What is Direct Sales and MLM?
Direct Sales, MLM (Multi-level Marketing), and Referral Marketing are all considered to be network marketing opportunities.
Network marketing is a marketing strategy that is used by companies to promote and sell products directly to customers via a network of independent distributors. Distributors (often referred to as consultants or reps)are compensated by commissions on sales they generate personally, plus sales of the promoters they introduce into the company. This pyramid-shaped hierarchy structure is called a 'downline'. Marketing is based on relationship referrals and word-of-mouth.
The Advantages of Network Marketing
Direct Sale and MLM home businesses offer millions of people the opportunity to make money independently and on their own time, usually as a supplemental income. According to the Direct Selling Association, more than 14 million people in the United States are currently operating this kind of home business right now, and an amazing 72% of North American households are considering starting this kind of home based business in 2010.
One of the main advantages of Direct Sales/MLM opportunities is the low bar to entry. Initial investment is generally very low, usually just the cost of a start up ‘kit’, which typically includes both product samples and basic business supplies required to conduct the business, like catalogs and order forms. Kits generally cost between $75 and $200. Business operators are not employees, and can choose to work full or part-time, according to their own schedules.
The Disadvantages of Network Marketing
Many of these companies have been around for decades, and even the newcomers tend to rely on old-school selling techniques based on new distributors selling products to their ‘warm circle’ – family, friends, and acquaintances. Training (and motivational materials, including large-scale convention events) are designed to get you out there and talking!
The message - spread the gospel about your business - talk to everyone you can 'force' to listen.
Most every networker has heard of the 'Three Foot Rule' - if someone comes within three ft of you, they're a prospect. That means it's your job to tell them why your company is the greatest, how it has the best compensation plan, how they've discovered a secret formula from an orchid found only in the Amazon jungle. Then you're supposed to go on and tell them they're in a dead end job working for someone else and it's their duty to break out and start living the life of their dreams.
Blah, blah, blah.
And the worst part? You'll never get the chance to really connect with the person....you'll never connect because you stayed in the 'I', 'me' mode and didn't stay open to the possibilities. If you had taken the time to listen, you might have discovered that the person loves what they're doing and wouldn't dream of making a career change, much less go into business for themselves - in other words, you're wasting your time.
While it's true that some distributors have become very successful employing this traditional strategy, many more drop out over time once they have exhausted the potential of their warm market contacts. For these distributors, they will need to be content with making enough money to pay for their own personal purchases from the company.
So what's wrong with this business development model? It's flawed because it doesn’t take into account massive shifts in the world and the way business is done. It lacks a strategy to deal with:
o An enormous surge in the number of products available
o The proliferation of computers and web searching for information
o Online buying
o Increased competition, both in terms of the number of competitors, and downward pressure on profit margins
Network Marketing in the Internet Age
If you're interested in this business model but worried about the limitations on developing new customers and recruits, the answer may be to build your business online.
Some types of products lend themselves better than others, of course. If there is a strong sensory aspect to the products (like fragrant candles, for example), it may be hard to sell online unless the company is very well-known.
Word of caution: make sure you find out the company's policies before you go down this road. Some will allow you to market online without restrictions, some have restrictions and you'll need to be creative as to how you structure your business, and some (especially those that produce health and wellness products, will impose serious restrictions on how you do your business.
If you're serious about building your networking business online, here's what I believe to be the very best tool out there:
Learn more about Direct Sales and MLM Go from 'Network Marketing' to 'Opportunity or Scam'