Additionally, it is increasingly common for these agreements to be signed as part of an online form. Many people fail to read these agreements carefully. "Usually they're interested in the compensation plan," Reese chuckles, "they'll have a look at that." While some unethical companies will change their policies without alerting their sellers, it's standard in the industry to include a 3-day notice provision if anything substantial changes.
Dig Deeper: Understanding a Franchise Agreement
How to Assess a Direct Selling Opportunity: Types of Scams to Watch Out For
There are dozens of ways direct-selling companies can trick you. Here are a few scams that our experts advise to look out for:
The binary model – There's nothing inherently wrong with multilevel marketing, but some MLM systems are set up to your extreme disadvantage. In the binary model, your returns from the number of sellers you onboard are dramatically limited. Beste explains that if you recruit two sellers, and the first one brings on dozens of sellers and the second one only brings on one you always reap your returns from the least successful of your recruits.
The bait and switch – Keohohou mentions that some companies will attract sellers with a favorable compensation plan but alter that plan once they have them in the program.
The buy to sell – Most programs encourage you to buy at least some quantity of the merchandise you're selling. But if a company is twisting your arm or requiring you to make large inventory purchases to get into the compensation plan, Reese says that should always be a red flag.
The gifting plan – Gifting plans don't involve selling any product or service. Instead you "donate" a sum of money to participate in the plan and then find other people to "donate" to you. Reese calls it a straight up Ponzi scheme.
The point of no return – If you discover you want to part ways with your direct-selling company, it's crucial to know what its inventory repurchasing policy is. Reese says that a buy back rate of 90 percent your net costs for up to a year is the industry standard. Don't get left with a garage full of superfruit juice.
Dig Deeper: When Criminals Come Calling
How to Assess a Direct Selling Opportunity: What Sells Well?
All the experts stress that a passion for the product you're selling will be crucial to your success in direct sales. Fortunately for Man Cave, they specifically chose products that their target demographic is passionate about. "For us it's a lot of fun," Beste says. "[The sellers] grill meat and drink beer. You can't do that in most jobs."
Other characteristics of products that sell well are things that have a demonstrable element. If a product is too straightforward or dull to merit much of a demo, direct sales might not be the right venue for it.
Another key factor is size. Initially Man Cave tried to sell barbecues but they found that the inventory was too bulky for sellers to cart around from house to house. This size restriction dovetails nicely with the company's cap on their price points at $59. After all, if you're selling to friends, you don't want to send anyone into debt.
Dig Deeper: How to Profit From Market Research
How to Assess a Direct Selling Opportunity: Other Direct Selling Strategies
Though it only got started in 2008, Man Cave now has 750 sellers in 47 states. Beste says his strongest seller brings in $10,000 a month and that his trick, aside from a silver tongue, is all about location. This seller lives in an RV park with 400 camping spots, so every weekend he gets a fresh crop of customers coming right to his doorway.
It's important when deciding if a direct-selling opportunity is right for you to consider who you will sell to and if you have access to that group of people.
Dig Deeper: Sales Tips From the World's Toughest Customers
How to Assess a Direct Selling Opportunity: Starting Your Own Direct Selling Company
If you're looking to go into the direct-selling field and feel you have the requisite gumption or business acumen, you can go beyond taking part in a direct-selling opportunity and start your own direct-sales company. Beste outlines some of the perks and downsides of doing just that.
• Fast growth is a major plus. Man Cave has grown from zero to hundreds of thousands of dollars in sales per month in just under two years.
• The tradeoff for the fast growth is a lack of control. Your sellers essentially operate as independent businesses and put in as little or as much effort as they'd like. If you're a control freak this may not be the venture for you.
• Communication is also difficult when sellers are spread out across a large geographic region. Beste notes that for most of his sellers, Man Cave is not their primary job so "they don't have to check their e-mail, they don't have to respond to things, they don't have to take your phone call."
Dig Deeper: 4 Tips on Managing a Virtual Workforce
