5 Things You Should Know About Direct-Sales Product Parties
If you want to set your own schedule and control your earnings, signing up as an independent representative for a multilevel marketing company, such as Silpada (jewelry) or The Pampered Chef (cookware), may be enticing. After all, you just need to host a few product parties a month to make a good living, right?
Not so fast. These network-marketing opportunities can be a good fit for some people, but they’re more work than you might think. Before signing up as a representative, here are five factors to consider.
- You pay all the upfront costs. Typically, new representatives must buy at least several hundred dollars — and sometimes $1,000 or more — of product inventory at wholesale cost, which they may then resell for retail prices. Often, you’ll also be required to pay a “certification fee” for the company’s training manuals and other materials. Although startup costs are probably lower than they’d be if you started your own business from scratch, you still have to make an investment, and there’s no guarantee that you’ll see a return.
- Your income is tied directly to sales. No matter how hard you market your products, you won’t make a dime unless you make a sale or recruit other salespeople. When considering a network marketing opportunity, think about how marketable the product is and how many people you know who’d want to buy or sell it. If your friends and relatives are more likely to eat or pick up dinner at a restaurant than make lasagna from scratch, perhaps a career as a cookware representative isn’t your best bet.
- You can’t sell to the same people all the time. It’s not that difficult to get guests to come to one product party, but can you line up prospective buyers for 10 events in the same month? You’ll need a large network of contacts — or learn to develop one fast — in order to schedule enough parties to make a decent income. True, you can incentivize party hosts with the promise of free merchandise, but unless you’re expanding your social circle far and wide, you’ll run out of potential hosts before long.
- You may alienate your friends. Along the same lines, think about whether constantly encouraging your friends to buy products and host parties will change the dynamic of your relationships. Like it or not, network marketing is about using friendships for profit — if that makes you uncomfortable, this line of work may not be right for you.
- There are a lot of hidden costs. Silpada claims that its representatives can make $72,000 a year hosting five parties a week. That sounds pretty good on the surface, but think about all of the other costs involved. You’ll need to pay for gas to drive to your parties, decorations, and food and drink. And, because you’re an independent contractor, you’re responsible for covering your own health insurance, retirement savings, and self-employment tax.
All that said, some people do make decent money from direct sales opportunities: Debi Feinman, a Silpada consultant, tells Woman’s Day that her business “occasionally pays the mortgage.” In the same article, Pampered Chef sales rep Staci Itzel says she averages $5,000 a month for 30 hours a week of work. But keep in mind that, as with all multilevel marketing businesses, most of the money stays at the top. For instance, Avon last year purchased Silpada for $650 million; none of Silpada's 27,000-strong team of independent sales reps received a commission on the deal.
Kathryn Hawkins is a business writer for Intuit and is passionate about solving small business problems.