direct
sales and network marketing? Many people have talked to me about these
concepts but seem to have different viewpoints as to what they mean. Are
they the same or different?
A: Many of us
who make our living from this arena still debate that same question. Even
so, the vast majority of experienced network marketers would define these
terms this way.
Most experts would agree that network marketing
is a part of the direct selling concept where products or services are
offered on a one-on-one basis and sold directly by the salesperson to the
consumer. However, the two approaches offer very different benefits to the
salesperson.
Direct sales companies are known as "seller-based," which means
they give more income to the distributor when he or she makes a sale at
retail. Direct sales companies usually market higher-ticket, one-time-sale,
durable items such as air and water filters, cookware, art, home
accessories, etc. With the direct sales business
approach, the majority of the available profit designated for the
salesperson's commission goes to the person who makes the retail sale. That
person usually earns a significantly higher percentage of the designated
sale commission than does the sales management
that may be supervising his or her work.
Unless they have been appointed as sales managers, successful direct
sales people are paid based on their personal sales rather than on building
an organization of other salespeople. And since most products marketed by
direct selling companies tend to be durable goods rather than consumable
goods, there usually is limited potential for residual income. Obviously,
there are exceptions, such as the residual income experienced in insurance
sales, but usually when the sale is consummated, the salesperson is moving
on to the next person and potential sale. Immediate commission checks are
usually higher than in network marketing, so if you want quick money, direct
sales is your ticket.
If you want to build a long-term residual income, however, you should
consider network marketing. Network marketing distributors still sell, but
the sales process usually begins with their "warm" market of
friends and relatives. Network marketing companies typically offer retail
commissions that are much lower, since more of the available commissions are
directed toward bonuses paid to various upline management people in the
sponsor tree.
In turn, you can also sponsor a downline of distributors that not only
sell but also consume products, making them your customers as well. If the
company has high-quality products that are fairly priced and offer obvious
benefits, the distributor has the real opportunity of building a
"lifetime customer." Ongoing customer use creates residual income.
Residual income is money you earn from your initial sales and reorders and
the sales and reorders made by those you recruit and the ones they recruit,
etc. This process continues to generate earnings for you long after your
day-to-day attention to the "sale" or your sponsoring efforts has
ended. For example, the royalties a writer or performing artist earns on his
or her creation is an example of residual income. So is the interest earned
on stock investments. Consumable products such as vitamins, personal care,
cosmetics, etc. are more compatible with the network marketing business
model, since reorders create the residual income driving the program.
Having spent most of my working life in direct sales and network
marketing, I have found it easier to attract people to a network marketing
opportunity for a number of reasons. Residual income is one; here are some
others:
- It usually costs less to get involved. Other than samples of the
products and an at-cost distributor kit, there is usually no investment.
Customer orders can be drop-shipped by the company, and customers can
usually reorder company direct or on the company Web site with the
designated bonuses going to the person that made the original sale.
Consequently, this doesn't require major inventory. And that means ...
- More people can become involved, since the concept embraces the
part-time salesperson along with the full-time career builder.
- There's potential for exponential growth. Distributors can leverage
their energy and efforts through a small number of people they train who
manage to in turn train and manage their own people and so on. In this
way, sales create bonuses for the sponsor and upline.
If you enjoy people, are a good communicator and a hard worker, either
direct sales or network marketing can provide an accelerated income
potential. It's ultimately up to you to figure out which best fits your
needs and goals.
Michael L. Sheffield is the CEO of Sheffield Resource Network, a
full-service direct sales and multilevel marketing (MLM) consulting firm. He
is also the co-founder and chairman of the Multi Level Marketing
International Association (MLMIA). He can be contacted through http://www.sheffieldnet.com.
