The Pitfalls of Direct Sales Companies
This was a tough post to write. Even though I have relinquished my position in the direct sales industry, I still feel a certain loyalty to “my” companies. I don’t want to feel like I am bashing any particular company or say that they aren’t running their business ethically. Some of them are very ethical and running their business model successfully. But some aren’t. And on the other hand, I think I have a certain perspective from my experiences in the industry. And I’d like to share my thoughts with you in hopes that it may save you from making some of the same mistakes.
What is a Direct Sales Company?
First of all, you may be wondering what “direct sales” is. That is a term to describe a lot of the “party plan” companies like Tupperware, Scentsy, Mary Kay, the various essential oils companies, etc. It is selling directly to the customer rather than in a brick and mortar store. I spent 9 years as a Stampin’ Up! Demonstrator and 1 year as a Pampered Chef consultant.
So, in looking at it strictly from a budgetary point of view – is signing up with a direct sales company a smart thing to do? I think the answer varies from “maybe not” all the way up to “probably not….” Unless you have tremendous potential in this area, I don’t think I could ever say “yes, this is a legitimate way for your to make a serious amount of money”.
Yes, there ARE definitely people who make big dollars in these industries, but it’s a tiny fraction of the whole. Many people feel like if they are fired up enough or have enough enthusiasm, they will do well. Unfortunately, that’s not really how it works. Those people at the top are there for a reason. They may have a natural sales ability, they may have a lot of well-to-do connections who keep them going, or they just have a natural personal magnetism. Those are things that most average people lack, even if they have huge enthusiasm.
Looking at the Numbers Side of Direct Sales/MLM Businesses
Looking at it strictly as a numbers game – only a small fraction of the people in any direct sales company have the drive, determination, talent, and even just plain ol’ luck to be truly successful at it. I would love to see some specific numbers on that, but these direct sales companies never reveal these types of numbers until you get to the top.
I’m going with the old 80/20 rule and guessing that only about 20% of the reps for each company actually make any serious money. Those are the ones driving the pink Cadillacs and taking the cruises and other large prizes. The other 80% are going to have varying degrees of success:
- They’re making *some* decent money (maybe enough to pay a monthly bill or two)
- making a tiny bit of money (enough to buy a new outfit or some shoes)
- barely breaking even
- MANY are actually losing money – lots of it
And it isn’t always about hard work. Especially for the first five years of my SU business, I worked HARD. I held regular monthly events, contacted dozens of customers on a regular basis, gave great customer service to my people, and learned my craft well to design hundreds of wonderful projects for classes and events for my clients.
I had a huge passion for teaching and an enormous enthusiasm for what I was doing. My business was on my mind ALL the time, but I was just missing some essential skill or ability to be successful at it. And I think that’s what you need. Enthusiasm itself just isn’t enough.
I wavered back and forth for 9 years from the “barely making money” category to the “losing money” category. Which is kind of ironic because the main reason I signed up was to earn an extra income to pay off some debts. But stubborn little Miss that I am, I kept digging myself in deeper and deeper convinced that some day I would hit the magic combination and turn it around. It’s almost like a gambling addiction – a rare good month can keep you going for quite a while!
Managing Your Spending in Direct Sales
My one saving grace was my sense of moderation. When you are in a business like that, it is enormously temping to buy, buy, buy your own products. You have to believe in the products to be able to sell them successfully and it’s easy to believe your own sales talks. And you are constantly exposed to boatloads of attractive products through your catalogs, website, and other reps you associate with.
Also, it is easy to justify buying sample items with the intent to encourage your customers to buy them also. That can backfire in a BIG way. I would see most of my demo friends place huge orders on a regular basis – sometimes hundreds of dollars at a time. If a new set of colors came out, they would waste no time in buying the colors in every possible combination – ink, paper, ribbons, etc.
I was a lot more restrained than that. I tried to be very modest in what I was buying and not go hog wild crazy. I never felt like I had to own every color in the set or every item in the catalog. It was funny the amount of excitement and anticipation when a new catalog would come out people would literally chase the poor UPS guy trying to get their hands on that coveted catalog. It was a little crazy!
I also tried most of the time to keep my business on a cash basis – I wouldn’t let myself buy products unless my sales were up to a certain point. So at least I wasn’t short-changing my family, but I wasn’t helping them much either.
But I seemed to be the exception rather than the norm. Most of my friends were using credit cards and other household money to keep their businesses afloat. Which raises the question – is it actually a “business” if you are making little to no money at it? Or is it just an expensive hobby? That’s not a bad thing if you can afford it, but it’s definitely a choice you need to make regarding direct sales.
And of course, there are usually some business supplies needed to run any business – catalogs, flyers, yard signs, order forms, training costs, business cards, and other office supplies. Those can add up pretty fast – especially since they are changed around every few months. If you are one of those top tier folks, this isn’t a big problem, but if you are one of the little mousies – it can be a big crumb. I gave away or recycled dozens of these pricey catalogs over the years and I still have a big stack of them lying around in my stamp room.
After I had run up $1,000+ in debts with very little to show for it, I resigned from both of my direct sales “jobs”.
The Time Investment in Direct Sales
Now that I am no longer a sales rep, I am surprised how FREE I feel. I used to spend 12-15 hours at a time preparing for a workshop or a class that might earn me $30 bucks. That’s not very cost effective – in fact it barely paid for the materials costs. I love that I don’t have to do that any more. I would spend hours doing training and sales meetings, processing orders, contacting customers, updating my website, and trying to find recruits – and very little of it made me any actual cash.
These days, I’m not at all tempted to spend any additional money on either Pampered Chef or Stampin’ Up! items. Without that constant temptation to buy and pressure to keep up, I’m perfectly happy with all the great stuff I already have. That change right there is saving me a pretty healthy chunk of money every month. And it’s such a relief to not have to see my FRIENDS as potential customers. I can just enjoy their company and I’m sure they enjoy me a lot more too!
I’m not saying absolutely don’t do a direct sales business if that’s what you really want. Just make sure it is really want you want to do – and then be really smart about it. Work your business regularly and in a very thoughtful fashion. Have a written business plan and stick to it.
I suggest you interview people in your industry before you sign up – find out what some of their pitfalls were, or find out who are the best people to work with in the company. Then find a way to attach yourself to them. It sounds rather heartless, but don’t sign up under your friend who is barely making $50 a month – sign up under the top seller who can train and motivate you properly.
Set some hard and fast limits for yourself and review your goals and your progress every quarter. Make a deal with yourself that if you fall too close to the bottom of the barrel, you will get OUT. Don’t hang on for so many years like I did. If it ain’t working, it ain’t working – go and find something else that will work. If you are just doing it for friendship or hobby or whatever, then make that choice and consider just remaining a customer. Yes, you don’t get the great discount, but you can easily walk away without any entanglements.
You might also check out my post on having a side hustle. Direct sales is only ONE way to make extra money. There are TONS of other ways and some of them have a very low investment and a very strong profitability. It was my saving grace when I was at the end of my rope in my 40 years of Corporate jobs. Why Everyone NEEDS a Side Hustle.
What a great post! I tried to be a SU demo 3 different times, each time I went nuts w/ my spending and came out a big loser. I was my own best customer! You really have to want to do this and like you said have a certain knack for it and know a lot of people I think to succeed. It also doesn’t hurt if you are already kind of wealthy or your spouse is so you can spend the $$$ and not be taking money away from bills. I just couldn’t make it work for me and I lost interest. Plus I love sooooo many other companies out there and I like using many different brands and types of things, I don’t want to be tied to any one company. Plus, and I hate to say this because it sounds mean, but I think it is somewhat true, SU sometimes has a “cult” like mentality, people are loyal to a fault, even if it means compromising their own creativity and I don’t think that’s healthy. I for one want no part of any Direct Sales company again, I like being a free agent much better!
Me too! I do love them, but I am much happier to love them as a customer rather than as a demo. Thanks for visiting.
Your example of only making $30 after all that work really puts direct sales into perspective. I’ve read many many articles about this. Also, you’re friends and family get real tired of hosting parties and having to buy your products.
Also read an interesting post the other day comparing blogging to MLM’s. How there really isn’t any money in blogging, but they convince you to chase the dream. Spending money on conferences and investing huge amounts of time that will never get you anywhere.
It hit home.