Welcome to the first part of this three-part series where we investigate the worldwide growth of direct sales and multi-level marketing. In Part 1, we will take an introductory look at direct sales and MLM and their growing popularity. In Part 2, we will review the state of the marketplace and examine the industry from a global perspective. Finally, in Part 3, we will consider the industry's future.
Part One: An Introduction to Direct Sales and MLM
Direct sales and multi-level marketing (MLM) have been around for years; however, the advancement of technology has expanded the reach of the industry. The result is a growing opportunity for those who are ready to take advantage of them.
Globally, direct marketing and MLM is a $190 billion industry. The United States alone accounts for $36 billion. Because of the industry's scalability and the use of social media, it is not unusual to see part-time sales representatives creating their own companies.
What is the Difference between Direct Marketing and MLM?
In direct sales, product manufacturers sell directly to consumers without the use of retail. This business model provides an opportunity for those who want to start a business but are prohibited by the cost of retail space, operating expenses, or hiring. In direct sales, independent representatives act as middle people and source products directly to the customer.
The two most common approaches within direct sales are one-on-one sales and host/hostess sales. One-on-one sales involve representatives dealing one-on-one with the consumer, such as in phone sales and selling door to door. In host/hostess sales, representatives engage a group of people at their home or their workplace. Ann Summers parties are an example of this latter approach.
Multi-Level Marketing (MLM)
Multi-level marketing, also known as network marketing or referral marketing, is similar to affiliate approaches where representatives earn a commission on each sale. Some MLMs require representatives to invest their own money upfront and then allow them to keep the money from their sales.
The most successful multi-level marketing organizations focus on sales rather than recruitment, trusting that the products will sell themselves. The best MLM programs do not sell their products to members or encourage them to recruit new members. Independent representatives sell primarily to the consumer by tapping into their network's to generate sales opportunities. Those who have wide groups of friends and acquaintances can generate a significant income.
MLMs offer the opportunity for a highly profitable business for those who are motivated, hard-working, and get involved with a reputable company. Those who do not fit this profile are advised to seek other ventures. According to one piece of research, 50% of MLM representatives drop out within the first year.
A Growth Industry
The popularity of direct sales and MLMs rests in the benefits they provide. Because of their low start-up cost, only a small initial investment is required. They offer flexibility, allowing representatives to create and manage their own schedules. Avon is a prime example of this model. Avon was credited with being "the first conglomeration of American women to be financially independent with a respectable profession."
More than ever, direct sales and multi-level marketing (MLM) have become a viable business option. They have spread throughout the world, and their popularity will continue to expand.
We hope that Part 1 of this series has helped you develop greater clarity of this industry. Be sure to check back for the next two pieces in the series in which we'll take a look at the global popularity of directs sales and MLMs as well as their future.
About the author:
Tal Golan (@talgolan) is the Chief Strategy Officer @ Verb Technology Company, Inc.