Column: Multilevel marketing: not for everyone

A direct selling organization (DSO) uses direct selling techniques and its own sales force to sell to final consumers, rather than using retailers as intermediaries. Examples include such familiar companies as Avon, Tupperware and Pampered Chef.

In the United States, selling for a DSO is usually done merely as a sideline. The few who become wealthy are generally those who have established themselves in high levels of multi-level direct selling organizations (MLDSO). In these organizations, individuals can make money by selling the product themselves, but they have greater potential for earnings that are received as a percentage of sales made by other salespeople they have recruited into their organization.

The potential of making good money in MLDSOs has led to abuses, such as illegal pyramid schemes. In a pyramid scheme, the emphasis is entirely on recruiting new down-line members, not on selling actual products. Some naïve individuals are seduced by the dream of something-for-not, but are not able to successfully recruit enough of their own down-line members to recoup the high non-refundable fee they paid to join. These fees are the main source of income for the up-line members. They can take various forms such as charging a large monetary fee, requiring new members to purchase an expensive start-up kit, or requiring members to buy large inventories each month in order to qualify for commissions (also known as frontloading).

Legitimate DSOs and MLDSOs are concerned about the abuses of the pyramid schemes and the reputation of their industry. They have established the following standards:

•Low cost to join

•Members can return unsold merchandise for a refund of 90 percent or more

•Rewards are based on sales of products, not on recruiting of down-line members

•Only qualified individuals are recruited, involving those who are likely to succeed

Occasionally I am approached by someone who has been introduced to an MLDSO and is seeking my advice as to whether they should join up. It takes a certain type of person to be successful. I would ask anyone considering an MLDSO (or other DSO) to answer some questions:

•Do you love selling? Is that how you would really enjoy spending your spare time? 

•Are you good at it? 

•Are you comfortable asking your friends for money?  Success with DSOs usually comes from selling to your social network. 

•Is this really what you want to sell? If you have the qualifications for this kind of selling, you would also probably be good at industrial sales and could enjoy a career with a base salary, great benefits, a company car, an expense account, etc. that you would not get from a DSO.

If you decide to become involved with a DSO, you will want it to be a good one. Consider the following:

•Standards – does the company follow the DSO standards listed above? Get a written copy of their policies.

•Product value – are they good products at a good price? Would you feel good selling them to your friends?

•Financially sound company – will you get stuck with inventory of a company that has gone out of business? Check Dunn & Bradstreet or some other report of company financial strength.

•Ethics – were deceptive practices used to get you to hear about it? Check with the Better Business Bureau. Google the company. Is there any information about litigation against them? Is anybody posting complaints about them?

Many people enjoy their involvement with multilevel direct sales, but only certain people are likely to be successful at it. No matter the case, individuals should be careful and smart about which organization they join.

Ron Pimentel is a member of the business faculty and associate director of the Professional Sales Program at Washington State University Vancouver.

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