In the last few years, the growth of the Direct Selling Industry is got slowdown. Direct selling (especially MLM) seems appealing when we get introduced to it for the first time.
However, when we take deep dive into it, we get familiar with some dark realities of this industry, which are generally ignore by industry people.
Before moving further I want to convey, I am neither pro nor anti to direct selling industry. So let’s get started without any further ado.
What is Direct Selling?
Direct selling is an alternative to the traditional distribution/supply chain.
The traditional supply chain includes supplier, manufacturer, wholesaler, and retailer. Amount paid by the end customer is distributed among all these entities of the supply chain, sometime amount also goes for advisement spent of product.
In contrast, Direct Selling claims to minimize the distribution expense by eliminating some entities of the supply chains.
Direct Selling companies appoint direct seller often called distributor or associate who gets commission on every sale.
Distributor work as marketer and retailer of the company. They get products from the company’s branch. Distributors can sell products or consume them.
Nowadays most direct selling companies support online purchases which help distributor to get the products to their door.
In a service-based direct selling company, direct sellers refer new customers directly to company and earn their respective commission.
Types of Direct Selling
Direct Selling can be divided into 2 types, according to the involvement and role of distributor.
1. SLM (Single-Level Marketing)
In Single-Level Marketing, distributors directly join the direct selling company. On every successful sale, distributors get their commission. SLM only offers retail profit and sometimes incentives for achieving specific milestones.
Commission is based on the sales made in a given period.
2. MLM (Multi-Level Marketing)
As name suggests, In MLM Distributor involve in a Multi-Level System.
While selling a company’s product to other, simultaneously distributors can invite and recruit new distributors.
For a distributor, upline denotes the person who recruited them to the company.
Direct downline is recruited personally by a distributor and Indirect downline is downline’s downline. There can be multiple levels of indirect downline.
In MLM first income is retail profit on own purchase and sales. Second income comes from product purchase of direct & indirect downline.
Arrangement and income of distributors in a Multi-Level Marketing company depend on opted compensation plan by the company.
Binary, Generation, and Matrix are the most popular MLM Structures. Nowadays Hybrid Plan is used by various companies, as it allows the mixing of multiple plans and companies have complete flexibility in deciding incomes.
Pros & Cons of Direct Selling
There is a long list if we start counting pros and cons of direct selling. Pros & cons of direct selling depend on individual perspective and experience.
Anyone at any age with no experience and qualification can start direct selling. Direct selling is an open market where anyone can make a try.
Working in direct selling industry for few years helps to build various interpersonal skills especially communication, marketing, convincing, and presentation skill.
Very few people get success in direct selling. But whenever a person reaches the top level of any direct selling company, the company pays an extraordinary income to that person.
Direct Selling offers flexibility in working hours and location. Direct selling can be performed part-time, by inviting people to your favorite cafe or from home on social media.
The most faced disadvantage of direct selling is overpriced products. Not in SLM, but MLM Companies sell heavily overpriced products to provide commission to their distributor network.
New distributors often creates conflict in their relationships with family and friends. Majority try to sell or recruit their friends and relatives first. After getting negative response from them, person gets frustrated and make clash in personal relations.
Success rate of direct selling is extremely low. FTC appreciated research of Jon M Taylor convey that, MLM success rate is just 0.4% which is even less than winning a gambling bet.
Why Direct Selling is NOT Direct Anymore
At present, meaning of direct selling is MLM, cause almost all international and well-known direct selling companies operate on MLM Business Model.
Direct Selling was originated as an alternative to traditional distribution chain and eliminating entities from the distribution chain to reduce prices for end customers.
In reality, MLM includes distributor network and on every purchase company needs to share commission with the distributor network. Hence most companies increase price of their products to get enough commission to share distributors and end customers have to pay for elevated price.
The DIRECT term lost its meaning in MLM and now direct selling is not direct anymore.
MLM and Pyramid Scheme
With emerge of MLM, pyramid scheme took birth which is a type of scam.
In MLM commission is either retail profit on personal sales or on product purchase in downline. While pyramid scheme gives commission only on recruitment. Every distributor either has to pay fees or purchase highly overpriced dummy-products of the company for joining. So that money can be passed to upline and money circulation is performed.
Pyramid schemes are more lucrative than product-based MLMs. FTC has declared pyramid scheme as illegal in USA and it is banned in most countries.