Direct Sales vs. MLM: Discover the Contrasts Between Network Marketing Models. Explore the distinctions in compensation plans, and team building, within the realm of network marketing, two business models that gained significant popularity, Direct Sales and MLM.
Direct sales models employ individual salespeople to interact with customers and sell products. However, MLM harnesses the collective power of networks of distributors and members to channel marketing activities and derive sales.
While Direct Sales vs. MLM model share the common ground of achieving sales through direct customer interactions and word-of-mouth publicity, the two have some fundamental differences. They differ significantly in compensation plans, structures, and earning potential.
In this post, we will explore the key differences between these two models so that you can clearly understand both models and accurately gauge the most suitable one for yourself.
Direct selling is a business model where independent consultants and salespeople directly approach consumers and sell their products to them.
Here are the common attributes of direct sales;
Here’s what a typical direct sales process involves;
- 1. Prospecting – Salespeople identify potential customers that might be interested in their products through referrals or networking.
- 2. Approach – Next, the sales persona approaches a customer. It initiates conversation and introduces the product.
- 3. Presentation – Now, the direct sales representative demonstrates the features and qualities of the product and tries to convince customers that it fits customers needs.
- 4. Close the Sale – If the customer is convinced, the sales representative closes the sale.
Individual consultants act as the face of the company, therefore playing a pivotal role in direct selling.
They approach the customers, build personal connections, organize product demonstrations, and ultimately bring in sales. In short, without independent consultants and distributors, the direct selling model cannot function.
- AVON – Operates in the beauty and personal care segment.
- Tupperware – Operates in the kitchenware and storage solutions segment.
MLM is a unique model where members and distributors are part of large networks, and the efforts of downline members pay off a certain percentage to every member above in the downline.
In simple words, MLM involves multi-tiered networks of distributors which promote products and achieve sales.
Here are some unique characteristics of the MLM business model;
MLM allows members to actively recruit new people and derive personal sales. Building a downline denotes the recruitment and nurturing of new members. The advantage here is that the distributor earns a commission on its personal sales as well as from the sales of its downline member.
This double incentive is a primary motivator for distributors to actively recruit new members and keep on expanding the network.
- Herbalife – Operates in the dietary supplement market.
- Young Living – Operates in the essential oils and wellness products market.
A compensation plan represents how much commission a salesperson or distributor will receive after closing a sale.
Here’s how the compensation plans of the direct sales model and the MLM model compare;
A compensation plan is typically straightforward in the direct sales model. A direct sales representative earns a commission on each sale made.
The higher the sales volume, the higher will be the commission. Therefore, commission in direct sales business is directly tied to sales generated.
Compensation plans in MLM businesses are complex and varied, given the multi-tiered network structure. It generally involves two compensations – one through personal sales and the other via the sales made by the recruits.
Examples Of MLM Compensation Plans – Binary, Unilevel, Matrix, etc.
Recruiting new members and expanding the downline has a central role in MLM. It’s the power of the network that charges the MLM business and achieves an extensive sales number.
Besides, commissions on individual sales are distributed across the members above in the downline. Consequently, it significantly amplifies the earning potential of each member in the downline.
MLM model employs the collective power of networks of individuals to benefit all that constitute the network. That’s why team building is a significant aspect of network marketing. Each member has the power to recruit new members and become a distributor.
It creates a different layer of distributors, forming a chain. As the downline grows, it significantly contributes to the sales process and generates higher commissions.
In contrast, the Direct Sales model has no concept of an interconnected network and no commission distribution across the downline. The whole commission structure revolves around personal sales, which limits earning potential compared to the MLM model.
In terms of flexibility, direct models seem to have the upper hand – it’s because of the simplicity of the model. Likewise, it has a low overhead cost, flexible working hours, no foundation of location, and freedom of product selection.
In contrast, MLM business models require more investment in terms of efforts, especially during the initial stage. You have to put effort not only into individual sales but also into recruitment. However, MLM models guarantee substantial and long-term earnings.
Both direct selling companies and MLM businesses are governed by regulations based on region and country. However, MLM companies often face more security because of their tiered structure.
They are subjected to more regulations in order to prevent pyramid schemes and protect consumers from fraud. In any case, it’s crucial that you choose a reputable company in case you wish to start in the network marketing space.
In conclusion, Direct Sales vs. MLM are distinct in their business approach. While the direct sales model relies on individual sales performance, MLM benefits from the combined efforts of a team of distributors to achieve sales. However, it’s the earning potential that actually differentiates both models.
Direct sales have limited earning potential due to individual efforts; on the other hand, MLM is extensively scalable in terms of earnings. As the network grows, so are the earning of each downline member.