Is Direct Selling (MLM) a Good Business Opportunity?

How to Tell if Being an MLM Consultant is Right For You

Woman selling jewelry to friends at direct sales home party.
Image (c) Steve Depenport / Getty Images

Avon. Amway. Herbalife.

Mary Kay. Natura. Tupperware.

You’re familiar with the names.

Some of these direct selling companies are companies you’ve grown up with and even companies your mother grew up with. You probably have some of their products in your own kitchen and bathroom – and if not, you certainly know someone who does.

These  are definitely companies that are around and get around.

They’re also companies that are extremely profitable.

  The six companies I named above, six of the top direct selling companies in the world, made $36 billion in 2013. (Amway topped the 2014 DirectSellingNews Global 100 List, making $11.80 billion all by itself.)

But does that mean that becoming a direct seller for a company such as Amway or Avon is a good business for you to get into?

Here’s what you need to know about direct selling and MLM (Multilevel Marketing) so you can make an informed decision.

Direct Selling Has Great Advantages

Unlike many businesses, there are absolutely no entry barriers to becoming a direct seller.

You don’t need any particular level or education or training.

You don’t need to do it full time or even any set number of hours per week.

You can do it from your home.

It’s inexpensive to get into. Normally all you need to do to get started is purchase a starter kit; some companies offer these to new sellers for as little as $35, although most in my informal survey run from $99 to $150.

Direct Selling and MLM Are Not the Same Things

Direct selling describes the business model where independent contractors (or representatives or distributors) sell a company’s products and/or services directly to consumers. They might do this through door-to-door sales, through the Internet or by having parties.

There is no fixed retail location, although often direct sellers work out of their homes.

Now I could copy and paste the paragraph above to describe MLM (Multilevel Marketing).

It too is a business model where independent contractors sell a company’s products and/or services directly to consumers. The difference is that in the MLM business model, the independent contractors also make money from recruiting others to work for the company.

So if you work for an MLM company, you make money from your sales but also from the sales of your recruits and the recruits of your recruits – your downline. (Thus the term “multilevel”.)

Many direct selling companies are MLM companies, including the aforementioned Amway and Avon.

If you’re thinking of working for a direct selling company, you can see the advantage; it’s a whole extra income stream that could increase your revenue substantially.

But…

Beware! Some MLMs May Be Pyramid Schemes

That’s exactly why some unscrupulous fraudsters have latched onto the MLM business model and used it to create pyramid schemes.

MLM is perfectly legal in both Canada and the U.S.

Pyramid schemes are not.

Legally the core difference between MLMs and pyramid schemes is that MLM companies make money off selling products and/or services; pyramid schemes make money off you.

In other words, the main focus of a pyramid scheme is to get you to put your money in and recruit others to do the same, rather than on moving product or services.

If you are in any doubt that an MLM company you are interested in is a legitimate company or an illegal pyramid scam, ask these six questions. And if the answers to any of the questions are dodgy, stuff your wallet back in your purse or pocket and run – it’s a chance to go to jail, not to make money.

You Could Make a Lot of Money

By working for a legitimate MLM/direct selling company, though, you could make a great deal of money.

In her book Second-Act Careers, Nancy Collamer tells the story of Karen Pagliurolo, a former nurse and stay-at-home mom, who now makes a fortune as a regional manager and sales consultant for the high-end direct sales fashion company Etcetera, hosting trunk shows four times a year in the basement of her home in Winchester, Mass.

What kind of fortune? An Herbalife consultant on the president’s team can earn as much as $480,000, the nutrition-supplement seller says on its website. But that’s a reality for only 0.3% of their sellers, Herbalife’s statement of typical compensation notes. 

And there is a millionaire Avon lady, Debbie Davis in the UK. The Daily Mail reported that she and her partner earned £1.4-million in 2010 -  making them the make-up company's top earners in the UK for the fifth year running.

Many MLM companies also offer top sellers bonuses such as Mary Kay’s famous pink Cadillacs.

But You Might Not

However, as Ms. Collamer says herself in Can You Really Make Money in Direct Sales? (Forbes), “most people who go into direct sales aren’t as successful”.

And in fact, according to the Direct Selling Association, the median annual income for direct sales consultants in 2011 was $2,400.

The average Herbalife consultant earned $991 for the year 2011, according to the company.

To be fair, though, not everyone who has signed on with a direct selling company as a contractor or consultant is actually doing it to make money.  Some have become consultants just so they can buy the goods or services themselves at a discount. Internal consumption, as it’s called, is common in direct selling and MLM companies. Even extremely active sellers normally use what they’re selling.

How Much Work Are You Prepared to Put Into Your Business?

The true answer to the “how much money will I make?” question depends on you.

What are your business goals?

Are you just looking to make a few extra bucks so you can supplement your income? Or do you want your direct selling to provide your main income? Or something in between?

That’s one of the attractions of MLM; how well you do depends on your own efforts.

You Have to Like Selling

It’s obvious, I know, but it’s something many people who don’t do well at direct sales overlook.

Direct selling is not for the shy and retiring. You have to be willing to get out there. And no, not just out there as in onto the Internet. As in face-to-face, person-to-person, door-to-door. That’s how 70% of direct sales happened in 2013 according to the Direct Selling Association.

Unless you are blessed with thousands of friends, you have to be the kind of person who is comfortable conversing with strangers.

And you have to learn how to sell to them, which involves a lot more than just knocking on someone’s door and saying, “Hi. I’m ________________. Would you like to buy some lipstick?”

(If you’re not cringing right now, that’s a good sign. Sales skills can be learned as long as you’re willing to do it.)

The Bottom Line

If you’re willing to do what needs to be done to actively sell products or services to people besides your friends, direct selling could be a good business opportunity for you.

The advantages of direct/MLM selling are hard to beat, especially for people who want to work flexible hours.

Because of the time it takes to build a downline, I don’t recommend MLM as an income provider. That is, if you’re looking for a business that will provide a living for your family all on its own, this probably isn’t it, at least not for the years it would take to “climb the ranks”.

But if you’re looking for a business that will provide extra income and the satisfaction of growing something, direct selling could be a good opportunity for you – especially if you’re looking for something that’s quick and easy to get into.