Direct Sales and Network Marketing

What are Direct Sales and Network Marketing?

Direct Sales

Direct sales offers great potential for anyone looking for a home business opportunity. Direct selling is the marketing and sales of products or services directly to consumers without the use of retail outlets, large-scale distributors, or other middle-men. Methods of sales may include presentations, demonstrations, phone calls, 'parties' and one-on-one meetings with consumers.

There are typicaly minimal start-up costs required for someone who wants to start their own direct sales business. Many companies exist that can offer an opportunity in direct sales, and usually a sales kit is all that is needed. This is different from franshises and other business opportunities which might require an investment of several thousand dollars.

Through direct sales, consumers receive a greate deal of added service and convenience. Be it demonstrations, door to door delivery, or extensive guarantees on product quality, the consumer receives the highest service and attention through direct sales. Additionally, the products and services made available through direct sales companies are often innovative and not available through traditional retail outlets.

Network Marketing and MLM

Under the umbrella of Direct Sales is Network Marketing (aka Multi-Level Marketing or MLM) which has shown for many years to be a successful method of compensating individuals for the markeing and sales of goods directly to the consumer.

Network Marketing companies bring on independent sales people to sell the companies' products or services, and sales people earn a commission from the success of their work. Additionally, sales people are encouraged to recuit more people to join the company. This is called building a 'downline', and a sales person also receives commission on the sales of products and services made from individuals in their downline. In most instances, sales people not only earn a commission from the sales of people they have recruited, but they also earn a commission on other people that their recuits bring into the organization. Commissions can carry up from several levels down the recruiting chain, hence the term "Multi-Level Marketing".

Compensation plans

• Unilevel plans have two types of sales people - managers and non-managers. Commissions are earned in three ways:
  • Baseshop overrides - An 'override' is the commission paid to managers on sales made by their downline. These are typically calculated as a percentage of the gross sales commissions earned by the salesperson. Baseshop overrides are commissions of managers from their subordinate non-managers, collectively called a baseshop or downline.
    
    
  • Generational overrides are overrides of managers from the baseshop of managers who were previously their subordinate. Many plans compensate at least three "generations" of managers like this.
    
    
  • Executive bonuses are commissions for managers who exceed a sales quota.
    
    
• Matrix plans limit the width of each level in a sales person's downline. This means that sales people with a rapidly growning downline must "spillover" their recruits to other sales people in the organization.
  
  
• Binary plans limit the width of each level to two legs. One leg is called a 'Profit Leg' and the other a 'Power Leg'. Sales people earn money whenever both legs succeed in earning a pre-determined number of sales.

The world of Network Marketing has experienced problems with companies using illegal 'Pyramid' schemes. In the most credible Network Marketing companies, money is earned only through the sale of the company's goods or services. There may be commissions earned through 'sign-up fees' from new people recruited into the business, but in legitimate Multi Level Marketing companies, this cannot be the only way that a sales person earns money. If individuals are compensated primarily from sign up fees received from new recruits, or if they are required to purchase more product than they are likely to sell, then te company may be an illegal pyramid or ponzi scheme.

New salespeople working for a Network Marketing company may be required to fund their own training and business materials. Or they may need to purchase a certain amount of the company's product to have in store as inventory. A way to test the legality of a Network Marketing company is to use the "70% rule". The intent is to prevent sales people from "inventory loading" to achieve higher levels of commision or company bonuses. The "70% rule" requires sales people to sell 70% of their inventory before making new orders to resupply. Note that there are a few different interpretations of this rule. Some lawyers believe that 70% of purchased inventory needs to be sold to people outside of the company. However, many Network Marketing companies allow sales people to consume a substantial portion of their product themselves.

There are many organizations across the world whose mission is to uphold the highest standards of quality in direct sales. The World Federation of Direct Selling Associations, has over 56 national DSAs in its membership. The WFDSA created a "World Codes of Conduct for Direct Selling". These codes have been approved and adopted by all national DSAs, and all direct selling companies follow these codes as part of their membership in a national DSA.

"In 2007 it is estimated that worldwide retail sales by its members accounted for more than US$105 Billion through the activities of more than 61 million independent sales representatives." - www.wfdsa.org