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

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

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Read Parts One and Two.

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