Below are some points to remember when choosing a company:
The first thing many people think or say when direct sales are mentioned is "pyramids." While pyramid schemes are illegal in most states, many marketing plans are legitimate enterprising systems of earning money and are not pyramids. Because the description of how various marketing plans work sounds like the physical structure of a pyramid, people tend to confuse the good with the bad.
Let me explain.
Pyramids rely on the dreamers of this world, for pyramid schemes are designed to get investors to put in a chunk of money, say $500 or more, for nothing in return. That is no product. If you're new in the game, you enter at one of the bottom slots of the pyramid. To make a profit, you must sponsor others into the pyramid and they must pay you to get in. In other words, you're just paying for the right to then turn around and find recruits who'll pay you to get in. Eventually you hope to bring in enough people, up to the point where you supposedly make your fortune.
This is called a "naked pyramid" scheme, and it's well named - you can get stripped of your money. It's one of two garden variety pyramids, this being the no-product type. It's a cash-only pyramid, the likes of which swept California and New York in flash floods about five years ago. It was estimated that about $100 million changed hands on the West Coast and the fervent pyramid players in New York were coming up fast and furious when the pyramid toppled. Entering into a no-product pyramid makes you poorer while the early promoters of the scheme get richer.
The second species of pyramid actually offers a product but the point is not only to make a profit by selling directly to a consumer. Instead, one salesperson sells to another level of salesperson for a profit, who then in turn sells to another level for his or her profit until the bottom salesperson must finally sell to a consumer to make the final profit. When dealing with this kind of profit structure, it's important to understand what you have to do to move up to higher profit levels.
The Direct Selling Association Report on multilevel marketing listed some "red flags" of pyramiding.
You should look out for:
- Exaggerated or unsupported earnings claims used in recruiting. (One such claim will say, for example, that you can earn $200,000 a year selling their product. They may neglect to mention that it may take ten years to build up your business to make this amount. Then again, they might be promoting inflated numbers to lure you in. You can ask them for proof of income earnings if they're a legitimate company they'll usually have a company magazine, newspaper, or monthly circular featuring high earners.)
- "Large" start-up fees or costs.
- Recruiting based on sponsoring others without emphasizing product sales.
- Loading new recruits with big inventories.
- Inadequate inventory "buy-back" policy.
In trying to decide which direct marketing company to join, you should do a thorough investigation.
You'll know some companies by reputation since they seem to be so much a part of mainstream American economy. You might have heard the names of others, but don't really know much about how they operate. Where do you go for answers?
Companies that have been around at least for a few years will be easier to investigate. They'll have offices, distributors and retail customers. Write to these companies for information, annual reports and a description of their full line of products. To check on a company's legitimacy, honesty, and track record, write to The Direct Selling Association in Washington (address in the back of the book) and ask what they know of a company. If they haven't heard of it they may be able to refer you to a state business bureau which may be able to supply you with some information.
By doing your own investigative work you will save time and money in the end. Some companies may look great in the beginning, appearing to have the perfect product, great packaging and high commission promises. But with careful examination they may not look so good after all. Years ago a diet product had a meteoric rise but before long fizzed out in its own stratospheric hype. Marketing a get-thin-fast diet powder that sold on a get-rich-quick commission plan sounded great to both its planners and the salespeople who signed up to share in this marketing scheme. When the diet was publicly shown to be nutritionally inadequate the company went bankrupt leaving many commission obligations unpaid.
This cautionary tale isn't in any way meant to turn you away from joining a fledgling direct selling company. Rather. I urge you to be alert to company strategies that may sound very tantalizing but will not satisfy you in the end.
Direct Marketing Simplified
Direct marketing enables you to earn money in three distinct ways.
Step 1: You can retail the product only that is buy it at wholesale cost and sell it at retail price. As a consultant (or distributor or whatever your entry level title is), you order products either through the person who sponsored you into the company or directly from the company itself. You can use the products yourself and/or sell them to friends, relatives, whomsoever. You'll make a profit on these products, but the amount you earn won't be as great as if you go on to the next level.
Step 2: You decide to move up a slot to "management"- or whatever title your particular company designates for this second level. When you are in "management." you can sell your products (just as you did in step one) and also recruit others into the company to sell. Your income will be higher because you'll be earning commissions on what they sell. At this point, you are profiting from your own retail trade and the wholesale sales of your recruits. The next step up can be the most exciting.
Step 3: You can "duplicate" your business. Here's where you can take the opportunity and make a bit of money and it's also where the "pyramid" confusion comes in. Duplicating alternately called "spinning off" or having "offspring"- makes direct marketing very unique. Basically, it's getting someone whom you've recruited into your organization to achieve as you have and move up into "management." Then she too becomes an "offspring" and develops someone in her own organization to move up into management, and so on.
Down the line, you’ll see how this works very shortly.
Starting Out how You Want to Recruit and Build a Business
Some direct selling companies operate on payment policies based on levels that go two, three, four, or sometimes five levels deep. There is not an infinite line downward for you to profit from directly. There is, however, an endless possibility of increasing your earnings laterally. This means you are not limited to the number of people you can personally recruit and add to your circle. The more people you recruit, the more people they can sponsor who can then sponsor others. This payment process will be further clarified for you in the upcoming discussion.
Each company operates with a "marketing plan" or "performance schedule" that will describe how you earn greater commissions and what your title will be as you move up- supervisor, director, coordinator, national sales director, key coordinator, diamond distributor, or whatever the company designates. How you earn and the title you win will be determined by either group (unit) sales volume and/or personal sales volume, the number of recruits you sponsor within a certain amount of time, and how long you maintain these numbers.
Your success depends upon the energy you put into selling and recruiting others into your organization. The greater the numbers of people who are working and selling products, the more the levels grow and the more money you make.
When I spoke to Pat Simecka who with her husband, Don, is now at the high rank of master coordinator after fifteen years with Shaklee. She told me about her serendipitous move into sales and how, finally, she learned to use Shaklee's marketing plan to best advantage.
"I was a teacher and just couldn't imagine doing anything related to business, or, especially, sales." she said. "Then Don heard about Shaklee from a man he'd worked with who was retiring and looking for something to do." After much convincing Pat went to a Shaklee meeting, and still unsure, signed up.
"I didn't start out like a racehorse, like some fast-trackers." she told me. "In fact, I didn't pay attention to what the business could do for us and I didn’t know how to do a lot of things to build it up. It took me almost two years to the date to make the first official rank in Shaklee. Back then. I thought all the money would be in retail sales not in recruiting. Then at a meeting, someone held up charts and I took a good look at the numbers. What I had to do was recruiting and help others to recruit too. At that point, I had the determination, and a strong desire to create something that was mine, so I decided to go for it and commit myself to the business."
In Pat's first year, she earned about $6,800, less than what she'd made at her teaching job. By the end of the third year, focusing on recruiting, she earned $18,000. By then Don joined her in the business and between them, their income went up to $72,000 by the sixth year with Shaklee full-time.
Pat and Don work together, planning the strategies to help themselves reach their goals. "We want our recruits to build their businesses, and Don will assist them with that. I make calls, take care of the orders and product demonstrations. and motivate others. Don and I work together as a team and our people find strength in that."
How Don and Pat earn more money through recruiting and helping others achieve their secret of multilevel marketing and it's simple to learn. Here's how it works with all its possibilities:
NOTE: The diagrams on the following pages represent a theoretical situation with a company. This is not any one of the company's marketing plan but it is merely to show you how you can earn more money in direct sales. Keep in mind that different companies operate differently in terms of how they handle their product distribution-Amway and Shaklee salespeople order products (for their own use as well as for their retail customers) through their sponsors, who get a commission on all sales. On the other hand, Discovery Toys, Mary Kay, and Natural Impressions salespeople order their products at wholesale directly from the company with no intermediary.
Now let me explain how some companies’ plans work.
A friend recruits you and you build retail sales, increasing your income with each new customer. Suppose, now that you have 20 customers. To simplify things, let's assume one circle represents your 20 customers. Your business will now look like this: YOU 20 customers
Pay yourself that you are Worth
The company's policy may be a 50 percent discount on inventory ordered directly from them in certain quantities with a suggested retail price. For our example here, let's use a retail price of 50 percent of retail. If each of your 20 customers buys $100 worth of products, you'll take in $2,000. One half of that pays for inventory, so you'll earn $1,000 gross profit.
Suppose three of your customers - Pam, Tina, and Marge - decide to do what you do and want to be recruited. By sponsoring them you may be eligible to move into the first level of bigger financial opportunity.
Each sales company will, in its marketing plan, let you know how many recruits you must have before you can claim a commission on recruits' sales. Let's assume this fictitious company considers you "first level" when you've got three recruits. Pictorially your business will look like this:
Now that you've recruited Pam. Tina, and Marge, they'll buy their inventory directly from the company-instead of from you-but you'll now get a percentage from their sales. This percentage is called an "override" by some direct sales companies, "bonus commissions" by others. Either way the override is paid directly to you from the company and is not deducted from the new recruits' profits.
Pam. Tina, and Marge are now in business and each orders $1,000 in inventory for the retail customers they've found. Since these three recruits are all in your first level down, the company will pay you a first-level percentage-for example 4 percent. Therefore, you'd earn $40 from each woman's effort (4 percent of $ 1.000) for a total sum of $ 120.
It doesn't stop here. Pam finds an eager customer to sponsor into the company from among her customers-Joan. Diagrammatically the picture's getting much broader as your income-producing possibilities grow (see Diagram 3). Joan is now in your second level, and you will earn a second-level commission from her sales.
You earn override commissions from Pam. Marge, and Tina customers (your first level), which will be different than the commission percentage from Joan, as your second level. If Joan recruits from among her customers, you'll be earning a commission percentage, too on the third level. Again, the number of levels at which you can earn commissions and at what percentages depends on the individual company. Every company will establish its own percentage scale, which usually depends on the number of recruits you have and the dollar volume in sales.
As it stands now, you've personally recruited three people. Among them, only Pam has recruited one person (Joan) who may decide to sponsor others. Meanwhile, you still have your original 17 customers to sell products and to tap for recruiting. Suppose you do motivate two more customers to sign up (Toby. Nan). That now brings your number of personal recruits to five (see Diagram 4). Again, depending on payment policy, the company can reward you for bringing in more personal recruits by increasing your commission (say. to 8 percent) and probably give you a bonus or a gift. So, if your five recruits each ordered $1,000 in products one month you'd earn $1,000x5=$5,000x8% =$400.
The numbers are impressive, but it isn't quite this simple. We have to face the possibility that things will change and that numbers will fluctuate. Pam may lose some enthusiasm after a few months and be happy to coast along with her retail customers and not recruit for a while. Her recruit, Joan, who started out hesitantly, is now more confident and ambitious than Pam and outreaches her by bringing in two new recruits of her own. Nora and Lana of them, Lana starts out doing $300 a month in business for a few months, then, because of family problems, drops out. Joan, being conscientious, replaces her with Dina, who wants to pull together a dynamic organization of retail customers and motivated recruits.
How will you do financially?
You're drawing income from your own retail base of customers, commissions from your five recruits and two levels of their recruits. Things look better yet when Tina and Nan in. Suppose Toby, Nan, Marge, Tina, and Pam are selling about $400 a month in products, while Nora, Joan, and Dina do about $300 each. Nan and Tina's three recruits, each new to the game, are doing $200 a month in business. You have 14 people selling, each with her own list of customers.
Your organization has generated $4,100 in sales. Your personal commissions on a sum this high may be higher - let's say 13 percent. That totals $533. You'll also add to that the 50% profit on your own $400 in sales to retail customers, equaling $200. Your monthly earnings: $733.
Levels are sometimes called "generations." Your personal recruits are first generation; the second level is the second generation, or "grandchildren"; the third level contains your "great-grandchildren"; and so on for the fourth and fifth levels (when they are included in a company's marketing plan). You can, of course, keep recruiting people into your first level-bringing in as many as you can to effectively keep and motivate you. The number is unrestricted. This is what's meant by lateral growth-an ongoing process of personally recruiting people into your first level.
In terms of income, you receive overrides from several lines downward, though it varies from company to company, depending on structure. In some companies, commissions vary because of the amount of inventory you order or, in others because of the level you are at in the company. In our example, the company is paying down three levels, and then stops for "You." Let's see what will happen now.
Everyone in your organization has a turn at having a first through fifth level, since the format of direct sales plans is quite democratic. It works this way:
Pam (your recruit) is your first level and loan (her recruit) is your second and Dina is your third, but for Pam, Joan is her first level and Dina, her second and so on down. Since percentages on overrides usually change per level, you will want to help your recruits to recruit and sell to others.
Let's see what happens next:
Now that you have all these recruits who are building their organizations, you'll be earning percentages of their sales profits. At this point the company you work for may honor you with a title change and higher commission scale. You may become eligible for a bonus-cash, furs, jewelry, even a car. You'll be called a "director," or "coordinator." or something similar. The more your recruits earn, sell, and recruit people in turn, the greater your title.
Your commission percentage increases, too and is usually determined, along with the title, by personal sales volume and the number of recruits personally sponsored within a certain amount of time.
About now, you'll discover another reason to keep recruiting and to build a large organization-one of your original recruits may "spin off" or become an "offspring" salesperson like you by taking the organization below them with them. But you haven't lost anyone at all. The typical company gives you a percentage of "offspring" commissions - about 4 or 5 percent on total volume, lt illustrate: Pam has a change of heart and applies herself. She grows until she has five recruits of her own, who each have three of their own who've sponsored two recruits of their own. Pam's earning her company's specified minimum for the number of people in her organization over a period of time and can leave your direct circle-"spin off." If Pam's recruits have, between them, a few hundred customers, you can earn a nice sum just on that 4 or 5 percent.
Your organization will run smoothly after a while. You will become accustomed to the process of building retail customers and adding recruits when you can. You'll also discover the importance of teaching others what you know about sales techniques as well as sharing ideas about how to approach others. You'll be called upon to support others who falter or lose confidence, just as a good part of your early introduction to the business will be by attending meetings and staying in touch with others to keep motivated.
I must emphasize this: A generous exchange between novices and those experienced in direct sales can be responsible for mutual success. Kim St. Claire, who had a meteoric rise to the very top level of District Director with Jafra Cosmetics, enthusiastically agrees.
"When I started out, I read the guidebooks and did my best to make a sale," she told me from her home in Springfield. Massachusetts, "but I didn't have the big picture. Suddenly, after a year, it clicked. If I was to be a leader, I needed to help others get what they wanted, too. I asked myself. What did they want? I discovered that there were lots of women who were being paid what others thought they were worth and getting stuck there. I knew what that was like in my own life. I decided to do something about it."
Kim had been an office manager who "dabbled in" selling Jafra products before she quit and devoted herself fully to a sales career. When she realized how encouraging, motivating and teaching others could also enrich her, she connected to the very basis of direct sales. "I love watching people flourish as they develop self-confidence with each success. You can learn only so much from the guidebooks. I think everyone in sales needs support, needs to feel they are recognized and to belong somewhere. With Jafra, I've gotten the kind of support that is more than business, it's loving. That's what makes people grow."
Kim, who is thirty-one years old, has been with Jafra since 1980. She's always shown a remarkable gift for the business. In her first year, she went through the motions and learned what she could in a practical way. She earned about $8,000. Once "things clicked." everything changed-in her second year, she earned $25,000. From there, her career was on a steady climb. She still holds the company record for sales and recruiting for a twelve-month period, she's the youngest of the four Fourth-Level District Directors (the top slot), and she's made it there in the shortest amount of time!
When you have developed a firm understanding of the business after a year or so and how you can work within the business, you can design a five-year plan of action to help you focus your effort to reach projected income goals. If you follow the plan, after eight or ten years you can earn major commission benefits from businesses you helped start to flourish years ago-companies that sprouted from companies that began with you.
Companies that work on commission only or commission plus bonuses for referrals and sales volume (Fuller Brush, Tupperware), provide opportunities for excellent careers and feelings of accomplishment, though the ambitious sales-person will usually earn more money in the types of marketing plans described. The type of company you eventually choose doesn't matter as much as your commitment to it!
Let's take a closer look at sales-the actual selling situation-and see what really happens when a sale is made.
