How to Assess a Direct Selling Opportunity
Despite the pyramid and Ponzi schemes that imitate direct selling, there are plenty of legitimate opportunities to be found. Here's how to tell the difference.
iStock
Though direct selling is by no means the get-rich-quick scheme it's often touted as, it does offer some distinct advantages to the aspiring entrepreneur. Chief among these benefits are the flexibility to set your own schedule and the infrastructure of a larger company manufacturing your products, boosting your brand, and hopefully providing you with the sales and leadership training.
The central rule for weighing the legitimacy of a multilevel marketing or direct-selling opportunity is the promises the company makes. "Any company that tells you you're going to make $1 million or that this is something that's so simple, is a joke," says Nick Beste, the founder of Man Cave. The Minneapolis, Minnesota-based direct-selling company focuses on grilling accessories and meat; a rare find in the industry that largely sells and caters to women.
Even if a company doesn't promise you the world, you need to read the fine print carefully, especially regarding the compensation plan, before signing any agreements. Here's what to look for.
How to Assess a Direct Selling Opportunity: How Their Ethics Impact You
Since Spencer Reese is responsible for making sure direct-selling companies stay above the board, he knows all the tricks the dirty ones pull on their sellers. Reese is an attorney at Grimes & Reese, an Idaho Falls, Idaho-based firm specializing in multilevel marketing law. He outlined what he calls the four P's of direct selling ethics:
Products: You don't want to sign on with a company only to discover that it is misleading its sellers and customers about the function or value of its products.
Practices: Not only should the product be legitimate but the company shouldn't use any underhanded tactics or deceptive marketing to attract people's attention.
Plan: Before becoming a direct seller, examine the company's compensation plan. There are dozens of ways it can dupe you or put you in a financial bind, which we'll discuss in more detail in a moment.
Policing: It might seem nice to find a company that has a more laissez-faire attitude towards its sellers once they've come on board, but it's really in your best interest for the company to scrutinize its sales force. Shenenigans by some salespeople reflects badly on the larger brand.
Dig Deeper: How to Create an Ethics Policy For Your Business
How to Assess a Direct Selling Opportunity: Ask the Right Questions
As Grace Keohohou describes it, she's been around direct selling since she was in diapers. Keohohou co-founded the Direct Selling Women's Alliance in Kailua, Hawaii, with her mother Nicki to teach other direct sellers and network marketers the tricks of the trade. Here are some questions she advises you ask before taking advantage of a direct-selling opportunity:
Is there any leadership or sales training? - You don't want a company that will rope you in and then leave you on your own without any support. Though a training program doesn't guarantee a company is legitimate, it does show at least the pretense of concern for the success of its sellers.
Are there any start-up costs? – While Man Cave doesn't have any start-up costs for its sellers, the company is the exception rather than the rule in the direct sales field. While Beste is down on start-up fees of any kind, Keohohou rationalizes them as compensation for the costs the company incurs to provide its sellers with infrastructure, such as a website, marketing materials, and even manufacturing costs. But even she cautions against excessive fees. Also, make sure there are no renewal fees.
Are the sales quotas reasonable? – Man Cave has a sales quota of $99 per month, which seems pretty achievable with any sort of commitment of time on the part of the salesperson. Even if someone fails to meet that quota they get a grace period and of course they can include any purchases they make themselves in that quota. The worst-case scenario for quota situations is when a company makes recruiting new sellers the major incentive but doesn't relax their minimums to account for the amount of time and effort that takes. You could bring on dozens of new people and get booted out for not selling enough yourself.
What are other sellers' impressions? – Often when you're introduced to a direct-selling company you'll be invited to a seminar or another type of event. Get as many different perspectives as you can about how the company treats its sellers.
In addition to these questions, Keohohou advises prospective sellers to research the company online to see whether it has a positive track record. Also, if you discover that there is no real product or service being sold, but merely, "the opportunity to sell the opportunity, you should contact the attorney general's office cause that is a pyramid scheme."
Dig Deeper: 6 Questions to Ask Before Starting a Business
How to Assess a Direct Selling Opportunity: Signing the Agreement
Much like a franchisee, an entrepreneur who becomes a seller for a direct-selling company needs to sign an agreement outlining what the company promises them, and the limitations on how they can use the brand. The document, which is alternately called an independent sales representative agreement, an independent consultant agreement, or a distributor agreement, is typically one page in length but it is not uncommon for the accompanying terms an conditions to run as long as 20 pages.
