How To Start A Direct Sales Company
If you are an individual who wants to join an existing direct sales company as an affiliate and are doing some research to find the best company for you, then you should be reading another page on the Cash Flow Show called:
How To Start A Home Party Business.
How To Start A Direct Sales Company
We have worked with a wide variety of start-up companies over the years at various stages of the process and one thing we have learned is that very few who are embarking on this path fully understand the overall process.
Hopefully, this page will give you a better understanding of what exactly is involved with starting a direct sales company.
If you are serious about learning how to start a direct sales company, then there are many things to take into consideration.
Key Points In Starting A Direct Sales Company
There is a lot of information on this page so, click these links and jump down to a specific topic or read the full page to get the big picture:
- Product Pricing Rule Of Thumb
- What Business Model – Compensation Plan?
- Policy & Procedures
- Legal Issues
- The Website & Consultant Sites
- Basic Collateral Materials Necessary
- What Is The Minimum I Need To Get Started!?
Product Pricing Rule Of Thumb
Generally speaking, a good rule of thumb is that you should be able to have a product markup of about 5 X to cover all the levels of compensation and host benefits in a direct sales or home party plan business venture.
What Business Model Do You Want To Follow?
Often wanna-be companies do not understand the compensation options and yet want to move forward with developing a compensation plan.
There are many layers to a direct sales compensation plan including things like representative’s commission, incentives for team and customers, the host benefit package and more. The first step in moving forward in creating your direct selling company is being clear on understanding your business model.
The compensation plan is a key component to the success of the company and great care needs to be taken in creating it. The terminologies associated with direct sales companies are often misunderstood.
The type of direct sales company you want to set up also basically determines your compensation plan structure.
- Direct Sales: While the term direct sales is often used when referring to the party plan business model, it really covers all selling directly to the consumer.
- MLM: While almost all direct sales companies are based on a multi-level marketing commission structure, MLM, in the classic sense, is usually referring to a company that pays deep down into more levels. The consultant is paid based on his/her sales as well as those that are recruited under them. This usually means compensation is paid ‘deeper’ meaning commissions are paid on recruits of recruits several levels down.The focus in the classic MLM is usually more on recruiting than product. While all consultants sell product, their personal commissions increase tremendously with more recruiting.
- Person To Person: The classic door-to-door is actually still widely used in direct selling worldwide, although less popular in the US now. This is the direct selling model that usually does not utilize the multi-level pay structure.
- Party Plan: This model is the one we will focus most on here. The distributors are invited to the homes of their ‘host’ or ‘hostess’ and both the consultant and the host receive some sort of compensation. In party plan companies you (the CEO or founder) must make financial allowances for the cost of the benefits to both the host, the consultant and also a couple of ‘override’ levels down for recruiting.
Your compensation plan should not be taken lightly. Keep the rule of thumb in mind and learn more about different methods of direct selling compensation.
It is strongly recommended that you hire a professional business accountant who is experienced in MLM, direct sales and party plan.
In addition it is important that you create your compensation plan with the assistance of a compensation plan expert who understands the ramifications of the various payout levels.
Software – Websites
This is one of the most important issues and can be a costly part of setting up a direct sales company.
Anyone can set up a nice, affordable website but to create one that serves the needs of a growing multilevel company is not cheap. In the 21st century all viable business models have a website. In party plan this means that each distributor also has a website which is an exact replica of the corporate site.
The corporate and ‘replicated’ website needs to cover (and provide solutions for) several important parts of your direct selling business.
- Providing merchant account services
- Providing an online catalog, shopping cart and order processing
- Maintaining a unique portal for each distributor, tracking sales and assigning it to each distributor
- Calculating/paying commissions
- Maintaining and tracking recruits and ‘downlines’ also known as team ‘genealogy’
- Party management & submission including calculating host benefits
- Shipment tracking, returns and warranties
- Data management system for each distributor and corporate communications
- “Back Office” location for training, policies, forms, and other collateral materials including ordering of consultant supplies
- Corporate-wide communication system
As you can see the replicated or affiliate site can solve the majority of the organizational issues that most new companies have. A good software solution will seamlessly connect the above 10 functions for your company online and off.
In party plan the sites are a centralized location to keep the parties, team, host benefits and consultant history organized and make the actual day-to-day activities of a distributor simple.
Usually they have a software program on their computer that they can take to shows and actually enter data as they take orders, then when they get home it just syncs with their distributor site.
The investment for this can be costly but does not have to be. A fully integrated state of the art system integrated into a corporate website with the ability for long-term growth and success could start at about $25,000.
Look for a software provider that has demos, tools, and actual websites in operation for you to look at. Today those considering joining a direct sales company should also consider the technology that the company offers and whether they have a replicated website for each distributor.
Make sure your software provider offers training, has ongoing support, is capable of expanding as you grow, and is built on solid proven technologies. In direct sales software you often get what you pay for and the best costs more.
Can you start your party plan business without investing in a replicated system?
YES – The problems that may develop are basically tracking.
If you want to start with just a corporate site, then do so. The back office for training and document filing is really not that hard to create as a private team login.
There are real issues you will need to be aware of:
- How will your consultants get credit for online orders? Codes entered in the shopping cart?
- How will parties be entered and calculated? Very few people will be willing to hand-write, call or fax in orders.
- How will you track and keep recruiting organized? Commissions on downline sales will get cumbersome.
- Will you appear professional in these tech-savvy times without a site for your team?
At the minimum you may want to start out with the basic system and add to it later.
Their base system provides a customized website, hosting, shopping cart, true replicated sites with full-featured consultant office suites, social media integration, and online enrollments, as well as a starter compensation plan and/or guidance on your own comp plan.
Easy Party Plan’s unique business model allows a young company to step into an enterprise-level system for as little as $2500.
We recommend a conversation with them BEFORE you start your website or sign on with another web software company.
Check out Easy Party Plan Software and tell them Deb sent you!
MLM Law – Getting Started
Every state and country has a plethora of statutes, laws and regulations to deal with. There are so many in fact that it is impossible even to begin the discussion on licensing issues that may exist in your state or country. This is something you will have to address personally based on your business location.
It is strongly recommended that you hire a general counsel MLM attorney in your own state. He/she in turn will consult lawyers in other states and countries on your behalf.
Policy Guidelines To Protect You & Your Team
Before you even start offering your opportunity to others you should set up 3 basic documents to protect you and your new team members.
- Your Independent Contractor Policy Guidelines
- The consultant Enrollment Application
- The Internet Policy
These initial company documents clearly define policy, expectations and roles of all players.
These documents are the first steps to creating your corporate culture because things such as word choices and consultant expectations are defined.
What are you calling your distributors? Consultants, distributors, representatives, designers, ambassadors, etc.
What is the name of the home party? A party, a trunk show, a cooking class, a spa makeover, a mixer, etc.
Do your team members recruit? Or do they sponsor, share, enroll, etc.?
As you create your policies and enrollment documents you are also choosing words that will be used for all of the future company’s history!
Just a few of the areas covered in your policy guides include:
- Monthly minimums, sales requirement, month-end dates, etc.
- Brand issues, images, logo usage, etc.
- Online behavior, social sites, linking policies, etc.
- Returns and/or consultant cancellations issues, etc.
- Kit cost, bonuses, compensation, leadership levels, start-up commitment, etc.
- Conflict of interest activities, consultant participation in other business ventures, etc.
- Advertising, trademark and trade name restrictions, etc.
- Media participation and so much more….
You will save hundreds of hours of your time and attorney fees when you use the Cash Flow Show sales policy template. It is a find and replace editable document that when completed you can give it a quick run past a MLM attorney.
Contact us for assistance in: policy writing, collateral material creation, host benefit package writing, training manuals, ongoing team development, social media management and generally any “party plan” consulting needed. 717-751-2793
Legal Lingo, Earning & Other Claims
Another reason to involve an experienced MLM attorney is that there are specific rules and word choices along with earning and product results claims that are regulated.
Careful wording is necessary.
Did you ever see the small print: “the average person makes…”or “results not typical” or “these results have not been proven in clinical studies” or “your results may be different”?
Depending on the product you are launching (and this entire page assumes you already have a product of your own), there may be very strict laws regarding your claims. These specific word choices are usually included in your policy guidelines.
International Outsourcing – Shipping – International Laws
As soon as you move into the international market you are creating a series of communications and transactions that definitely need to involve a lawyer!
Outsourcing for product purchases has several areas of concerns but the top three are:
- Quality Control: You must have someone dedicated to overseeing quality control. Whether it is an offshore overseer or someone at your import facility, this is an essential position required in product acquisition from the international arena.
- Proprietary Products: When sending proprietary ‘recipes’ into other countries, there is always a risk of theft. This is more true in some countries than in others.
- Shipping/Customs Regulations: Cargo deadlines, customs regulations and security are all key in keeping your customers happy and products flowing.
Ground Floor Opportunities
A ground floor opportunity is great only if the floor does not fall out from under the distributor.
There are many classic success stories that include the ‘start in the basement’ as Thirty-One Gifts founder, Cindy Monroe did or Doris Christopher of the Pampered Chef and yet, they had to invest to get there.
To launch your own direct sales company from the ground up and do it right so that you become one of those success stories, you should expect to spend close to $1 million.
Other Areas To Consider When Starting A Home Party Company
- Training Manuals
- Ongoing Team Training
- Leadership Development
- Sales Recruitment
- Social Media Management
- Policy Writing
- Collateral Material Creation
- Host Benefit Package Writing
- Training Manuals
- Ongoing Team Development
- Social Media Management
Contact us to get more specific information on how to start a direct sales company as it relates to your situation.