Every serious company wants to build an organisation where sales are driven by customers who want the product. The authorities look at the product's market value, its sales potential, the culture of the organisation, rights of withdrawal, qualifications and whether the organisation focuses on finding end customers. If a company is weak on one or several of these points, it's an indication that the company is more focused on getting people to sign up as distributors than on legitimate market driven demand for its products.
Distributors without customers rarely stick around for long, so organisations without customers end up in an endless hunt for new distributors instead of simply focusing on mastering customer acquisition before the organisation is trained to acquire customers.
Internal or external turnover
If you as a distributor buy for 500 kronor a month while your average customer accounts for 50 kronor a month, you may have a problem. You'd need 10 customers for 50% of the turnover to come from customers. If your average customer spends 300 kronor and you as a distributor have no requirement to buy products every month, or even get them for free, the equation looks a lot nicer.
You as a distributor should of course order products for the sake of exposure, but make sure your customers get their products delivered to them, so you don't end up in a situation where you're out of pocket or forced to build up stock. Nobody should have to run a shop in order to work in direct selling, and it shouldn't be a requirement from the company's side in order to get any bonus paid out either.
Many companies today have a standing monthly order for distributors. The reason is of course that those of us who work with it should receive products regularly for brand exposure. Some companies also include some form of training in every delivery in order to constantly raise the competence of the organisation, no matter who attends the company's trainings.
If the larger part of the turnover comes from distributors' monthly purchases, there's a risk the authorities will define it as a product pyramid, or as Lotteriinspektionen (the Swedish gambling authority) calls it, a chain letter scheme. The EU directive says that at least 50% of the turnover in a direct selling organisation should come from external customers. A front loaded organisation built purely on distributors getting paid when other distributors order products therefore goes against everything direct selling stands for today. Todd Falcone had a conference call with Kevin Thompson a while back about his view of the future, and he's summarised their conversation here.
Product pyramids
Some companies see no difference between a distributor and a customer, which means everyone has a position, everyone is part of the organisation and everyone can earn money. The big advantage is that you never have to talk about external customers. The disadvantage is that you'll run into trouble with the authorities. If 100% of the turnover comes from internal consumption, the company can call everyone who isn't earning money a ”customer”, but this usually ends up on Lotteriinspektionen's desk sooner or later.
Leaders in these companies say: ”80% of the turnover comes from customers”, which is completely wrong. Legally speaking, that's the figure for how large a share of the organisation hasn't earned any money yet. They've taken a place in the structure, often in the hope of earning money.
The company avoids bad numbers on how large a share of all distributors earn any money, and ”customers” keep being customers until they've done something, and all of a sudden it turns out they have a position in the structure. Companies usually do this so that people who've bought products but never earned money can't be defined as ”failed distributors” or ”victims”.
The companies that will run into trouble are the ones that give all their consumers a placement in an organisation, or the ones that convert a customer into a distributor at a later stage once a number of referrals have ”opened up the compensation plan”. That's because the rules say that external customers are those who aren't and don't become part of the organisation.
If you're a customer of a direct selling company, you should have a customer number directly linked to your distributor. If you're a distributor, you should have an ID and a position in the organisation. If a customer wants to start working with the products, the customer simply signs up as a distributor.
Market position
The question is whether the product is sellable. The question is whether the market wants the product. The question is whether you bring value to the market by marketing it. Those who strongly recommend everyone and anyone to start as distributors are building the culture on the wrong foundations. The recruiting focus and the ”buy to keep your qualification” culture won't survive. If you couldn't sell the product to friends and family who aren't after a position, then don't do it. Look for products in an organisational culture you can stand behind.
Should we have access to monthly orders? Absolutely.
Should they qualify us for bonuses? Absolutely not.
Lack of training is no excuse. Make sure you focus on training. Teach everyone to focus on external customers before anyone builds further on an organisation. It's time to open your eyes. I suggest you do the same.
