When I first came across direct selling a number of years ago, it was about building a distribution channel, buying products as a reseller for a company. The idea was that you ordered a package of products to sell to whoever wanted to buy them. Supply and demand. Brokering a deal between the company and the end customer sounded to me like a smart way to make money.
The American FTC (Federal Trade Commission) has started putting tougher demands on the direct selling companies in the US, which is often a good thing for the market. Kevin Thompson is a well known attorney who works with both companies and distributors over there. He writes a lot about how he views direct selling as a business model from a legal perspective, and I'll be referring to him and some other leaders in the field going forward.
A modern direct selling company ships products straight to the customer today, so that you as a distributor never have to build up any inventory or have money tied up. That means our job today is to sit in meetings with potential customers and colleagues while the company takes care of everything else around it.
Internal consumption or external customers
In the US they talk about the same figures as the EU directive we got here at home a few years ago. It's a legislative proposal to all member states saying that at least 50% of turnover has to come from customers who buy the product because they want to consume it. In other words external customers who have no position in the organisation. In reality that figure is often only 20-30%, because people who really should just be customers get drawn into the organisation as distributors in the hope of making money, without knowing what it takes or even without being aware of it.
A good organisation has up towards 70-80% of its turnover from external customers. Several serious companies also have setups where the distributor gets their own products for free once the first customers are in place. That removes the old myth that we make money off other people when they don't generate any turnover.
Customer retention
In direct selling people talk about a passive recurring income from repeat purchases made by customers who like the products and want to order more. But customer retention is 20-30% a year in many cases, while the companies with high customer loyalty have the opposite numbers, up towards 70-80%.
Encouraging the organisation to work with external customers and keep them will be a requirement for building an organisation in direct selling in the future, and I'll be bringing up several reasons for that here.
