When a person starts a company, they have to make several choices, ranging from what type of marketing campaign to run to logistics, credit terms, and location. One of those business decisions is how to sell their product or service to the end-user. They can opt to use 3rd parties, who can provide warehousing, distribution, and retailing services or sell directly to the customers themselves. The latter is called direct selling. This article explains the term, the different methods, and some tips to keep in mind when running the direct sales business model.
What are Direct Sales?
A direct sale is selling goods or services in a non-retail fashion to the end-users. It is skipping the wholesalers and retailers to push the product directly to the client. The business instructs the manufacturing company to deliver to a specific location, where they then ship it to representatives who sell to the customers.
If we were to give the definition of a direct sale, it goes like this—we cannot find the products in retail stores, and the only way to get them is by getting in touch with a sales representative.
Source: researchgate.net
Top Companies Using the Direct Sale Business Model
Ten countries made up 78% of the total direct selling figure in 2020. The US led the chart, followed by China, Germany, Korea, Japan, Brazil, Malaysia, Mexico, France, and Taiwan.
Source: World Federation of Direct Selling Association Fact Sheets
Some companies that are great direct selling examples include:
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Amway
Amway sells health and beauty products directly to its customers. They found the company in 1959, and it is one of the oldest US direct selling brands today. Amway was also the highest-grossing direct sales company for 2020, with 8.50 billion dollars in revenues.
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Natura Comesticos
Natura Comesticos is a Brazilian-based direct selling company that sells many products. They sell skin and hair care beauty products, household products, and perfumes. They found the company in 1969, and they had a revenue of 7.16 billion dollars in 2020.
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Herbalife
Herbalife is another famous direct sales company in the US. It was founded in 1980 and currently deals primarily in the health and wellness niche. Their products cut across food, beverages, supplements, and cosmetics. Its revenue for 2020 was 5.54 billion dollars.
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Vorwerk
Vorwerk is a German company founded in 1883. It sells household appliances and cosmetics. It made revenue of 4.48 billion dollars, making it the fourth highest direct sales grossing company in 2020.
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Coway
Coway is the biggest direct sales company in South Korea. Coway deals in water and air purifiers and essential home appliances. The company was founded in 1989 and had an income of 2.8 billion dollars in 2020.
These are the top 5 companies by revenue, according to Direct Selling News.
Methods & Types of Direct Sales
Source: leadfuze.com
In conducting your business, you can choose to employ one or all of the various types of direct sales. Generally, there are three types, although some sources have a fourth, which is the combination of two direct sales methods. For that reason, we would not focus on it in this section.
Single Level Direct Sales
We all know this type of direct sales. A family member or former schoolmate tries to get you to buy one of those products you never heard of. We call this direct sale a single level because it takes place between a buyer and a seller.
It can occur door-to-door where the in-person presentation takes place, over the phone, or online. The sales rep gets paid a commission for every sale they make.
Host/Party Plan Direct Sales
Party plans happen when a sales rep or distributor invites potential customers to meet – it can be anywhere, but now most of these meetings are held online. At this party, the host explains the features and functions of the product, showing how the product works. Materials are also shared, and they make some sales. The host also answers questions and entertains their guests.
Multi-Level Direct Sales
Multi-Level direct sales occur when the distributors and sales representatives aim to build their network. This means, that their focus isn’t only on selling their products, but also on recruiting people to work under them – earning an additional commission from the sales of their new recruits. Direct selling companies encourage this because they can sell more products to distributors and sales reps with large networks, who sell to other customers while also attempting to recruit them.
Sadly, this has led to reps neglecting the products focusing on recruiting, abusing a system that was supposed to be an incentive to improve performance. This practice has led to the public claiming direct sales companies are pyramid schemes where the aim is to recruit.
The primary difference is a pyramid scheme doesn’t sell products like direct selling companies. Instead, pyramid schemes instruct recruits to register with a deposit and encourage the new recruits to get new members to increase their earnings. Multi-level direct sales taken too far can lead to a pyramid scheme, but it isn’t one.
Direct Sales Vs. Direct Marketing
Direct sales and direct marketing have been confused and mixed up in recent times. While they have similarities, they are somewhat different. The crucial difference between both is that direct selling hinges on the personal relationship of the representatives with their customers. They sell to people who have close ties to the representative, like family and friends.
Direct marketing chooses a market niche and advertises to them through social media, online ads, drop-ship stores, etc. Direct marketing is more informal and has a broader reach. The introduction and popularity of the internet and social media platforms means that we now see more direct sales marketing today compared to the past, where people used word of mouth to spread information about a product.
But even today, most of the leading direct sellers like Amway or Natura Cosmesticos still value the personal touch where their representatives can demonstrate their products. In contrast, direct marketing is only seen as a convenient extension of their model.
Advantages and Disadvantages of Direct Sales
We have looked at the definition of direct sales and some top companies in the industry. We will now look at some advantages and disadvantages of adopting a direct sales business approach.
Advantages:
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Flexible Hours for Reps
The direct sales approach is a flexible approach for the representative, and it allows them to work at their hours and earn based on performance. It’s no wonder most of the direct sellers are stay-at-home mums who have some time to make extra cash.
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Better Price Control
The lack of middlemen means that the business owners have more control over their products. Price is one of the complicated elements to control once a product leaves the factory for wholesalers and retailers. These middlemen can add unfavorable markup on the company’s price, making the products unattractive to customers. A direct sales business can quickly respond to customer complaints regarding price.
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Strong Customer Relationship
The entire premise of direct sale is that the business has direct contact with the customers. Business success is predominantly determined by how well they can attract and keep their customers—a business practice direct sales encourages.
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Personalized Customer Service
It’s easier for customers to reach out to sales reps regarding any problem with the product. This accessibility makes direct sales attractive to business owners who can take on feedback and improve their products.
Disadvantages:
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Direct Selling is Often Uninvited
Direct selling can be forceful when the customer isn’t interested or invested in the product. The goal of a direct sale is to sell as many products as possible to earn as much commission. So there is an incentive for the sales rep to be aggressive in their approach.
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It Can Easily Become a Pyramid Scheme
It’s not news that we perceive most MLM as outright pyramid schemes, and the reason isn’t far off either – in a bid for sales reps to build their network and earn more, they may opt to recruit and pay little attention to selling the products. This behavior can quickly lead to MLMs becoming illegal pyramid schemes.
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It’s Not Suited for Everyone
Direct selling isn’t suited for everyone. Some traits needed to succeed in this business are an outgoing nature and the desire to network and expand. Not all sales reps will have such devotion, and even when taught, it still boils down to if the business is for them or not.
Tips for Sales Representatives under a Direct Sales Business Model
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Be Knowledgeable About the Product and Company
If you are a company representative, before you sell, make sure you understand the products you are selling. Try them yourself if possible and see their effects. You should be confident and knowledgeable about what you are offering. You should also ensure the regulatory body approves the product, and it is safe for distribution. Apart from the product, take your time to learn about the company. You should know what kind of company you represent and feel comfortable speaking on their behalf. The internet age also makes you vulnerable if you lack the knowledge, as customers can easily search on this product and company.
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Improve Your Sales Skills
The barrier to entry as a sales rep and distributor is pretty low. So, the people recruited often have little to no experience in selling or a professional qualification. While most companies provide training, it will probably not be enough. Invest in proper courses to improve yourself to understand topics like sales cycles, improving listening skills, and sales leads.
Source: liveandlearnconsultancy
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Have Set Goals for the Day and Week
This point is an obvious one. To excel at this, you need to have goals. Set the number of customers to talk to in a day or week. Decide how many sales to make in a week and try to comply.
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Focus on Building Good Relationships First and Not Making Sales
It can be tempting to pitch your winning sales line and get the sales over with, but there is a need to establish a good rapport with the customer. You need to make them understand they aren’t just sales statistics, but actual people. Hear about their pain point concerning your product. Listen to their story to understand the buyer’s behavior and ask what solution your product can provide them. You can pick it up from there when you meet next time. You don’t have to make sales on that day, as you can always follow up with them.
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Keep an Organized and Updated Customer Record
Sharing updates on products and newsletters and regularly communicating with your network is vital for a successful sales rep career. So an up-to-date record allows you to follow up with your network.
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Build and Maintain your Network
It’s best in this business to network with more people, as you can learn from others and build beneficial relationships. It’s also a great way to stay motivated and positive when things aren’t going well for the business.
Final Thoughts
In conclusion, direct selling properly performed is a rewarding business model. It allows flexibility and control and maximizes profits. It’s also a model that can be easily understood and implemented online and offline. Its merit speaks for it, and while it can be a slow-growth model, it can also be rewarding. We hope we’ve put together the right information for you.
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