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Is direct selling a good way to earn income?

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June 27th, 2017

Have you ever been invited by a friend or neighbor to a party where the host was selling kitchenware, jewelry, or cosmetics? Those kinds of parties, known as direct selling or multilevel marketing, are becoming an increasingly popular way for consumers to buy products and for the people who sell them to earn money.

In fact, 20.2 million people were involved in direct selling in 2015, up from 18.2 million in 2014, according to the latest data from the Direct Selling Association (dsa.org). Estimated retail sales for the direct selling industry were $36.12 billion—a meaningful portion of the U.S. economy. 

But how does direct selling work and could it be a good way to make some extra cash in retirement?

In 2007, Dawn Martinello (dawnmartinello.com) started selling cosmetics through Avon, which is one of the largest and most reputable direct sales companies. For the last nine years, she has worked as a consultant to help people who are trying to build multilevel marketing businesses. She says there are two ways to earn money via direct sales: You can sell products to customers at retail value, and you can also recruit other people to sell the products.

“When you have a team of representatives, you will earn a portion of the sales that they make as well,” Martinello says. 

The appeal

Direct sales appeals to many people because you can set your own hours and sell products that you (presumably) enjoy using yourself. Some direct salespeople—who recruit other salespeople to work on their teams—can earn thousands of dollars selling makeup, essential oils, or Tupperware (think of the superstar Mary Kay representatives who are rewarded for reaching sales goals with pink Cadillacs). 

But those success stories aren’t the norm. Kathy Dolan, a senior team mentor with multilevel marketing company Tastefully Simple, says commission from personal sales is often 20% to 35%. 

“While you can generate a large commission by personally selling products, the six-figure incomes you hear about are generated by leaders that have developed very large teams,” Dolan says. 

While it’s important to know exactly how a multilevel marketing company operates before you get involved, they are legitimate businesses and shouldn’t be confused with pyramid schemes.

“Direct selling has gotten a bad rap from a few companies years ago that operated as pyramid schemes,” Dolan explains. “A pyramid scheme is a business model…that promises income for recruiting others into the scheme without any exchange of money for goods or services.”

Martinello says multilevel marketers should sell products they’re passionate about. She cautions that it takes time to become successful, so you shouldn’t expect to make thousands—or even hundreds—of dollars in the first few weeks. 

Before you sign an agreement, make sure you understand whether you have to reach certain sales goals, if you are required to recruit other members, and the cost of kits or products you may need to purchase in order to start your business. 

Martinello says to stick to large, well-known companies. The Direct Selling Association is a good resource to identify reputable multilevel marketing organizations. 

“If you see things like ‘get in on the ground level,’ while it may not be a scam, it is something I would stay away from,” Martinello says.

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