The Differences Between Direct Sales and MLM Companies

For those who want to work from home or run their own business, two common ways to do so is through a direct sales business or a multi-level marketing company. Many people use the terms interchangeably, and although they can be similar, they aren't exactly the same thing. So, what is the difference between direct sales and MLM companies? Let's take a closer look to help you understand.

Direct Sales Business

A direct sales business is one in which you can work for an already established company. The company normally sells products or services and they look for representatives to help them do so. This allows an individual to become a representative via their own business and sell the company's products.

This makes it easier for someone to work for themselves without the overhead costs associated with starting a business from scratch. Many times the individual will also be able to sell the products without maintaining an inventory. This saves the rep money as well because there is no need to house the products yourself or pay for storage.

The company will already have packages set up that include product samples, promotional material and more for the representative to use. A good direct sales company will also provide training and other resources to help the business owner grow their business. These packages do cost money to purchase but many times it's a one-time fee and the individual will be able to use these items as long as they are working with the company.

You then use the material provided and sell the products of the company. In turn, the company pays you a percentage of all the sales you make. Depending on the company you are working with you might be able to set your own sales price and keep any money left over after you've paid for the items from the company.

For instance, let's say the cost for you to purchase an item is $1. According to the company's policy you are allowed to mark up the sales price to whatever you choose so you sell the item for $2. Once you receive the money from your customer, you pay the direct sales company their dollar and you keep the remaining dollar for yourself.

There are tons of direct sales companies out there that allow someone to start their own business by selling for them. A few common examples, that you may have heard of include, Avon, Tupperware, Home Interiors and Mary Kay.

These companies sell kitchenware, make up and other products but look to expand their company's profits by working with business owners around the world who like the idea of running their own business, but want the security of something already well established.

Multi-Level Marketing (MLM) Companies

With multi-level marketing companies, it's common to see the same names as you do with direct sales companies. As a matter of fact, most direct sales companies have some form of MLM in their business structure for those interested.

Multi-level marketing is just what its name implies - multi-levels of income potential. Let's use an example to help you understand how it works. You've just signed up with Company X to be a representative and sell their products to others. You've also been offered the opportunity to recruit others to also sell the products.

You book a party and the hostess (we'll call her Susan) decides she would like to sell Company X products as well. You sign Susan up and she becomes a member of your "down line." You will now make money from the sales received from your customers and you'll also make money when Susan sells products as well. Susan can do the same and depending on the company policy, you might be able to make money on sales that Susan's down line creates as well.

Although the terms direct sales and MLM are used interchangeably, they aren't the same thing. The reason is because most direct sales companies do not require their reps to participate in the multi-level aspect of the business. There is more money to be made when an individual chooses to recruit others, but for some that just isn't their cup of tea. Companies realize this and many are just as happy to offer both options to their potential representatives.