can get it for free, too, and I can show you how. Why don’t you and a few friends come over and watch while I show it to you tonight or tomorrow?”
Hybrid companies typically represent tangible products that are consumable, such as health and wellness or beauty products. As in Network Marketing, these products lend themselves well to auto-ship, the subscription order model where independent representatives and customers get monthly replenishment orders shipped to their homes automatically.
In Hybrid companies, auto-ship usually offers a price break for the customer, (sometimes referred to as a preferred customer rate). You will see programs that offer vanishing auto-ship or free auto-ship for customers who refer other customers through referral programs. These referral programs can also include free auto-ship for independent representatives who have a certain number of customers on auto-ship, meaning that the representative’s own monthly consumption of product is covered. These referral programs, which attractively combine the customer-focused Party Plan outlook with the Network Marketing-style auto-ship approach, have been very successful and have led to significant growth for the companies and leaders involved.
Examples