Our channel needs to update its recruiting message and practices and concentrate on the real motivations and needs to attract future prospects.
Amazon, gig economy competitors and other market forces have taken some wind out of direct selling’s sales.
After years of significant growth, our industry’s U.S. revenue was down 1.6 percent in 2016 and nearly two percent in 2017, according to DSA’s Growth & Outlook Survey.
The surge in alternatives to direct selling and pressure from e-commerce has knocked us back. And we’re just now regaining our balance. Last year U.S. direct selling retail sales was slightly up again, a paltry 1.3 percent over 2017 to $35.4 billion, and the number of business builders—those who regularly buy product at a discount and sell it for a profit—was up 1.6 percent to 6.2 million. The Direct Selling Association (DSA) projects that U.S. direct sales revenue will continue to rise, between one and three percent annually for the next three years.
“We have to be willing to change what used to work. Because although it may have worked in the past, it was never sustainable.”
That seems doable, right? If we can grow by 5.9 percent—our high between 2011 and 2015—surely, we can manage a percent or two. But we have to be willing to change what used to work. Because although it may have worked in the past, it was never sustainable. We must find new tactics, set new expectations and rephrase our recruiting message because times have changed. The “You, too, can have the house, the boat, and retire a millionaire in five years!” hard sell our industry has been known for has done us more harm than good. “The appeal to greed is repugnant,” said LifeVantage President and CEO Darren Jensen at DSA’s 2018 Fall Conference. “We keep going back to that well time and time again, and we need to shift away from it.”
Putting Field Leaders Back To Work
The lure of network marketing was this grandiose plan to work hard for a few years until the big money rolls in and then coast on the residual income. Direct selling companies have themselves to blame since they have traditionally organized their compensation plans to reward these top earners to coast on the work their downline does. It’s time to start rewarding activity that directly brings in new customers and representatives. This strategy not only will energize your ground-level representatives, it should motivate those veteran team members to re-engage in business building.
There are examples of this priority shift all over the channel, notably what happened with AdvoCare earlier this year. In May, the Plano, Texas-based company announced it would abandon the multilevel marketing model, no longer paying distributors on the sales of the salespeople in their downlines, but paying only on sales to retail customers. “Over the years, we have made many changes to the AdvoCare policies as the regulatory environment has shifted,” said AdvoCare Chief Executive Officer Patrick Wright in a statement. “Based on recent discussions [with the Federal Trade Commission], it became clear that this change is the only viable option.”
Other companies are still offering tiered compensation plans, but those plans are getting flatter and easier to understand.
“The more our industry focuses on being customer-centric—the more our business will work in the future.” —Gordon Hester, direct selling analyst
The compensation plan at Salt Lake City, Utah-based Perfectly Posh pays Posh influencers commission on their own sales and a maximum 15 percent commission on the sales of influencers on just two additional levels, or “spheres.” Said Perfectly Posh CEO Ann Dalton in May, “Our new Influencer Pay Plan transitions away from the more typical pyramid pay structure in direct sales, which is neither simple nor transparent. We’ve taken a modern approach to compensation, ditching the complex and often confusing steps it takes to build a successful business.”
Brand ambassadors for Provo, Utah-based Nu Skin can earn same-day sharing bonuses when registered retail customers buy directly from Nu Skin or through the company’s mobile app, the Velocity pay plan. “When we looked at the desires and the needs of [our sales force], we found there was a fairly large group of people building a Nu Skin business because they needed income today—not six weeks or even a week from now,” says Nu Skin President Ryan Napierski.
Companies with comp plans similar to those at Perfectly Posh and Nu Skin understand that customer acquisition and increasing retail sales have to be their main goals. The bottom line is that most people who come to our doors are just looking for premium products at a fair price. They’re not interested in selling it. Lehi, Utah-based Xyngular puts front and center on its comp plan description that only 20 percent of its members are business builders. When we recognize and respect customers’ motivations, they’re more likely to become repeat customers because they don’t feel pressured to become anything else.
“The more our industry focuses on being customercentric— the more our business will work in the future,” said direct selling analyst Gordon Hester at DSA’s recent annual meeting. “That’s what the data is saying.” The data he’s referring to includes a 48 percent growth in preferred customers in 2018. Preferred customers purchase at a discount, often as a perk of signing up for automatic repeat shipments.
“As the strength of the customer base—what we call ‘customer density’—grows, then all of a sudden, everything around it grows,” Hester continued. “We’re going to see a longer customer lifetime value and longer customer lifetime stay, and we’re going to see distributors staying longer and engaging at higher levels.”
A New Reality
Engaged, loyal distributors take time to cultivate—and it’s more challenging now that direct selling no longer dominates the work-for-yourself market. According to Statista, 57.3 million people are earning money from some kind of gig economy job—Uber driving, Airbnb renting, etc. This likely includes the 6.2 million direct selling business builders, but it also includes 51 million others who aren’t working in our channel. Why do so many people choose these other opportunities?
Experts say it’s because gig companies not only offer the work flexibility and autonomy that direct selling used to own, but they have set new side hustle standards. Gig work often
- has low or no startup costs;
- pays instantly (sometimes up front); and
- provides customer leads—no sales experience required.
Gigs have put in stark relief the difference between wanting to earn extra money and wanting to be an entrepreneur. The two can be mutually exclusive, says Brett Duncan of Strategic Choice Partners.
“While direct selling companies keep promoting ‘business opportunities,’ the Gig Economy keeps showing us just how many people aren’t interested in that,” Duncan wrote recently. “ In fact, it may actually turn them off. Making an extra $300 a month isn’t typically considered ‘a business’ by a normal person. Sure, it technically is a business, but that’s not how most people think about it. So why do we keep pushing it?”
“The appeal to greed is repugnant. We keep going back to that well time and time again, and we need to shift away from it.” —Darren Jensen, Life Vantage President and CEO
Recruiting in our industry has no choice but to stop pushing against the expectations and motivations these gig opportunities have revealed. Yes, there are people who have entrepreneurial skill and drive and who see direct selling as the perfect way to achieve their dreams of business ownership. Most people pick up side work to make ends meet more easily and are bringing in less than $50,000 a year with their gig—only 11 percent are clearing six figures, according to Statista data. Even among direct sellers, only 16 percent of them are working full time (30 or more hours per week), according to the latest DSA’s Growth & Outlook Survey. That suggests that the majority are putting in part-time work because they’re looking for part-time income.
Direct selling companies need to develop recruiting messages and strategies that meet prospective distributors where they are and likely will be comfortable staying. If we don’t, we’ll become irrelevant, says LifeVantage’s Jensen. “We need to recognize we are in a battle of the side hustle.”
We’ve gathered some best practices for winning in this side-money, customer-driven era:
Set honest, realistic expectations. Tell prospective business builders what most distributors actually earn and what it takes to achieve and sustain that level. Xyngular’s comp plan states clearly that nearly 80 percent of its distributors earn $67 a month.
- Offer quick payments. Instant commissions are one of the biggest trends in our space. Airbnb hosts get paid before their guest even arrives. So, we have to get faster. Perfectly Posh pays in less than five minutes from the time of sale, at no additional cost.
- Provide complete, accessible information about your opportunity. Make it easy for potential distributors to find your compensation plan and startup requirements on your website.
- Watch your language. Reinforce the separation between customers and distributors at every stage. At Xyngular, for example, distributors enroll but customers check out, Jensen says. If a customer has to click “enroll,” there’s an implication that she is getting in deeper than she wants and she may bail on the purchase.
- Emphasize product and experience sharing. Potential customers and distributors are more likely to respond positively to authentic content from satisfied product users.
Compliance Matters
Class action lawsuits across all industries are costing companies more money and time than ever.
According to the 2019 Carlton Fields Class Action Survey, the number of companies that reported facing class actions in 2018 dropped slightly to 54 percent, but the average number of matters per company increased from 6.3 in 2017 to 7.8 in 2018. And class action spending increased for a fourth consecutive year, to $2.46 billion in 2018, accounting for 11.1 percent of all litigation spending in the United States. The companies surveyed said most class action lawsuits brought against them last year alleged either consumer fraud or a labor and employment violation.
“Recruiting in our industry has no choice but to stop pushing against the expectations and motivations these gig opportunities have revealed.”
We don’t have class action lawsuit volume for our industry, but the general sense is that we’re feeling the pinch as much as or maybe more than other channels. “In my experience, we’re seeing more and more direct selling companies targeted by class-action lawsuits due to product and earnings claims,” says Crayton Webb, owner and CEO of Sunwest Communications, a Dallas-based public relations firm.
Most of these claims come, though, from a lack of understanding, training and awareness—and while distributors have a responsibility to represent our companies and products truthfully, it’s incumbent on our industry and individual companies to continually educate our field teams. We have to tell them often what they can and can’t say and then monitor our marketplace for statements and activity that come dangerously close to or go over the line.
Do The Right Thing
Amazon and other e-commerce players have rewritten the retail rules. The gig economy has rewritten the work-for- yourself and extra income rules. And regulators are watching us more closely than ever to make sure we stick to the ethical and legal rules—rules, by the way, that we should follow even when no one is watching. We have a choice to make—A) evolve and thrive or B) cover our ears and eyes and hope no one notices if we do business as usual. The thing is, though, A is really the only choice. Because “as usual” will put us out of business.
