Recruits are Great, but Sales Drive Business
I was suprised today when I came across a January post on bloggingstocks.com characterizing
It’s particularly interesting given Avon’s positive early 2008 forecast - predicting mid-single digit growth in 2008 despite a questionable
Even more interesting are the post’s assertions about the direct selling model in general.
Point #1: Companies “live and die by how many new representatives they can recruit.”
Nope, that statement misses the point entirely. Of course recruiting is a critical part of the direct selling model, but companies rely on those recruits to sell products, not just to sign up. Recruiting alone doesn’t result in income for sales reps or the company. With low start up costs (usually less than $100, and in some cases, far less than that) money is made in direct selling when products move. Products move when sellers sell product.
Point #2: “While MLM companies like to focus the public’s attention on the selling of products, the reality is that it is through the recruitment of new representatives that these companies grow.” No, the reality is it’s still product sales that matter. If a company has 10 reps that each sell $5000 in products, that’s always going to be better than having 100 reps that sell $100 each. Just adding more representatives doesn’t increase profits – which is why many direct selling companies are focusing on making the “career opportunity” more attractive. By nurturing promising recruits to sell more and, yes, recruit more motivated sellers, sales and profits rise. Any business, direct selling or otherwise, has an interest in cultivating leaders who can be top performers and inspire others to do the same, thereby building the business. Not everyone will rise to the top, but those who do will be the next leaders.
Point #3: “Representative turnover is high, however, in large part due to the fact that the representatives don’t make much money from selling products.” Turnover in direct selling averages about 56%, comparable to turnover in retail, which is about 53%, not really that notable. Yes, there are plenty of people who try direct selling and decide it’s not for them. There are also lots of people who might try a new brand of cereal and decide it’s not for them either. That doesn’t make the cereal bad, and quite frankly the financial risk for either scenario is about the same. But beyond those who just decide not to continue, you have the equivalent of seasonal workers in direct selling (who may sign up and drop out every year like clockwork) and you have people who achieve their modest goals and then see no need to continue, each of whom contribute to the turnover rate, but none of whom is unhappy with their experience.
Point #4: “My hope is that this outdated method of doing business is something that more and more women are avoiding.” Sorry to disappoint, but more and more women are choosing direct selling because it offers a flexible alternative to a 9-to-5 job. There’s minimal upfront cost, low risk (especially given the generous buyback DSA members are required to offer) and ultimate flexibility. When fears of recession are rising, people are looking for additional income sources – and direct selling provides a perfect fit. Combine that with relatively low-cost, consumable products that the average consumer doesn’t abandon in slow economic times, and both recruiting and sales are in a position to increase.
Point #5: “With over 99% of distributors losing money in the MLM schemes, it’s no wonder that recruiting representatives may be harder and harder.” It’s absurd to believe that 15.2 million American direct sellers (and 60 million sellers worldwide) are the mindless followers suggested by this assertion. With $32 billion in sales in 2006, direct selling provides opportunity and success for millions every year. As in any type of business there are people who are not successful. However, there are many more who achieve their goals – both financial and non-financial – and consider their direct selling experience to be a fulfilling one.
Considering all these points reminds me what a solid business model direct selling really is. Companies like Berkshire Hathaway, Hallmark, Reader’s Digest, Jockey, The Body Shop and myriad others operate, or have invested in, direct selling companies – something they wouldn’t be doing if the model were questionable. So, don’t count the
April 21st, 2008 at 10:09 am
Thanks again, Amy!
I think we’ve all seen this industry become more and more ‘main stream’ over the years. And as the economy takes it’s turns, more and more corporate types are looking for additional sources of income and even opportunities that, with some effort over time, will allow them to replace their current careers.
I appreciate this new site and your blog to help these professional people better understand this industry and learn how to seek out great companies, like I am partnered with, that can help them solve possible financial issues or just associate with some great, positive, motivated people.
Keep it coming, Amy!
Tom in Atlanta
404-578-6676
tom.fraley@gmail.com
.
April 30th, 2008 at 3:19 pm
Great topic Amy. You’re absolutely right about assertions that we rely upon recruiting. In fact, the more recruiting that happens with little to no sales occurring, the worse it is for that company (in my opinion). I’d rather have fewer recruits doing more (per person) in sales because they will be better compensated. Organization growth (more representatives) without healthy sales (by each representative) only adds costs to the company to support (communicate with and provide marketing tools to) dead weight.
Every company has its cycles of ups and downs. Lots of companies also go out of business, even after 100 years of success. The Avons and Amways of the world still appeal to people, however, because they represent opportunity to people who have been thwarted by traditional career paths or seek flexibility in the time and effort they put into their business. They know very well they only get out of their own business what they put into it … but that’s their choice.
I agree that people shouldn’t promote these opportunities as “get-rich-quick” because, as we all know, while it’s possible and has happened, it’s rare and not likely for all. As Tom says, “effort over time” will yield results.
May 4th, 2008 at 2:32 pm
Strange, Robin and I basically agree on something. Too many times opportunities are presented as “get rich quick” and foster wrong attitudes toward selling. Too many folks get caught up in the trap of buying the products and tools to keep the promoted dream alive. In the end, they become the end consumer and never profit in business; but their purchases do fuel sales for the company they represent. If their dream doesn’t materialize as expected, they may leave bitter. Had they focused their efforts more on retailing product, they might have had a more profitable experience. Recruitment without selling makes for bad business.
Some “systems” and “tool” sellers promote a mostly “recruit only” mentality (despite efforts by the company supplier to promote sales). This is what I see happening in Amway/Quixtar; although sales could be better promoted by a reduction in product pricing.
When you have two distinct groups of people selling two different things (products & tools), there is going to be a conflicts of interest. Tool kingpins want to sell their tools and the company executives want to sell product.
On the other hand, a person who manages to turn a profit along the road toward their dream by selling is much better off. Direct selling should be direct selling not direct consumption.
With drop out rates being rather high, recruitment does drive company sales, but many times not the kind of sales which profit the distributor. New recruits benefit the company and sellers of tapes, Cd’s, and function tickets. Is it any wonder that recruitment is many times emphasized more than selling.
Tom’s view that “effort over time will yield results” is a good ideal, too bad the efforts of many distributors are to recruit, consume, and teach others the same flawed thinking.
May 5th, 2008 at 7:03 pm
In all my experience in this industry, most people think buying tools will make them successful, that some CD, seminar etc, is going to somehow transform them. But what is really going to transform them, stop making excuses and start doing what your suppose to do. Share your product with people,what is the big deal. Some people will like it and some people won’t. If you think everyone you share your product with is going to like it, well then you better quit today, and go back to your job. I share my http://www.enjoythejuice.com website with everyone. Some will, and some won’t. That’s the name of the game.
June 3rd, 2008 at 12:48 pm
Charles…
People should be sold on a product first, not a dream first and the product second. Simple concept. Good luck and success to you. Your comment is right in line with Amy’s post and highlights what is positive about direct selling and the DSA. Direct selling isn’t a bad concept when done right. Too bad some opportunities are more of a con than a real chance to turn a profit. Tools and training many times benefit the company first and the distributor not at all.
June 4th, 2008 at 3:21 pm
Although a “product approach” is a good strategy to building a business (and often the path of least resistance), an “opportunity approach” can be an effective strategy as well. As long as you’re upfront about your intentions, both approaches can be successful.
June 4th, 2008 at 6:34 pm
TWS…
Direct Selling strategies that emphasis recruitment basically sell the opportunity (an intangible dream) first. Successful selling of this first intangible leads the buyer to overcome his/her misgivings about buying the products (which in my opinion are many times exorbitantly overpriced). The perceived “value” of the “intangible” opportunity offsets product price/value objections in the mind of the believer.
Direct selling strategies that emphasis product first, place the product before prospective customers who hopefully will try it and like it. The idea is that a customer who loves the product will consider it a great direct selling opportunity. Price misgivings are overcome by perceived value considerations by the consumer/prospect. Bottled health drinks seem to work well in this strategy. Indeed, a single focus product lends itself to product first/recruitment second selling strategies. This method also involves the selling of the “intangible” dream of success.
Both strategies blur the line between distributor/consumer (business/customer). One thing for sure, the direct sales company benefits from the product sales. “The sale has been made to the distributor.”
This is the area where I focus my criticism: In my opinion, the value distributors place on this dream intangible are overblown. The distributor has been “over sold” on this dream opportunity. On the company’s accounting ledger, this intangible can be shown as a real monetary value commonly called “goodwill”, an intangible which boosts total company assets over and above physical monetary considerations alone.
Recruitment techniques and motivational organizations further the “over selling” of the dream intangible. True believers overestimate the value of the intangible and make bad buying decisions. They strive to maintain a quota of purchases to keep their intangible dream alive. They have been over sold on dreams of wealth, luxury autos, luxury cruises, mansions, and so forth. They make decisions to sacrifice much of their personal time, relationships and money in pursuit of a badly exaggerated dream. Motivational organizations, tool kingpins, up line mentors, and rah-rah meetings encourage distributors to keep believing, buying products and striving forward in pursuit of something most distributors will never actually achieve: an overblown dream.
Over exaggerated dream selling is a back room affair. Companies benefit by it, but officially discourage it. Prospects are given transparency documents which state average distributor incomes, and would be wise to not believe unauthorized statements made by recruiters which lead one to believe that success is as easy as the drawing of ovals on a poster board and that rock star wealth is five years down the road if one is willing to believe and follow the system 100%.
TWS, both approaches can be successful as you suggest, but without retail sales, the direct selling company generally benefits more than the distributor/consumer. I thought this subject worth the extra time and space in explanation. It is my hope that better informed prospects and distributors will make for more profitable selling if one is inclined to be a company rep.
June 10th, 2008 at 6:40 pm
What if someone has a need to make $500-$1000 dollars a month in extra income. I would approach them with an opportunity that could meet that need versus offering them a product they may not need or even want? I would not be listening to their needs and providing a solution to their identified problem.
As for the rest of your opinion… how can something be intangible if people have accomplished it. Have you ever won a gold medal? Either have I. Are you suggesting that people shouldn’t reach for high levels of success in life simply because, statistically speaking, the chances are slim? I disagree. But at least in this industry there are great door prizes. ;-) Monetary or otherwise.
Based on your obvious biases, its hard for me to fathom the amount of time that’s spent spreading your opinions about a certain company and its reps, ignoring any shred of positive value they’ve had over the past 50 years as a pillar in their industry. I’m sure you have reasons for your agenda, but it seems to me you might be as guilty “over selling” as the ones you’re criticizing. You might justify that you’re not hurting anyone, but are you really not hurting anyone? I have personally seen countless examples of how the company and reps you’re critical of have made a positive impact in peoples lives. If your true hope is simply to help inform people about this industry (or a certain company), it appears to me your approach is “overblown” or you have some other motives.
I agree 100% that retail sales is a critical ingredient to success in this industry, irregardless of what type of approach is used. And I have seen tremendous improvement in this area across the board.
July 23rd, 2008 at 9:14 am
The fact that many people come into this industry with either no sales experience or no desire to sell creates the problem that leads most people to want to focus their efforts on recruitment.
However, direct selling is a sales business. Whether one calls themselves a network marketer or multi-level marketer, or even some other term, the fact is they are a part of the direct selling industry and they are in a sales business.
TIP - Even those recruiting are selling ideas and concepts.
In years of coaching others in this industry, I find that the majority of people do know they are in a sales business, but they are also uncomfortable with sales because they do not know how to effectively sell. In my opinion, if these people learned to sell their products and services effectively (i.e. get 5 new customers a month), they would become far better recruiters.