Tuesday, October 15, 2013

About Direct Sales ~ The Poor Man's Franchise

Direct Sales, also known as Multi-level Marketing (MLM) or Network Marketing, are a very popular alternative for many prospective entrepreneurs looking for a full or part time business.  A Direct Sales business is a Structured Opportunity, called by some the poor-man's franchise.

People who do well in a structured opportunity tend to fit a profile best described as a Natural Franchisee.  These are people who are hard working, are educated with a commitment to life-long learning, are well organized, and work well with others.  They tend to be most comfortable taking direction from others and working in situations where tasks are laid out step by step.  (To better understand whether a structured or unstructured opportunity is best for you, take my quiz, What Form of Business is Best for You.

How Direct Sales Businesses Work 
In a Direct Sales, MLM, or network marketing system you have two ways to earn money ~ 
  • selling products and services, and
  • recruiting others to sell the product or service. 
In essence, an MLM business is a distributorship that pays you a bonus for recruiting new distributors.  The bonus is that you are paid a percentage of the profits from the sales generated by the new distributors you have recruited.  The people you recruit becomes your "down-line” in the lingo of the industry.
The failing with some multi-level marketing operations is that the sponsor company puts too much energy into selling new distributors, and too little into developing and marketing products.  MLM companies often run afoul of state and federal laws restricting pyramid schemes, which are specifically illegal.
You may have the idea that all companies offering MLM business systems aren't on the up and up.  There are many legitimate MLM companies that invest heavily in making you successful with excellent products and services.  The strength of the better MLM companies is that they offer you a tried and true system for building a successful business similar in structure to many franchise systems, quality products for which there is a proven market, yet with a very low cost of entry. 
  • If the company sponsoring the business focuses is on sales of products or services, it is more likely to be legitimate. 
  • If the focus of the business is getting rich quick by building a down-line, well, I’d most certainly be skeptical and check them out carefully.
Direct Sales opportunities make excellent second jobs since you can work them evenings and weekends.  They also can be sources of sales training and experience for someone thinking of another business later in life.
Direct Sales, Multi-level Marketing (MLM) or Network Marketing businesses (includes “Party Plan Businesses) account for a major percentage of in-home businesses and second incomes in our economy, and play a major role in the sales of many types of goods and services. 
Don’t think that because you’ve heard or read news reports about scams operating under the guise of MLM that all of these opportunities are bogus.  Some are excellent companies with well-established product lines that deserve consideration.  But as with anything else, be an informed consumer before you sign a contract or pay out any money. 
 
If the company is selling a product, and if to be successful most of your effort is expected to go onto selling that product, it is more likely to be a legitimate business opportunity.  Examples:  Mary Kay or Avon cosmetics, Tupperware, Rexall health products and food supplements, Amway, Fuller Brush, and hundreds of similar reputable companies.
 
If the focus of the company is recruiting and selling new distributors and building a down-line or  “pyramid” of distributors, and most of your effort is recruiting and selling the system to additional distributors, then the business is probably not one for you to get involved in.
 
Companies sponsoring these business systems offer many of the same benefits as do full franchises.  In addition to well established product lines, these companies provide you with a “system” that works to build a business if followed, provide training and ongoing support, annual meetings and conventions (some of which are major national events), and the potential of a healthy income.
 
Party Plan Businesses
This is another version of this type of business made famous by Tupperware and other similar companies.  In this business building approach, the distributor sponsors or encourages friends and acquaintances to sponsor parties in their home, where the distributor demonstrates product, conducts giveaways, and sells the product.  The host of the party often receives gifts and/or special discounts.
 
You probably have seen a pink Mary Kay Cadillac on the road, a symbol of substantial success with that company.  There is a family in the Pacific Northwest that has done so well with Tupperware, that they lease a fairly good sized warehouse in an industrial area with a full time staff to handle the business generated by their “down-line”. 
 
Why Direct Sales, MLM and Network Marketing Opportunities Cost $495
If you’ve ever attended a business opportunities exposition or sat through a MLM business presentation, you may have noticed that the cost of entry into these business opportunities is just under $500.  Oh sure, some exhibitors  will say our regular price on a MLM business is regularly $2,500 or some such amount, but "today, only, we’re making this special offer to you of just $495."  Trust me, the price is always $495, no matter what they claim.
 
Here’s why:  The state of California represents about 10% of the market for any product or service in our county, so manufacturers and sellers of everything want to do business there.  In California, any business opportunity that costs more than $500 must register as a franchise, and submit the very complete in-depth information about the opportunity and its owners and sponsors as do all franchises.  Since not every MLM and Network Marketing Company wants this kind of in-depth attention paid to it’s business practices, they deliberately charge less than the $500 threshold.
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5 comments:

  1. Thank you for sharing. Opportunities to be a part of a growing party franchise business are available in certain areas of the United States.

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