Direct Sales vs. Network Marketing
Understanding the difference will
help you determine which opportunity
is the best fit for you.
Entrepreneur Magazine Online — Ask the MLM Expert
by Michael L. Sheffield
CEO The Sheffield Group
Could you tell me the difference between Direct Sales and Multi-Level Marketing? Many people have talked to me about these concepts but seem to have different viewpoints as to what they mean. Are they the same or different?
Great question. Most experts would agree that Multi-Level Marketing, which is many times also called Network Marketing, is a part of the direct selling concept where products or services are offered on a one-on-one basis and sold directly by the salesperson to the consumer. However, the two approaches create a very different behavior pattern for the sales person.
Direct Sales companies are known as “seller-based,” which means that they direct a higher percentage of the available commissions to the selling distributor when he or she makes a sale at retail than to the sales management that may be supervising their work. Direct Sales Companies usually market higher-ticket, one-time-purchase, durable items such as air and water filters, cookware, art, home accessories etc. rather than consumables.
The type of products offered by many direct selling companies usually offer limited potential for residual income. Obviously there are exceptions to this such as the residual income experienced in insurance sales, but usually when the sale is consummated, the sales person is moving on to the next person and potential sale. Immediate commission checks are usually higher than in MLM, so if you want quick money, direct sales is your ticket.
If you want to build a long-term residual income, you should consider Multi-Level Marketing. MLM distributors must still sell their product, but the sales process usually begins with their “warm” market of friends and relatives. Retail commissions offered by MLM companies are usually much lower since more of the available commissions are directed toward bonuses paid to various upline management people in the sponsor tree. In turn, you can also sponsor a downline of distributors that not only sell but also consume products making them your customers as well.
If the company’s products are fairly priced, high quality and deliver obvious benefits, the distributor has the real opportunity of building a “Life Time Customer”. Ongoing customer use creates residual income. Residual income is money you earn from your initial sales and product reorders made by those you recruit and the ones they recruit, etc. This process continues to generate earnings for you long after your day-to-day attention to the “sale” or your sponsoring efforts has ended.
For example, the “royalties” a writer or performing artist earns on their creation is an example of residual income. So is the interest earned on stock investments. Consumable products such as vitamins, personal care, cosmetics, etc. are more compatible with the MLM business model since reorders create the residual income that drives this type of program.
Having spent most of my working life in direct sales and MLM, I have found it easier to attract people to an MLM opportunity for a number of reasons:
- It usually costs less to get involved. Other than samples of the products and a reasonably low cost distributor kit, there is usually no investment. Customer orders can be drop shipped by the company and customers can usually reorder directly from the company by phone, fax or on the company website with the designated bonuses going to the person that made the original sale. So, no major inventory needs are required.
- More people are able to become involved since the concept embraces the part time sales person along with the full time career builder.
- The MLM business model supports the conversion of the initial product or service sales presentation into lifetime residual income.
- The MLM concept creates geometric growth. Distributors leverage their time and efforts by recruiting a small number of people that they train and mentor while helping them to recruit, train and mentor their own people to duplicate this process. In this way, the sales created by their downline organization creates commissions and bonuses for everyone including their own personal sponsor and their sponsor’s upline etc. based on the rules of the compensation plan.
So as you can see, direct sales companies offer you immediate income while MLM companies offer you an opportunity to leverage your time to build more long term residual revenue. If you enjoy people, are a good communicator and are willing to work, either traditional direct sales or Multi-Level Marketing can provide a great income potential.
Michael L. Sheffield is the CEO of The Sheffield Group, a full-service direct sales and multi level marketing (MLM) consulting firm. He is a Co-Founder and Chairman Emeritus of the Multi Level Marketing International Association and in 2001 he was inducted into the MLMIA Hall of Fame. He and the Sheffield team have assisted in hundreds of national and international MLM corporate start-ups as well as offered a full line of services for established direct sales companies including consultation on MLM Website development. As the most noted expert on compensation plans, he has been a guest lecturer on the subject for the DSA, University of Illinois, University of Texas, Berkeley and Harvard Alumni Association. He has helped launch over 200 new products marketed by direct selling companies around the globe. He can be contacted at 480-968-6199, The Sheffield Group, 2239 N. Hayden Road, Suite 103, Scottsdale, AZ. 85257, website address: www.sheffieldnet.com.
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