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The eight myths of direct selling: looking for the big payoffs of being on your own? Well, before you jump in, here's what you really need to know about the direct sales business.

Do you want a job offering unlimited earnings potential and the ability to be your own boss? Scores of direct sales companies, from Amway Corp. to Primerica Financial Services to the lesser-known Artistic Impressions Inc., recruit countless Americans every day with just this dream of affluence and financial independence.

We hear stories of fortunes, free travel and independence, along with suspicions of rip-off schemes and wasted money. What's the truth?

You can't really tell from the pot-of-gold stories gracing the promotional pieces produced by these companies. Witness ShakleeVision, a national satellite broadcast program highlighting the benefits of joining Shaklee Corp., a San Francisco company selling vitamins, household cleaners and personal products.

In the pilot program, Jane Short, an African-American sales leader from Pomfret, Md., and 19-year sales veteran, calls herself one of the company's "old-timers." "When I was out there, relatively new to Shaklee, I would listen to these talks and say, 'This can't be true, it can't be that good.' Well forget it. It is even better."

She drives a Mercury Marquis LS, the Shaklee bonus car, one of seven she has earned over the years. She and her family have traveled the world, thanks to bonus trips provided by Shaklee. She sent her children to college--with ease. There is no doubt that she is sincere. But will direct selling do the same for you?

Much depends on your ambition and ability to discard the hype and find a genuine business opportunity. The details of each company's sales plan may differ, but generally all offer products through sales representatives who sign on as independent contractors. In turn, they sell via personal appointments or parties. Some sales representatives do earn tidy incomes. However, most use direct selling as a part-time supplement to their regular income. And, on average, blacks do better than whites. According to the Direct Selling Association in Washington, D.C. (DSA), the weekly median direct-sales income for African-Americans is $82, versus $50 for whites.

HOW TO SPOT A RAW DEAL

The Direct Selling Education Foundation, Washington, D.C., issues some guidelines. They advise that you beware of:

* Intense pressure to sign up or buy large amounts of inventory before sales claims can be investigated or legal advice obtained.

* Promises of extraordinarily high or guaranteed profits.

* Claims that profits can be achieved easily.

* A required initial fee which greatly exceeds the fair market value of any products, kits or training.

* A large fee payable before you receive anything in return.

* Evasive answers by the salesperson, or an unwillingness to give disclosure documents required by law.

A booming business, direct selling accounted for $14.1 billion in sales in 1992, up 45% from 1988, according to the DSA.

Essentially, these companies offer consumers the convenience of shopping at home. However, unlike catalogs or shop-at-home television channels, direct-sales companies encourage consumers to see and feel what they are buying.

There are many myths--positive and negative--about direct-sales marketing. Separating the perception from the reality can help improve your chances for real success.

1. All direct marketing companies peddle rip-off schemes.

Some do and some don't. There is a difference between pyramid schemes and multilevel marketing (MLM) plans. MLM's are perfectly legal business opportunities that not only pay incentives for you to sell a product, but also pay additional bonus compensation, or overrides, if you recruit others to sell.

Mary Kay Cosmetics, Shaklee Products, Primerica Financial Services and scores of other direct-marketing companies rely on MLM plans. The commission you make for selling products varies from company to company. It can start at 10% and go to 30%, 35% or even 50%, depending on the amount of volume you move. Your override may start at 4% and increase, depending on how many people you have in your "downline" (your team of recruits) and how much volume they produce. Most companies also require you to continue to sell to qualify for overrides.

Pyramids, on the other hand, are illegal schemes. Many times they are disguised as MLMs, but selling the product is not nearly as important as getting a downline. New distributors might be required to pay a high sum of

money to join or to purchase a large amount of initial inventory. Some money goes to the person who found the new recruit and the rest goes to the company.

For pyramid schemes to work, there must be an endless supply of new distributors willing to part with their cash. And this is exactly why they fail: There is never an endless supply. Those who make money sit comfortably at the top of the pyramid.

Good research is the only way to determine if a direct-sales company is a legitimate MLM or an illegal pyramid scheme. Find out where the company is headquartered and ask the local Better Business Bureau for its file on the company. Call the state attorney general's office for reports on current or past investigations.

"A red flag should go up if you hear that it is 'easy' to make money, that all you have to do is recruit a lot of people or invest a lot of money," cautions Allen Beatty, vice president, bureau affairs, for the Council of Better Business Bureaus Inc., in Washington, D.C.

2. It will cost a lot to become a distributor.

Not necessarily. Most of these companies require a modest fee for a start-up kit, which may include sales literature and some samples. To become an Avon representative requires a $25 investment for cosmetics and skin care starter kit. A basic Amway kit costs $35.30; it consists of such literature as the sales and marketing plan and the code of ethics. The sample products come in an optional product kit that costs $100. Based in Ada, Mich., Amway representatives sell vitamins, household cleaners, cosmetics and foods.

What will cost you a lot of money is a MLM plan that requires a large purchase of inventory, or pressures distributors to buy large quantities of merchandise with the assurance they will be able to sell the product to other customers.

One disgruntled sales rep (who rerquested that his name be withheld) says his first bad experience with direct sales was with Memphis, Tenn.-based National Safety Associates Inc. (NSA), a company that markets air and water filters. At the encouragement of another distributor, the Montclair, N.J., resident purchased $500 worth of water filters, which he then had problems selling. Then his initial contact to NSA disappeared. "I gave the inventory away as Christmas presents," he says. Now he distributes Amway products.

NSA's policy states that inventory purchase is not required for a distributorship. But no MLM company can monitor the promotional pitches of thousands of independent sales representatives.

3. I won't be able to get my money back.

Just be careful. Check the fine print, and read the company's refund policy.

The Direct Selling Association clearly states in its code of ethics that direct-selling companies repurchase unsold but marketable inventory within 12 months of purchase, and refund at least 90% of the distributor's net cost.

Many companies will let you return your introductory kit and get back the initial fee--$25 or $35--if you return it within 30 days of purchase. A full refund on merchandise may also be offered if it is returned within 30 days.

Federal and state agencies try to keep a watchful eye on MLM companies. In 1991, it was reported that NSA consented to refund 90% of the net cost of unsold water filters purchased by Georgia distributors. Eight years before, 10 states joined together in an investigation of the company's practices. In addition to offering refunds, NSA was asked to make a number of changes in its promotional policies.

Just last year, the Connecticut attorney general's office filed a lawsuit against Nu Skin International, a Provo, Utah, skin care and nutritional products company. The suit alleged that Nu Skin exaggerated its earnings potential to prospective distributors. Nu Skin settled with an $85,000 payment, and agreed to change its practices in the state.

4. Nobody makes money at direct selling.

Not true--some people do well in the business.

Consider Pam Powell, 43, a national sales director for Primerica Financial Services. During the past 12 months the Orlando, Fla., resident has earned $200,000 selling life insurance, mutual funds and debt-consolidation loans, and managing 130 other salespeople that she has recruited.

She is the top African-American woman earner for Primerica, an Atlanta-based company, and she ranks among Primerica's top 10 "advance" earners. This is no small feat in a company with over 100,000 sales representatives.

Powell started with Primerica in 1986 while working for SouthernBell in Florida. Her middle management position paid $40,000 annually, but her part-time activity with Primerica started netting her $4,000 per month. It didn't take long to see the more lucrative route. Her first year she was rookie of the year and a regional vice president, with earnings of $83,000; her second year earnings were $166,000, she says.

Gloria Hilliard Mayfield, 37, also sings the praises of direct selling. She markets Mary Kay Cosmetics from her home in Milton, Mass., a suburb of Boston. As an executive senior sales director, she makes $110,000 to $130,000 annually.

She has it all, including the famed pink Cadillac, the reward Mary Kay bestows on its top earners. Like Powell, Mayfield started her direct sales career as a part-time venture, while working as an assistant director of admissions at Harvard Business School.

She came to her new career with serious sales training. During her corporate career she had been a sales representative for IBM and a marketing manager for Stratus Computers Inc. in Marlborough, Mass. This graduate of Harvard Business School enjoys Mary Kay because she has been able to "build a business within a business," without the disadvantage of a glass ceiling.

But it does not take high-powered credentials to be a top achiever in direct selling. Ann Marie Balanciere is a national director of sales development for Artistic Impressions, a Lombard, Ill., company that sells art through party plans.

When she began with Artistic Impressions, Balanciere, 46, had never sold anything in her life. She also began part-time, holding down a job as a contract technician with the U.S. Postal Service in Denver.

At the invitation of a friend she went to an Artistic Impressions party, purchased a small painting and volunteered to host a party. "It pulled me up," she says. "I liked being around people." It occurred to her that she could do what the sales representative was doing. She contacted the company and paid $99 for the starter fee. After receiving 60 consigned pieces of art and catalogs that showed other art offerings, she asked a friend in New York City to host a party. That first show grossed $1,800.

Balanciere's sales career was jump-started. She then arranged shows all over the country through family members and contacts with local organizations. While still working at the post office, she would fly to other cities on weekends after booking three shows in advance, typically coming home with $2,000 in commissions. At the same time, she was building a downline.

Today, her team of managers and representatives consists of 1,200 people in 24 states. Her group has sold $16 million worth of art to date, and Balanciere now makes $150,000 annually.

Artistic Impressions has rewarded Balanciere by giving her, in addition to commission and overrides, an undisclosed percentage of total company profits each year.

Those who dwell too long on the tales of the six-figure earners, however, should be reminded of some pie-in-the-sky myths.

5. I will make a million dollars.

The hard fact is that only about 0.5% of the 5.5 million direct-sales distributors in the United States make $100,000 or more annually, according to statistics compiled by the DSA. Only about 5% will even make $35,000 or more per year. According to the DSA, the yearly median income for an African-American in direct sales is about $4,264. Obviously, very, very few people are getting wealthy or even supporting themselves with direct-sales marketing.

This is discouraging news if your goal is full-time sales distributorship, but it is encouraging if you are looking for a way to make some extra money every month selling a product you enjoy.

6. I can start my own business for $25.

Not really. You can receive an introductory kit for $25. You are on your own when it comes to printing business cards ($30 to $50) and flyers to promote your sales events.

Cindy Feaster, a 55-year-old grandmother who sells Avon, promotes her distributorship in six yellow page directories in the Atlanta area (the cost: $80 per month). Others run newspaper classified ads to reach out to potential clients and would-be distributors.

Don't forget telephone costs. Out-of-town cold calls and follow-ups will add to your bill. Furthermore, when you have distributed all the pieces of literature provided in your start-up kit, you will need more, which you will purchase at cost from the company.

Remember, too, that you will most likely need some product samples to show potential customers. Diamite's product sample kit costs $320, while Amway's optional literature and product kit costs $100.

7. I will travel the world.

All direct-sales companies interviewed for this article offer travel as a bonus to their high achievers. Sure it is great to see Europe or Mexico or the Caribbean and have someone else pay the bill. But keep this perk in perspective.

Those who win free trips are a small percentage of the overall sales force. Artistic Impressions took 182 of its 1,300 distributors on a trip to Switzerland last year. To win that prize, a distributor had to average $600 in sales per week for 26 weeks.

Avon, New York City, rewards representatives who have the highest sales with incentives such as cash, bonds and travel packages.

8. I will be my own boss and never have to work for anyone else again.

The truth is that almost 70% of African-Americans who are direct-sales representatives have other paid employment, according to the DSA. They work for someone else during the day and are their own bosses on evenings and weekends.

Gayle Nelson, a 28-year-old resident of Fayetteville, N.C., is an example. Her day job as the secretary for a radio station pays her about $12,000 annually, while a part-time job as a fashion consultant for the Dallas-based Multiples-At-Home brings in about $200 per month. Nelson arranges one to four "fashion parties" a week to sell the line of mix-and-match clothing.

A 39-year-old married professional living in Los Angeles, Cheryl Sweeney earns about $1,000 per month selling educational toys, books and other merchandise marketed by Discovery Toys. Prior to selling toys for the Martinez, Calif.-based company, she worked at several corporate jobs, including a four-year stint at Paramount Pictures as a manager of contract compliance in the domestic television division. "I got tired of corporate life," says Sweeney, who earned $50,000 annually.

She became interested in Discovery Toys when she was invited to a toy party hosted by a friend, and came away loving the product.

IS DIRECT SELLING FOR YOU?

The high achievers in direct sales have something in common: They like people. Many volunteered their time for church and social organizations long before embarking on their new careers.

Those who make it are also aware of the persistence it takes to make a sales operation work. Setbacks don't bother them. Gloria Hilliard Mayfield sold $7 worth of cosmetics at her first Mary Kay demonstration. "I knew then this was not going to work if I relied on friends and family," she says.

Most companies will provide free training and seminars with other local distributors. This is one way of getting to know the product and what is involved. Ask representatives about their experiences and ask for sales numbers from the company.

Take the total number of representatives and divide that into the total sales to get the average commission, advises Rosalind Passwell, president of the New York City-based American Woman's Economic Development Corp.

"There's no free lunch, you have to earn your money," says Paaswell. "If promises sound too good to be true, they probably are."

FOR MORE INFORMATION CONTACT

The Direct Selling Association 1776 K St. N.W., Suite 600, Washington, D.C., 20006. # (202) 293-5760. The DSA also issues free pamphlets on direct selling.

Direct Selling Education Foundation 1776 K St., N.W., Suite 600, Washington, D.C., 20006. # (202) 293-5760. A 75-page bibliography of all articles and books on direct selling is available from the DSEF for $50.

Amway Corp. 7575 Fulton St., E., Ada, MI 49355-0001. # (616) 676-6000. Products: 400 various offerings of vitamins, household cleaners, cosmetics and foods. Annual sales: $4.5 billion. Number of representatives: 2 million. Percentage who are African-American: Company cannot supply data. Cost for initial start-up kit: $35.30.

Artistic Impressions 240 Cortland Avenue, Lombard, IL 60148. # (708) 916-0050. Products: Original paintings, lithographs and serigraphs. Annual sales: $12 million. Number of representatives: 1,300. Percentage who are African-American: 50. Cost for initial start-up kit: $99.

Avon Products Inc. 9 West 57th St., New York, NY 10019. # (212) 546-6015. Products: 1,500 skin care, cosmetic, fragrance and jewelry products. Annual sales: $1.4 billion. Number of representatives: 415,000 U.S. Percentage who are African-American: 11. Cost for initial start-up kit: $20.

Diamite Corp. 1625 McCandless Drive, Milpitas, CA 95035. # (408) 945-1000. Products: Three lines of nutritional, household and personal care products. Annual sales: $50 million. Number of representatives: 43,000. Percentage who are African-American: 60. Cost for initial start-up kit: $62.

Discovery Toys Inc. 2530 Arnold Drive, Martinez, CA 94553. # (510) 370-3400 or (800) 426-4777. Products: 135 educational toys, books and games. Annual sales: $93 million. Number of representatives: 30,000. Percentage who are African-American: Company can't supply data. Cost for initial start-up kit: $149.

Mary Kay Cosmetics Inc. 8787 N. Stemmons Freeway, Dallas, TX 75247-3794. # (214) 630-8787. Products: 200 skin care, cosmetics and personal products. Annual sales: $1 billion (U.S. only). Number of representatives: 300,000 Percentage who are African-American: 10. Cost for initial start-up kit: $95.

Multiples-At-Home 1431 Regal Row, Dallas, TX 75247. # (214) 638-3367 or (800) 727-8875. Products: Line of women's clothing that offers interchangeable pieces. Annual sales: $7 million. Number of representatives: 1,300 Percentage who are African-American: 10. Cost for initial start-up kit (includes sample garments): $129 for six garments or $295 for 15 garments; both inclusive of training and marketing materials.

Nu Skin Personal Care Interior Design Nutritionals 75 West Center St., Provo, UT 84601. # (801) 345-9000 or (800) 487-1500. Products: 70 skin care, hair care and nutritional products. Annual sales: $500 million. Number of representatives: 250,000. Percentage who are African-American: 5. Cost for initial start-up kit: $35.

Primerica Financial Services 3120 Breckinridge Boulevard, Duluth, GA 30199-0001. # (404) 381-1000. Products: Life insurance policies, mutual funds, debt-consolidation loans. Annual sales: $1.1 billion. Number of representatives: 100,000. Percentage who are African-American: Company cannot supply data. Cost for initial license processing package: $35. Company reimburses expense of taking a state insurance exam, which is required to sell insurance. Estimated cost, $100 to $250.

Shaklee Corp. 444 Market St., San Francisco, CA 94111. # (415) 954-3000 or (800) SHAKLEE. Products: vitamins, nutritional products, personal care, cosmetics, household cleaners and home water treatment systems. Annual sales: Undisclosed. Number of representatives: 1 million. Percentage who are African-American: Company cannot supply data. Cost for initial start-up kit: $7.50.
COPYRIGHT 1993 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:includes tips from the Direct Selling Education Foundation
Author:Angelo, Jean Marie
Publication:Black Enterprise
Date:Dec 1, 1993
Words:3267
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