Business Law

Is Direct Selling Right for You

Direct selling has been around for years, and some of the products are still around today. Avon, Mary Kay, Amway and Fuller Brush are a few examples you've probably heard of. With the recent economic turmoil and millions of people out of work, more people are looking to direct sales and home-based businesses as a career or as a way to make extra cash.

According to the Direct Selling Association (DSA) - a nationwide association of companies that make and distribute goods and services for direct sales - there are about 17 million people involved in direct selling in the US, and more than 74 million worldwide.

Are you thinking of joining them? You can make money, but you need to careful.

Direct Selling Basics

Direct selling is when you're paid to sell products or services directly to customers. There's no bricks-and-mortar retail store, and typically the customers don't come to you. You go to them by going door-to-door or calling them on telephone.

Other popular ways of selling directly to customers is using your own personal web site or holding "parties." Parties are where you invite people to your home or some other location and try to make sales.

What Do You Sell?

The products and services you sell come from a company, manufacturer or vendor. As for the items themselves, they run the gamut. Almost anything you can think of is or can be sold through direct sales. Good examples include:

  • Household goods and kitchen gadgets
  • Cosmetics and personal care items
  • Clothing

A bad economy and increased value of gold has spawned a novelty, namely "gold parties." Here, gold and precious metal dealers pay you to have parties where your guests bring their unwanted or broken jewelry and dealers offer them cash for it.

Getting Paid: How's It Work?

Most if not all direct sales involve commissions. You get a percentage of the amount of goods or services you sell. There are two main types of direct sales plans or methods:

  • Single level compensation - You're paid a commission based only on what you sell. If you sell nothing, you're paid nothing
  • Multilevel compensation - Your commission is based not only on what you sell, but also on the sales of distributors or representatives that you've recruited to make direct sales. Your recruits are often called downline representatives ("reps")

Of course, the key here is to make sales. That's not always easy though, even though the ad you read in the newspaper or on the internet made it sound like you'd be a millionaire - or at least a "thousandaire" - and soon.

The Well May Go Dry

For many direct sellers, the first customers are usually friends, family, former co-workers and others they know. You may make some occasional sales, but what happens when they don't want the product or don't become repeat customers?

It happens, and if you're not careful, you could end up with a room full of cosmetics or cleaning supplies you can't unload!

Enter with Caution

You need to keep some things in mind to help you make money, rather than lose it outright, and make a successful career from direct sales:

  • Be certain you understand how you'll be paid. If it's single level, you'll need to move your merchandise to get paid. As a downline rep, keep in mind that your recruiter is making more money on your hard work than you are
  • Do you have to buy the products you're selling and keep them in inventory? If so, do you have room to store them? Can you return unsold items to the vendor, or are you stuck with them?
  • Working from home can be a mixed blessing for anyone with children or other family responsibilities? Make sure you can devote enough time and energy to your sales

Don't Be Taken

Watch out for scams! There are many reputable direct sales opportunities out there, but there are a lot of scams, too. Especially on the internet. Watch for some warning signs:

  • What's the start-up cost? According to the DSA, a start-up kit costs on average about $100. Be wary of start-up kits or "initial investments" that cost hundreds or thousands of dollars
  • Does the vendor have a physical address (not just a web site) and a telephone number? If not, it may be difficult for you and your clients to get customer service, and you may have trouble getting paid
  • You may be involved in a pyramid scheme if you're not actually selling something, but rather are being paid to "recruit" others to sell a "business opportunity" or "investment" that doesn't really exist. The only ones who make money are the people who get paid for the "opportunity"

Have a Plan

When your customer pool looks like it may be drying up, you need to have a plan. Build a web site, or hire someone to do it for you. Try selling at flea markets, and place newspaper ads - not just in your local papers, but newspapers in neighboring cities and states.

There's no magic product or service that sells itself. And, with millions of people selling direct, competition is tight. Be prepared to work long and hard to make a living. You can make it work so long as you treat your direct sales efforts as a job and as a business.

Questions for Your Attorney

  • I paid $200 for a home based job start up kit but I never received it, and the web site I ordered it from is no longer online. How can I get my money back?
  • When I'm paid my commissions, do I need to take out state and federal income taxes?
  • I have an inventory of goods I was selling for a vendor, which was recently bought by another company. The new company has changed the product a little bit and it charges more for it. It won't let me sell the "old" product, and it won't buy it back from me, either. Am I stuck with this loss?
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