Can You Really Make Money in Direct Sales?
It’s possible, but how much you'd earn working for firms like Amway or Pampered Chef depends on your commitment
Nancy Collamer, M.S., is a career coach, speaker and author of Second-Act Careers: 50+ Ways to Profit From Your Passions During Semi-Retirement. Her website is MyLifestyleCareer.com; on Twitter she is @NancyCollamer.
It’s a great question, since these days you can sell everything from gourmet food to financial products in this $30 billion industry. (Direct sales simply means offering products directly to a customer away from a fixed retail location.)
What Direct Selling Offers
A few big direct-selling pluses: Pretty much anyone can enter the field. You can set your own hours, taking time off to travel or visit the grandkids, if you want. Start-up costs are often minimal. And it can be fun.
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In my new book, Second-Act Careers, I offer up the story of Karen Pagliurolo, a direct sales superstar. A former nurse and stay-at-home mom, she’s now a regional manager and sales consultant for the high-end direct sales fashion company Etcetera, hosting trunk shows four times a year in the basement of her home in Winchester, Mass. Pagliurolo wouldn’t reveal her exact income, but told me she’s “compensated well.”
Most people who go into direct sales aren’t as successful, though, and some aren’t cut out for it, as I’ll explain in a bit.
How to Spot the Phonies
Before answering the how-much-can-you-earn question, I want to be sure you understand the language of the direct-selling industry and know the difference between legitimate firms and phonies.
In direct sales, independent representatives (also known as independent distributors, sales representatives or consultants) market their products in a variety of ways, including one-on-ones, home parties and the Internet.
Most direct sales firms are multilevel marketing companies, or MLMs.
When you work for an MLM, you’re compensated for your own product sales as well as the sales of your recruits and your recruits’ recruits. A few examples: Amway, Avon and Pampered Chef. In addition to paying sales commissions, many multilevel marketing companies offer their reps the potential of scoring free trips, bonuses and special prizes. (Mary Kay pink Cadillac, anyone?)
Legitimate MLMs charge a relatively small fee for their starter kits, sell products that are purchased by the ultimate user and normally offer reps refunds for unsold items.
MLMs are sometimes erroneously referred to as “pyramid schemes” – companies structured with the intent of defrauding the public.
But pyramid schemes are illegal and the vast majority of their participants lose money. They rely on recruiting new representatives to profit (not product sales), charge reps large upfront fees and convince them to buy large amounts of inventory that is not returnable. Their products generally have little or no actual value.
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Cracking Down on a Big Pyramid Scheme
The Federal Trade Commission and state regulators routinely smack down such companies.
Recently, a federal court halted the alleged pyramid scheme of Fortune Hi-Tech Marketing, an operation that affected more than 100,000 consumers and was described by Attorney General Jack Conway of Kentucky as “one of the most prolific pyramid schemes operating in North America.”
Fortune Hi-Tech claimed consumers would make substantial income by selling products from such companies as Dish Network and Fortune Hi-Tech’s own health and beauty products. One recruitment tweet said: “Bring ur friends & learn how 2 make $120K a YR.” But “it was a rigged game and the vast majority of people lost money,” said C. Steven Baker, director of the FTC’s Midwest region.
What Direct Sellers Earn
OK. Now let’s get back to the original question. How much can you make working for a legitimate direct sales company?
Unfortunately, it’s a lot less than many zealous direct sales recruiters would have you believe. The median annual income for direct sales consultants in 2011 was $2,400, according to Amy Robinson, spokesperson for the Direct Selling Association.
While that figure may seem shockingly low, it’s important to realize that 89 percent of direct sellers run their businesses part-time; most work under 10 hours a week.
Also, many reps go into direct sales because they want to buy their favorite products at a discount and have fun earning a little extra spending money. Reps often get into the business just to buy items for themselves and have no intention of selling or recruiting, Robinson said. That helps brings down the average earnings figure.
But if you want to earn serious money through direct sales, you’ll need to make a sustained effort.
While there’s no formula for determining how many hours you must commit to generate a substantial income, I think that to earn the equivalent of a full-time salary, you have to work full-time. Even then, you must allow time to build your customer base.
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"The number of hours you invest in your business will determine how quickly you grow,” said Mary Christensen, author of Be A Direct Selling Superstar. “Every aspiring direct seller should ask this question: 'Am I prepared to put the time and effort into achieving my goal?' It’s not enough to want it. You have to be willing to work for it."
Pagliurolo told me she thinks women in their 50s are probably the best candidates for direct selling. “They are educated, they’ve been active volunteers and they are the CEOs of their households,” she said.
4 Tips for Prospective Direct Sellers
Here are my four tips for anyone considering going into direct selling for fun and profit:
1. Keep in mind that direct sales involves selling. Obvious, right? Actually, though, many people attracted to the lifestyle benefits of direct sales seem to forget this.
If you’re shy or would feel uneasy asking your friends or family to purchase products or help host parties, this is not the best career choice for you.
Remember, too, that direct selling requires quite a bit of behind-the-scenes work. You’ll need to place product orders, attend training sessions, recruit distributors and handle the paperwork that comes with running a business.
2. Look for the right company with the right products for you. Select one that offers quality goods you can get excited about selling. Be sure it has a good reputation, along with rigorous training programs and a compensation plan that will reward you fairly for your efforts.
The Direct Selling Association’s website is a good place to learn about firms. Its roughly 200 members must abide by the group’s code of ethics. At this site, you can search by the name of a company or a product or service category.
Do an Internet search to find out the buzz about a company and whether its sellers or regulators have reported problems. After running a search for recent articles and blog posts, do another one using the company’s name and words like “scam” or “complaint.”
3. Read the fine print. You’ll want to learn how much you’ll pay in start-up costs and ongoing expenses before agreeing to become a company rep. The average starter kit for a Direct Selling Association member company is $99, but some firms charge much more, especially those with expensive inventory, like high-end fashion companies.
In addition, you might be required to pay membership fees or maintain a certain level of sales to continue receiving your consultant discount.
Be sure to get the company’s compensation plan and refund policy in writing.
4. Ask questions – lots of them. The FTC has an excellent online list of queries for the person who'd be your sponsor or for other distributors. A few examples:
- What are your annual sales?
- How much money did you make last year — your income and bonuses, less expenses?
- What percentage of your sales were made to distributors?
- How much did you spend on training and buying products last year?
- How much time did you spend on the business last year?
- How many people have you recruited?
If you don't get satisfactory responses, this direct selling company should be a "no sale" for you.