Direct Sales: A Profitable Gig or a Big Scam?
You can’t log into Facebook these days without being bombarded by some sort of “party” being shoved in your face. You know the kind I’m talking about. The sales event disguised as a house party in which a “distributor” or “consultant” tries to talk you out of your hard-earned cash after a product demonstration and snacks offered by the hostess.
Even worse, you might find yourself being automatically added to direct-sales events and groups on Facebook, allowing you to “shop from the comfort of your own home” after watching demonstrations on live video.
This home-party business model isn’t new. Direct sales companies like Avon, Mary Kay, Tupperware, and others had been around for decades — well before Facebook made them more visible online. And with the rise of the internet, new companies — such as LuLaRoe, Filly Flair, and Perfectly Posh — have taken our news feeds by storm.
The Appeal of Direct Sales
The allure of earning extra money to support your family is what sucks most people into direct sales. This is true even as the internet has provided many other legitimate opportunities to earn extra income via e-commerce, Amazon sales, and more.
Unfortunately, most direct sales companies or salespeople aren’t telling the whole truth. So before you sign a contract and go into this line of work, here’s what you need to know.
Beware Direct Sales Scams
Many direct sales companies structure pay for salespeople based not just on the amount they sell themselves, but also on the amount that their “team” sells. This essentially transforms the companies from a direct sales business into a multi-level marketing venture.
In order to earn the most money possible, a salesperson is encouraged to both sell products and recruit new people to sign up with him or her to sell for the company. Due to the competitive nature of the process and the desire to earn more money by signing others up, some salespeople become pushy and less than truthful.
Nikki Vergakes’ Story
Nikki Vergakes, a millennial in Boston, was a victim of one salesperson’s dishonesty. When she interviewed for a retail sales job during college, she was approached by a current employee of the company about a different type of gig.
“I interviewed at a high-end retailer for a part-time sales associate job,” Vergakes says. “I mentioned that I have a fashion blog, and a girl who was sitting in the room while I was getting interviewed pulled me aside later and said that she had a job for me that was ‘social media marketing.’”
“Being a student of the public relations and marketing field, I was interested,” she admits. “She followed up with me a few months later and told me to meet with her ‘team’ at Barnes & Noble.”
After Vergakes arrived for the meeting, the team pitched her on the idea of joining a direct sales company. “I don’t know if this was a persuasion tactic, but the meeting was half them throwing confusing numbers at my face, as well as insider vocabulary like the ‘unfranchise’ and ‘rebuild your own economy’,” she says. “The other half was them convincing me I could just easily throw my link to purchase in my blog and people would buy. What they didn’t tell me was the important stuff.”
In order to get started and remain in the company, Vergakes needed to order a $250 starter kit of samples, sales tickets, pamphlets, and more. From then on, she had to hit monthly sales quotas.
“Every time I would bring up my concerns, they would try to tell me how much money I could make and how it could change my life,” she says.“I felt as if I couldn’t leave.”
While it may not be the practice of a company with a direct-selling business model to withhold information, it’s difficult for it to regulate the activities of its salespeople.
In the end, Vergakes lost several hundred dollars and hours of her time to a failed business. “It may not seem like a lot of money to lose, but to a college student, it was!” she says.
Not All Direct Sales Companies Are Created Equal
Of course, there are people who have experienced great success with direct sales. Part of their success can be attributed to how the company is set up to support its salespeople.
Lynda Schneider, 51, of Bennington, Kansas has been an active salesperson for Premier Designs, a jewelry company, for more than 13 years. Before joining Premier, Schneider tried several other companies without success.
She says that what makes Premier different is how it treats its salespeople. For example, Premier does not require them to keep a product inventory. This helps salespeople avoid spending money on things that may not sell. The company also provides heavy discounts to help salespeople afford sample products to show potential customers. But again, samples aren’t required.
“I’ve seen people with samples fail and people without samples succeed,” Schneider says. “It’s really about how much effort you put into it.”
Uniquely, Premier also bases earning goals and bonuses on personal sales, not on the “team production” of a salesperson and their recruits. This reduces the pressure on salespeople to use any means necessary to recruit new team members.
Benefits of Direct Selling: It’s How You Work the Business That Matters
Schneider believes her success is the result of how she runs her business. “I always tell my team members, ‘You get out what you put into it.’ The products don’t sell themselves,” she says.
She has built her team and business with the Golden Rule in mind. She doesn’t like pushy behavior from salespeople, so she tries not to be pushy herself.
Schneider also has a lot of self-motivation. “I know how much I have to sell to meet my goals, and I treat commission from my team as icing on the cake,” she says.
At one point, Schneider’s direct-sales business was the sole source of income for her and her husband, who had been in a car accident that left him with a broken back and unable to work.
“I’d been in the company about seven years at that time, and my mom asked me if I had updated my résumé to find a job,” Schneider recalls. “Instead, I told her, ‘No. I’m just going to work harder at my business.’”
The flexibility of being able to stay home most of the time to care for her husband while still earning money was a blessing.
Why Some Direct Salespeople Fail
Schneider says that most people who fail at direct sales do so for one of four main reasons.
- They have poor time-management skills. People spend too much time on things that don’t produce income. Schneider recommends clustering demonstrations to minimize having to set up and tear down displays, spend less time driving back and forth, and so on.
- They have a part-time mind-set. “They begin to think, ‘Oh well, it’s okay if a party cancels because I get paid from my real job next week,’” she says.
- They turn their focus from serving others to serving themselves. “You have to stay focused on helping your customers, not on how much money you’re going to make,” Schneider says.
- They give up too quickly. This is especially the case for people who take the word “no” personally.
The bottom line is that if you decide to go into direct sales, make sure your eyes are wide open. Ask all the right questions and don’t accept vague answers. Then work your business with the right mind-set.