Working from home, setting your own hours, being your own boss and earning high commissions – who wouldn’t want to work in direct sales? If you’ve been listening to friends, relatives or social media influencers sing the praises of their newfound careers in direct sales, you’re probably wondering if you should get in on the action.
On the flip side, though, every few years it seems like there’s a hugely publicized news story about multilevel marketing (MLM) scams and their unwitting victims who thought they were embarking on a new career path.
If you’re confused and curious about how direct sales careers work, how to tell if a company is legitimate, and how to decide if a career in sales is right for you, check out these FAQs.
Multilevel marketing companies are not illegal in the United States, but pyramid schemes are illegal, and many pyramid schemes are MLMs. MLM businesses are also often referred to as affiliate marketing, direct sales, network marketing, independent sales and home-business franchising companies.
In a legal MLM company, independent salespeople receive stock and sell it to consumers directly, without a storefront. The salespeople in legal MLMs make most of their money based on commission from their own sales as well as the sales of downline associates, or associates they recruited to join the business. In an illegal pyramid-scheme MLM, the primary way the company makes money is through recruiting more salespeople, not by selling a product or service.
When involved in any type of sales career, implementing CRM software can provide huge benefits. When deciding how to choose CRM software, you need to consider the size of your business and budget, and how this type of solution will fit into your workflow.
The reason so many MLMs end up being uncovered as illegal pyramid schemes is because it’s very difficult to prove intent in a business’s internal operations. It isn’t illegal to have a failing business where independent sales contractors find themselves unable to move enough merchandise to make money. However, it is illegal to intentionally create a business knowing full well that selling the merchandise will not be the primary source of revenue, relying instead on heavy-handed recruitment and investment money from new sellers to keep things going.
The legality of multilevel marketing is hotly contested, specifically because the structure makes it so easy for upper-level recruits to exploit their downlines, promising unrealistic sales commissions in exchange for an initial investment in goods (and a bump in their own paychecks). To help differentiate legitimate direct sales companies from those that take advantage of sales associates, the Direct Selling Association was formed. The DSA not only allows companies it deems legitimate to join its organization, but also offers public guides on ethics within the industry and consumer protection resources. Additionally, consumers and employees may file code complaints through the DSA.
If lots of direct sales jobs are scams, or simply not worthwhile, why are so many people out there boasting about making a boatload of cash selling everything from leggings with bold prints to household soaps and cleaners? It’s a good question, and there are two main explanations.
For one thing, even in a pyramid scheme some people make money. The earliest and most prolific salespeople to join the team can bank some cash (before the scam falls apart) by recruiting lots of downline sales associates. People who are good at this have a habit of skipping from MLM to MLM in the early stages (when there’s still money in recruiting) and then jumping ship just before things go belly up. If you are being recruited by someone who has worked at lots of MLM-type companies in the past, that’s a red flag. Additionally, if the real money is made from recruitment and not from sales, of course the associate you’re talking to will say they’re making a ton of cash, even if that’s not true.
The second way people make money in direct sales is by selling merchandise. However, the way such sales are publicized can be extremely misleading. For example, a sales associate may tell you they sold over $1 million in goods in their first year selling supplements. At first glance, that makes it sound like they made over $1 million, but all it means is that the MLM company valued the goods they sold at $1 million. It doesn’t even necessarily mean the associate’s clients spent that much.
Plus, the sales associate still had to buy the goods (so subtract that from the total sold), pay their upline manager (subtract that too), pay for storage if necessary (subtract that), and put in the time selling (figure out their hours per week spent doing so, mileage, etc.). All in all, it’s possible to “sell a million dollars” and only make a few thousand bucks for full-time work over the span of months. Additionally, many MLMs don’t quote dollar amounts when boasting about sales, but instead have their own “sales levels” like Silver, Gold or Platinum, making it even harder to discern how much money associates are actually bringing in.
The Federal Trade Commission offers valuable insight for evaluating direct sales opportunities. If you’re seriously considering an independent sales job, you should follow the guidelines outlined by the FTC, which include looking into the company’s history (such as lawsuits), asking for written details on the compensation structure and individual expenses, and avoiding any company that offers higher compensation for recruitment than for sales.
Additionally, it is wise to be discerning when it comes to the stock your potential MLM is selling. Many direct sales companies that are scams sell low-quality goods, for which there is not a great demand, at an inflated price. Checking out online customer reviews and researching the social media presence of other local direct sales associates can give you an idea of the quality, desirability and market saturation of a product. If you notice lots of direct sales associates in your area, that may be a red flag.
MLM scams prey on close-knit communities, because they contain many people who trust each other, as well as a high percentage of unemployed or underemployed adults. So, even if a close friend or relative is recruiting you, don’t take their word for it. Look the company up on the Better Business Bureau website to peruse complaints and pending lawsuits. A simple search can save you and your family thousands of dollars, so don’t skip this step.
There’s a simple saying that “sales is sales,” which implies that if you can sell one thing, you can sell anything. With the exception of highly technical or specialty goods that require advanced knowledge, this usually turns out to be true. The best indicator that you can be successful in sales is past success selling. If you are being pitched a high-commission sales job and have no proven sales track record, that’s a massive red flag in an employer.
In fact, since the world of direct sales is so fraught with fraud, people who are serious about building a legitimate career in sales are likely better off becoming in-house sales representatives rather than independent contractors.
In direct sales, you are kind of like a franchisee, but without the support system. You are responsible for buying merchandise (and in some MLMs, you have very little say as to what merchandise you get) and for marketing and selling it. Most direct sales associates leverage social media and IRL family and friends to make sales. If you sell enough, you can make some money, but if you don’t, you are stuck with merchandise you’ve already paid for. Additionally, most MLMs do not offer complete compensation packages, benefits or base pay. Many people who participate in MLMs end up in debt at the end of their sales experience. [Interested in CRM software? Check out our best picks.]
In a regular sales job, a company hires you to be a salesperson, and your sales may take place over the phone (telemarketing) or in person (traveling or in a store). You are not required to front any money or buy product yourself, and your boss does not take a direct cut of what you sell. In jobs like this, you typically get a base salary or hourly rate, and then a commission on top of that. Many standard sales jobs have targets that employees must hit to maintain employment, and failure to hit those sales numbers can result in termination. However – and this is a key difference – when a regular salesperson is fired for not making enough sales, they don’t leave indebted to the company, or with storage rooms filled with unsold goods; they simply move on. There is no reverberating negative effect of losing a legitimate sales job, other than job loss.
If you want to be a salesperson and don’t want to get wrapped up in direct sales, the best option is to find something you know a lot about and try to get a job selling it at the entry level. If you understand financial products, apply at banks. If you know cars, apply at car dealerships. If you know jewelry, apply at jewelers. Anywhere that sells something you understand and offers commission is a great starting point.
Once you have a proven track record, even if it’s just selling inexpensive used cars at a local lot or basic banking products at a local branch, you can use that as a jumping-off point for scoring higher-commission sales jobs. Learning to utilize social media marketing, online research and customer relationship management systems can also boost your marketability in the legitimate sales world.
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