Direct Sales vs Multi-Level Marketing – The Difference Explained

What Is Direct Sales?

In a nutshell, direct sales is a business model that some companies use where they have independent distributors, aka reps, selling products directly to the consumers. This is different from your more traditional business that sells in a retail setting.

With companies that sell products with direct sales like this, there is no need for dealing with the cost of advertising or giving large portions of profits to retail stores, which is why this business model is very attractive.

The representatives handle all the promotion and advertising, because of course they are trying to make money selling the products. Anyone can join these opportunities regardless of experience. You simply join and try to make some money selling products (some companies require you to make a purchase first or do some training).

Different Types of Direct Sales

Most companies that are in the direct sales industry sell products both online and off-line. In fact, I'd be willing to bet that every direct sales company now does this, and if they aren't then they are definitely missing out.

As a representative you will be able to purchase products directly from the company at wholesale prices and then resell them at a markup price, thus keeping the difference as profit.

Or you can refer people to purchase products online and receive commissions from the sales made, without even having to touch a product.

Many direct sales companies also have some sort of monthly membership type of deal, where you will be able to sign a customer up for "AutoShip" and receive recurring commissions on a periodic basis.

What Is MLM?

MLM, or multilevel marketing, is a business model that has a multi-level commission structure. The way it works is that representatives are able to recruit in other representatives beneath them and build a "downline" in which they earn commissions from the money they make.

The pyramid-like structure of a MLM opportunity operates with commissions flowing from the bottom up to the top. 

Compensation plans vary greatly depending on the particular MLM business you are looking at, but below you can see a pretty typical uni-level commission structure…

The MLM business model is incredibly effective and very enticing for businesses. With this model businesses simply create an incentive for representatives to go out and recruit other representatives in (they earn commissions from what the people beneath them earn) and then the business spreads like wildfire, with people recruiting in other members left and right.

There is a big downside to this business model for the individual looking to join, but I will go over this more a bit.

Let's take a look at the difference between these 2 and how they fit together.

The Difference

Direct sales solely refers to the sales a business makes being direct to the consumer, and this type of business is usually carried out by independent distributors, or representatives.

MLM is a marketing structure that refers to a multi-level commission structure, which encourages representatives to recruit other representatives into the business as a way to make more money.

Direct Sales and MLM almost always go together, but they don't necessarily have to.

Pretty much every direct sales company I have ever come across has been a MLM company, and vice versa. 

However, it doesn't have to be this way. It is just that the 2 models fit incredibly well together.

I suppose you could have a direct sales company where representatives only make commissions on the products that they personally sell. I see no reason this cannot be done. However, why not also add the MLM layer into the equation so that representatives also have incentive to recruit others in and expand the business more and more?… It makes a lot of sense to couple these two models together.

It makes sense that a direct sales company could remain a direct sales company alone, but I don't see how a MLM company would be able to not be a direct sales company. Just think about it… How could you employ a MLM business model without representatives selling directly to consumers?

There's probably not any good way or else you would see it more often. Every opportunity I have come across has been a combo of the 2, as mentioned.

Direct Sales/MLM Combos

• Amway
• Avon
• Herbalife
• Young Living
• Mary Kay

You probably recognize some of the names listed above. These are some of the most well-known and popular direct sales/MLM companies out there. And yes, they are a combination of the both.

This is the way it is because this is an incredibly effective business model. Direct sales companies benefit usually when they employ a MLM commission structure.

If you are a representative of a pure direct sales company, then the only way you can make money is by selling products. This is great, and hopefully you can make some decent money, but with the MLM layer added in you can then make money by recruiting other members in and have the potential to build a massive team beneath you, earning much more money than would ever be possible selling products yourself.

Pros & Cons of The Business

Pros

• Flexible job - In this line of work you are your own boss (so to speak). This means you work whenever you want.
• Little startup cost - Most direct sales/MLM opportunities require you to purchase some sort of "starter kit". This usually costs anywhere from $50-$200, generally speaking, which is very cheap if you compare it to starting a traditional business of some kind.
• No brand building - If you were to start your own business you would have to build up a reputation with your brand. Joining an opportunity like this allows you to simply get in on the action of a brand that is already established.
• Lots of income potential - These types of opportunities always have massive income potential. You will see people making hundreds of thousands of dollars a year and even millions a year, who started off as representatives at the bottom of the totem pole just like everyone else.

Cons

• High turnover rate - Direct sales/MLM opportunities are notorious for having incredibly high turnover rates. The reason for this is because they are much more difficult than they may seem. They are often promoted as the greatest opportunities to ever exist, but of course that is because representatives are just trying to recruit you in to make more money most of the time.
• Good chance you won't make much - As you can imagine based on the high turnover rates, there is a darn good chance you won't make much money. As I will go over shortly, a very small percentage of people involved in these opportunities make good money with them.
• Can be annoying - Another con is that the job can definitely be annoying at times. As a representative if you are a salesperson, and I'm sure you can understand why this might be annoying. You will have to bother and bug people, that is just part of the job. Not everyone is going to want to join in or by the product you are promoting and rejection is something you will have to learn to deal with.

Should You Join an Opportunity Like This?

So the big question is… Should you join an opportunity like this? Are they worth it?

One thing that I can definitely say is that you probably should not if you are an introvert and don't like talking to people. This type of business is already hard enough, as you will see, and if you aren't willing to go out there and put yourself on the line, get rejected over and over again, and keep going, then this type of opportunity is probably not a good match.

But anyways, number speak louder than words so now I am going to be showing you a few income disclosures from some of the top direct sales/MLM businesses out there…

Income Disclosures:

Note: These income disclosures are all a bit old, because they are always released after the fact, but they served their purpose. The earnings of representatives in these types of businesses never really change too much.

Young Living

If you look at Young Living's Income Disclosure you can see that the majority of representatives are at the bottom ranks and earn not all that much money. 74.32% of representatives earned less than $1000 in the year shown below. Less than 1% earned more than $67,000.

Not all that great. However, I am somewhat surprised to see that 2.55% of the representatives earned an average of $25,059. That is actually pretty good compared to other income disclosures I have seen.

But the point is that a very small amount of people actually make good money here.

Mary Kay

If we take a look at Mary Kay's Earnings Disclosure (from Canadian reps) we that there were 29,500 members in the year of 2018, only 3701 reps who had been there at least one year, due to the high turnover rate of course. And of those 3701 reps, only 47.1% earned more than $100 in the year, meaning that 52.9% earned less than $100.

447 reps made it to the "sales director" rank and the top 50% of those earned anywhere from $20,378 to over $100,000. And then there were 16 people who made it to the "national sales director" rank, 56.3% of which earned more than $100,000, which would be about 9 people.

Confusing as heck, believe me I know. Usually when earnings disclosures are really confusing like this, it is because they are trying to hide something. Mary Kay could have easily presented this information in an easy to follow chart, but they opted not to and instead they opted to write this out in just about the most confusing way possible.

Herbalife

Herbalife's 2017 earning disclosure shows a similar picture. Of their first year distributors only 50% earned more than $95. And of all the other distributors only 1% earned more than $14,175...

That stats are crazy. 

You might as well try to join an elite military group like the Navy Seals...It seems that the success rates are pretty close.

The point of me showing you these statistics is because the opportunities are often misrepresented and give people false hope. I want to paint a more clear picture as to what you might be getting yourself into.

Yes, you can make a lot of money. No, you more than likely won't. That is the bottom line and it will never change due to the the very structure of the compensation plans that these companies have (MLM compensation plans), with commissions flowing up the pyramid-like structures to those at the top. Basically they make it so that those at the bottom make less money and those at the top make more money... and there are always a heck of a lot more people at the bottom.