Here at I’ve Tried That, we’ve evaluated a number of direct sales multilevel marketing (MLM) companies, from well-known names like Avon and Tupperware to more obscure ones like KEEP Collective and Papparazzi.
All of these business follow a similar sales model, wherein individuals sign up to become independent distributors and purchase their product inventory directly from the company. They then mark up those wholesale priced items in order to make a profit from their sales.
Independent distributors also make money by referring others into the business and collecting a percent commission from their sales. This “downline” can grow several levels deep, generating a substantial income for the original distributor at the top of the pyramid.
With all these business opportunities to choose from, are there any particular criteria that you should assess when considering one or another MLM?
8 factors to consider when evaluating direct sales MLMs
It’s not easy making money with direct sales MLMs. However, that doesn’t stop thousands of individuals from trying their luck each year. From food to kitchen accessories to soaps and candles, there is a wide variety of these businesses, each with its own unique sales structure and compensation plan. Here are eight factors to look at when examining a direct sales MLM:
- Starter kit price. Most direct sales MLMs will require that the new independent distributor purchase a starter kit. Within this kit there might be a few products, business tools and stationary, and training. Starter kits can range from just a few bucks to several hundred dollars. Ideally, you want to select a company that offers a low-priced starter kit because these kits are almost always non-refundable.
- Commission percentage. Direct sales MLMs pay their independent distributors sales commissions, and those commissions range from 15% to 40% or even higher. The higher the sales commission, the more money you will earn with that company in a shorter span of time. Higher commissions also mean that you can offer products at reduced prices or as part of a promo and still make a profit.
- Sales quotas. Some direct sales MLMs require that their distributors meet a required monthly/quarterly quota or they won’t receive their promised commissions. This is an unfair requirement because it forces the distributor to always be pushing product. It also unfairly penalizes distributors who need to take time off from their business. Ideally, you should shoot for companies that have no sales quota, but you may have to settle for those with a quota of $100-$200/month or quarter.
- Downline commissions. The MLM side of direct sales MLMs is recruitment of others so that they too start selling product. As their sponsor, you get a portion of their profits in the form of a monthly commission. Some MLMs offer generous downline commissions of as much as 10%, while others are stingier and only pay out a few percent. Different MLMs also offer different commission structures, with some companies paying commissions from the recruits of your recruits up to six levels down. Other MLMs might only offer downline commissions from first level direct recruits.
- Business expenses. Some direct sales MLMs don’t cost much to operate because the products can be listed online and parties can be held on social media networks like Facebook and Twitter. Other businesses, especially those involved with food prep or make-your-own crafts, are more costly because they must be demonstrated in order to be fully appreciated. Unfortunately, those personal demonstrations require additional purchases of supplies as well as food and drink.
- Inventory. With some direct sales MLMs, your customers can order from a catalog and the merchandise is shipped directly to them. You don’t have to purchase or store any inventory. Other companies require that you purchase product packages from them first, which results in you being responsible for housing inventory until it sells. Unless you have some extra space in your home and don’t mind being responsible for inventory, you should look for MLM businesses that enable the drop-ship model of shopping as much as possible.
- Market saturation. Some direct sales MLMs have so glutted the landscape that there is no room for a new distributor to even claim a territory as her very own. This makes it impossible to sell the product to local customers. It also forces distributors to undercut each other on pricing and promos. When evaluating an MLM business, find out who the current reps are for your territory by acting as an interested customer. You might also be able to search online for a territory map.
- Bonuses and rewards. Many direct sales MLMs try to sweeten the pot for their distributors by offering sales bonuses in the form of cash, or rewards like trips to vacation destinations, cars, etc. Such items can be realistically attainable or just pipe dreams depending on what the sales requirements are set to. If you are debating between two or three similarly structured direct sales MLMs, definitely compare their bonuses and rewards when making your final selection.
Are direct sales MLMs worth it?
When it comes to direct sales MLMs, you should consider whether your time and effort are worth the commission payoff. You’ll need to become very social and sell product to just about anybody you know, including your family and friends. You’ll need to have both in-home and online sales events in order to generate a continuous flow of interest and new prospects. Finally, you’ll need to purchase some of the company inventory for yourself just so you can actively demonstrate it to others.
Many individuals enter direct sales MLM businesses only to burn out a year or two later. Others find themselves losing money due to the high costs associated with demonstrating the products at craft shows and in-home parties. While the direct sales MLM business model isn’t a scam, it is a significant amount of work. Unless you are prepared to undertake that work and enjoy being social all the time, you may be better off seeking a different business opportunity.