Direct
Sales vs. Network Marketing
Understanding the difference will help you determine which opportunity
is the best fit for you.
by Michael L. Sheffield
May 19, 2003
Question:
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?
Answer: 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.
________________________________________________________________________
MLM Consultant Michael L. Sheffield is the CEO of Sheffield
Resource Network, a full-service direct sales and Multi-Level Marketing
(MLM) consulting firm. He is also the co-founder and chairman of the Multi-Level
Marketing International Association (MLMIA).
