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Direct Sales Critique (Multi-Level Marketing) | Buyer Beware Series

direct sales critique
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This is the third post in a series called Buyer Beware on business models I generally don’t support.

Direct Sales Critique

If you haven’t experienced direct sales (similar models include home parties, trunk shows, and various iterations of “independent consultants”), you’re one of the lucky few. You’ll know when one of your friends has started selling makeup, clothing, jewelry, shoes, tupperware – you name it – through this model, because suddenly 90% of interactions convert into sales pitches.

Here’s the reality behind that sales pitch:

1. Your friend learns about a “fun way to make money” in a nontraditional way.

This is really appealing to students, moms, people who for whatever reason can’t work traditional jobs, or people who are trying to balance lots of things and could use some additional income.

2. She meets with a brand consultant, typically someone higher up in the pyramid who lays out the program’s benefits and helps her purchase starter kits, set up an account, and order catalogs and supplies. There is normally some investment at this stage, or at least the suggestion that having sample product will make her a better salesperson.

Your friend purchases a starter kit and has already lost money.

3. Your friend’s starter kit and catalogs arrive. She has been told that her best customers are her friends and colleagues. She gets to work telling everyone she knows that she’s selling this great product that changes the world/is nontoxic/is uber cute/etc.

4. At first, her friends are like, “Cool. I’ll buy something. Let’s support so-and-so.” Your friend reaches her minimum monthly order (not all companies have this guideline, but Avon did. If you didn’t meet it, you had to pay a fee each month).

5. The next month rolls around and your friend is faced with the task of reminding all her friends that she sells an awesome product. They just wanted to go out for coffee.

Everyone feels sad.

6. Your friend is having trouble making additional sales, so she reaches out for advice from her direct sales network and they all say that you just have to be persistent, so she posts incessantly to social media, throws “parties” to tell her friends about the new catalog, and orders more sample product.

7. All of her friends unfriend her on facebook. Nobody buys anything. Your friend dies a miserable death at the hands of the direct sales model. The world is ablaze.

We are doomed.

I really hate direct sales. If the above object lesson didn’t do it for you, let me summarize:

The direct sales model is a legal pyramid scheme.

The people on top make all the money and your only chance at middle tier success relies on you being sort of sleazy toward your friends and neighbors, except in rare circumstances where you may fill a need. Even then:

Forget coming out ahead — just breaking even can be tough. In his 2010 study of 12 multilevel marketing companies, FitzPatrick says, he found that the bottom 99% of salespeople did not earn a net profit — at all. The reason? Expenses. (Market Watch)

If you’re just in it for the discounts, know what you’re getting yourself into. To avoid fees or lower tier status, you will continually be told that your success hinges on turning your deeply meaningful social network into a sea of regular customers. That’s not fair to you and it’s not fair to them.

Add to that the reality that most people who get taken advantage of by these sorts of jobs are already poor, unable to find conventional or regular work, or desperate to make a little extra money. Not to mention the gendered dynamics: direct sales models are almost exclusively pitched to women, who still make just 77 cents on the dollar compared to men. Encouraging women to pursue a direct sales career that is almost inevitably doomed to fail does nothing to promote pay equality.

A clarifying point:

Within contexts of affluence, like sororities, neighborhood organizations, or church groups, I’m sure direct sales can work quite well. But because direct sales is often marketed to people who don’t have the advantage of collective affluence, a lot of the people involved don’t have a real chance of success.

But what if the company is fair trade? 

My argument still stands.

Consider this: you spend hours a week as a direct sales consultant advertising for a company that may never even pay you for the work you’ve done, because it completely rests on your shoulders to make the sale and get the commission. Even if the company has good intentions, this simply isn’t fair. Add to that the tough sell of higher priced products and you may find yourself in a bind pretty quickly.

In most cases, in fact, the fair trade direct sales model makes me even angrier than conventional models, because it uses all this marketing on the front end to talk about offering fair wages to its artisans but it quietly ignores the fact that the consultant may make close to nothing. People in Cambodia or Uganda or Guatemala don’t matter more than you. We’re equal. Let’s make that clear in our sales strategies.

TL;DR: The direct sales approach is a legal pyramid scheme that has exploitation built into its framework and is ultimately not compatible with fair trade.

(If you sell through a Direct Sales company, please know that I don’t hate you. To the contrary, I don’t want you to be taken advantage of the way I was in college. I intentionally didn’t call out particular fair trade brands, because this isn’t a brand problem, it’s a structural problem.)

Since I wrote this piece, LuLaRoe screwed over its consultants and it’s become much better known that these business plans are problematic.

Additional Reading: 

Update 11/8/16:

Don’t take my word for it! Check out this John Oliver clip on Multi-Level Marketing


Read Parts One and Two.

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Anonymous

Wednesday 24th of August 2016

I would love to hear specifically why you don't think direct sales is a good business plan for fair trade. Thanks!

Cat

Sunday 3rd of July 2016

I literally came here just to see what your thoughts were on Noonday since they employ the direct marketing model. Ha! I have the same discomfort with direct sales - almost every single friend who I have seen become a seller either does it because they truly like the product and want the discount OR they make faulty attempts at selling and eventually peter out and (I strongly suspect) lose money in the end - they never admit it, though. It's so sad to watch. I also really abhor how these businesses particularly prey on women and push a pretty corrupt definition of the phrase "empowerment of women". Sigh. Any business that makes you pay to be a part is not empowering you.However, I really do tend to like Noonday's styles/products and fair trade ethic quite a bit, and have bought at least two items directly from their site without ever having been marketed to directly (I think I found them through Jen Hatmaker originally). Do you think it's ok to buy directly from the website (to voice my vote that they simply leave behind the direct sales because their products need no particular direct marketing?) or is that still ultimately supporting a company that employs the MLM model that I so dislike? Would love to know your thoughts! I love putting my $ toward fair trade items, but I'm wondering if there's a company similar to Noonday in quality/ethics/care of employees that I could support instead?

Leah Wise

Wednesday 13th of April 2016

Thank you for your response. Seriously, this helped confirm that it's not just me. And your point about cash flow is one I hadn't even considered, but it's totally on point. My friend sells Lula Roe (she commented above) and they shut down their online shopping option, which I think is a step in the right direction. If I want their product, I have to go through someone I know. With Noonday, it seems like a ton of people have social media accounts set up to promote the product and it makes it feel like their product is flooding the market. I think it creates confusion on the consumer side of things because there's essentially no difference between each seller.

Tavie

Wednesday 13th of April 2016

I realize I'm late to the [at-home] party here, but I had to come back to this post after reading it a month ago. A friend of mine from high school is the newest addition to direct sales gang on my Facebook feed, hocking a Norwex, a thing I will likely never need. I dug into your archives to find this post so I could passive aggressively post it on my own newsfeed.Something I find really sinister about direct sales in any industry -- crap makeup (Mary Kay), jewelry (Stella & Dot), ethical fashion (Noonday) -- is how there's the exact same bottomline: get cash up front. A successful business knows cash flow is king -- not profit -- so they're selling their wares to ambassadors at wholesale cost and passing their risk to someone else. Whether you succeed or fail, they already have your money. Sure, maybe they're selling a community or empowering...someone...but I guarantee the strategy behind the model is to get the cash up front, move product, and use personal relationships to increase conversions. After all, it's marketing 101 that friend-to-friend recommendations are the #1 driver in sales. The direct sales model has it lock because their sales representatives are actually paying to work for them. They're the real customers, not the employees.It wouldn't bother me as much if all of these brands didn't sell the product straight-to-consumer on their website, or if there were a separate, exclusive line for ambassadors. I once found myself at a Stella & Dot party without cash (I thought I was going to a luncheon as my friend's date). There was a necklace I really liked, but I couldn't buy it, didn't remember the woman's name, and ended up Googling Stella & Dot to buy it off their website. I can't be the first person to do this. They got my money with a much higher margin.At the end of the day, brands and products get customer loyalty, not people. How many times have we glossed over a friend's GoFundMe post that says, "if all of my friends donated $10..." but readily donated money to the new Humans of New York fundraiser? MadeFAIR has been live for 8 months and three of my friends have made purchases -- four if you include the one who works for me and gets a substantial discount. So, unless an ambassador is well-versed in marketing and sales to strangers, their new business venture will be unsustainable.

Emily

Tuesday 5th of April 2016

I think this is a fantastic piece. I understand some feathers were ruffled but we share a lot of the same fears and concerns. I've seen too many friends fall prey to MLM and end up losing money and confidence. I wish there was a way we could take this momentum and drive women have and turn it into profitable, sustainable (both in the eco sense and the financial sense of the word) and enjoyable businesses. Good for you for tackling a prickly subject!

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