Studying how an organisation in direct selling is built and how the culture is created during a growth phase is something many people find incredibly interesting, while others are less keen on digging into it. Even if you don't love the subject, you should dig deeper and not ignore it, whatever your ambitions are with your business. Most people tend to avoid things they don't like, and that can get expensive.
Shady concepts can look good on the surface and blend in easily among the good companies, so people can't always see what's what. The purpose here is to teach people who work seriously with direct selling to stop and think, and to see the difference between what's a serious business and what isn't.
A serious direct selling company usually pays out 40 to 50% of its revenue in commissions, since the company often doesn't have many middlemen or marketing costs. As long as the product is of high quality, the pricing looks reasonable and the market wants it, things are usually as they should be.
Every now and then, though, a concept shows up that tempts you with paying out 85% of revenue in commission. Wouldn't it be better to lower the price by 40%, so that customers actually buy the product at a sensible price and the commissions sit at a reasonable level? I don't understand why end customers should pay an inflated price to fuel an organisation that way, if there even are any customers. In these cases there usually aren't any external customers, and that's why many of them end up at Lotteriinspektionen (the Swedish gambling authority) for investigation regarding illegal gambling and lottery activity.
So there's a grey area around what counts as a serious business. If a company pays out money to distributors with no connection to product sales, that's illegal, but where's the line?
Kevin Thompson, a lawyer who specialises in direct selling, always talks about the need for legitimate product sales. He says you can't, for example, go around selling pens for 10,000 kronor. Most people would consider that far from legitimate and reasonable. A relevant question, of course, is whether people outside the network would buy the product. Would you buy the product yourself if there were no compensation plan attached to it? There are several things to look at here, but at bottom it comes down to whether they get products out to end customers.
”We have the best compensation plan.” Oh really, exciting. Compared to what? Let's say there are more than 1,000 direct selling companies in the world. Probably 350 of them operate or are trying to start operating in Sweden, of which 10% are approved by Direct Selling Sweden. Then you'd have to be a professor in this profession to have studied all of them.
Income claims
Something the authorities will come down hard on going forward, even with serious companies, is all the income claims floating around. When distributors use words like ”it's easy”, ”it doesn't take long” or ”it's not much work”, there can be problems. Randy Gage says: ”You'll lose more people by making it sound too easy than you'll ever lose by making it sound too hard”.
If instead you sit down, go through it and break it out: ”People with title X have usually built a customer base of Y, and with normal growth that creates an average income of Z. Here's 67% base volume and 33% new production, which is what it generally looks like if you have good growth at this level. To get here you need to put in at least 10 hours of work a week for 3 years...” This isn't something you'd normally go through in a first presentation, since it easily becomes too much information (unless someone asks about it), but rather something you do at a follow up or when someone asks what it takes to be able to make a plan. When you clearly go through what's required, are genuine about it and do it in a way that's easy to understand, people will trust you.
The fact is that the authorities consider all income claims misleading unless they're accompanied by a clear account of what's required. A car has an accelerator and a brake. Many leaders never brake. They need their momentum.
Kevin Thompson says: ”If too many kids pee in the pool, the pool gets a bad reputation”. Don't give the pool a bad reputation. Make sure everyone around you is serious and behaves.
Before you start sending out pictures of holiday paradises, expensive watches and fast sports cars, focus on going out and creating a result. The one who stays active and stands in line the longest wins, but make sure you lean the (career) ladder against the right wall.
