Have you ever wondered what the difference is between Direct Sales vs MLM? Well wonder no more my friend, in today’s post I will explain what is involved in both of them and what the differences are between them so you can make an educated decision regarding which model is right for you.
Direct sales is a simply a unique business model that a company can choose to use as their distribution model for bringing their product to market.
I know that sounds like high-elevated mumbo jumbo business talk so let me explain what that means in normal language.
Let’s say I want to start a new company that sells some sort new invention. Let’s go with a toaster that makes the bread you are about to toast.
We will call it The Broaster!!
Clever eh? Bread + Toast equals Broaster!! Sorry it’s late at night when I am writing this post and clearly I’m in a mood.
OK on with the show…
I have my Broaster. Now in order to sell it and get it into the hands of my customers I have to decide which business model I want to use to bring it to market.
Traditional Retail Model
Let’s say I decide to go with the Traditional Retail Mode.
This would require that I first of all manufacture it in my plant. Then in order to make my future customers aware that the Broaster even exists, I would have to advertise it all over the place.
I could create a TV ad or perhaps I want to advertise on the radio, or run ads on the internet or in newspapers and magazines.
The point is I have to get the word out that I am in business and that the Broaster exists and show people why they should buy it. This part of the process is “extremely expensive” and also a very crucial component to a business’s success.
Next, I have to figure out where I want to sell my product. What stores do I want to try and convince to carry it on their shelves?
Yes I said convince…
You see it is not a simple matter to simply say: “Hey I am going to sell my Broaster at Costco, or Walmart and everywhere”.
It does not work that way. You have to go through a serious application process with each of these companies.
I recently had a friend of mine go through the process of having their product being carried at Costco and there are a ton of steps you have to take, hoops you have to jump through and tests you have to pass and to be accepted you have to make very high marks.
Let’s say we get accepted by Walmart. They agree to carry our product on their shelves.
Now we have a few more problems to deal with:
Fighting for Shelf Space
First, we have to fight for the good shelf space. We clearly want middle to eye level shelf space. The lower shelf sucks.
People notice products around eye level. The products that sell well get the good space. So we have to constantly be pushing and fighting against our competitors for that space.
Next comes a very costly and complicated component of the traditional retail distribution model. Which is the actual distribution of the product itself.
Distribution is Costly & Complicated
How are we getting the Broaster from the little town in southern Texas where we manufacture it out to all of the Walmart’s across the USA and beyond?
Transporting or shipping products to stores is a logistical nightmare and a very very expensive endeavor.
As you can see from my very brief and clumsy overview the Traditional retail model can be a very costly, expensive and complicated model and it is the reason that many companies over recent years have gone the Direct Sales route…
The Direct Sales Business Model
Basically the Direct Sales and MLM models both simplify the process we just described by cutting out in most cases the advertising and the middle man (stores) as well as the logistical and costly distribution process.
As a result they save significant amounts of money.
Let’s look at the direct sales model first…
Let’s again use the example of “The Broaster”! The bread-making toaster! (I am really digging this idea lol).
Instead of having to advertise, negotiate with stores for their self-space and figure out how to transport my product to store, I sell and ship directly to the customer. I cut out the expensive and complicated middle men!
With all of the money my company is saving by not having to advertise and not having to send massive truck loads of products to stores all over north America; I can instead create a business opportunity for everyday people who like the concept of the Broaster.
People who want to use it themselves and also want to make money by selling it.
These people become independent distributors of my product.
They are essentially in business for themselves, promoting and distributing my product to their existing network of people they know and frankly to anyone they want to sell it to.
My team of independent distributors do ALL of the advertising and marketing for me.
In most cases they are building their own businesses by using the power of word of mouth advertising, which is by far the best type of advertising.
How It Works
Let’s say Joe-bo has a friend Frankie-G. Frankie-G calls up Joe-bo and says:
“Listen man you got to check out this bread making toaster contraption I just bought, you are going to love it. The thing literally makes the bread right there on the spot and toasts it up beautifully for you”.
Ol’ Joe-bo runs over to Frankie-G’s and can’t believe his eyes. He is hooked, he wants one too.
Well Joe-bo is in luck, because Frankie-G just happens to be an independent distributor for The Broaster and can sell him one directly right there on the spot!
Joe-bo gets a new Broaster and Frankie-G gets a nice solid commission for selling one.
Everyone is happy. Joe-bo gets a new bread making toaster, Frankie-G gets a commission and my company has sold another unit.
No advertising involved no stocking shelves, no massive warehousing and no costly shipping of products at a time (Joe-bo pays for the shipping with his order).
Just simple word of mouth advertising combined with a simple distribution model. It’s a brilliant business model.
Direct Sales has been a very successful business model for decades now. Many many companies are now using it because of the power of word of mouth and the cost savings associated with it.
Companies such as Avon and Mary Kay are some of the more well-known direct sales companies, but there are thousands of them out there.
Now let’s take a look at….
Direct Sales vs MLM?
What is the difference between the two?
Simply put MLM ads Multi Levels to the mix.
MLM is direct sales. They are part of the same business model, except MLM adds an extra component to the model.
The best way to explain it to you is to go back to the example of our two good friends above.
So remember Frankie-G, sold Joe-bo a Broaster and made a nice fat commission for doing so.
Well it turns out that Joe-bo loves his so much he wants to start selling them also.
Well he is in luck as we have set our direct selling company up in such away that the distribution model has multiple levels to it.
It is a MLM company.
How the MLM Business Model Works
This means that Frankie-G can sign Joe-bo up as an independent distributor also.
Now what happens is that every time Joe-bo sells the product, not only does he make a commission from any sales he makes, but Frankie-G does also simply because he signed him up into the business and they are connected.
This goes on for multiple levels and is why MLM is short for Multi Level Marketing.
Let’s say Joe-bo goes and signs up 20 new independent distributors.
20 other people who want to sell the product. Every time they sell a product he gets a commission on their sales AND so does Frankie-G.
And again this can keep on going for multiple levels…
If these 20 people go and sign up 10 people each, that is 200 new distributors and every sale that is made a commission is paid all the way back up the line to Frankie-G!
These commissions can start to add up to a significant income quickly and it is not only an extremely powerful business model for companies but also for the independent distributors themselves.
Serious 6 & 7 figure incomes have been created by countless average everyday people thanks to this business model.
So Which is Better?
So which out of the two is the best business model?
Its a tough question and it really depends on you.
If you like to sell and are content to earn an income off of your efforts only then perhaps direct sales if for you.
However if you are like me and want to create the walk away beach money that is possible when you create true residual income then building a large MLM business and down line is the option I recommend.
But the choice is 100% yours and depends on what you are looking to accomplish.
Did This Make Sense?
I trust this made sense. As I said, it is late at night and I definitely had some fun writing this post. It is definitely a high-elevated overview of the differences between direct sales and mlm, but it should help to clarify the matter for you.
Let’s recap very quickly.
With Direct Sales you get a onetime commission by selling a product to people you know. Whereas with MLM you can sign up other distributors and make commissions from any sales they make and from sales of people they sign up as distributors and so on down the line for multiple levels in your organization.
Surprisingly Wikipedia provides a pretty definition for their differences here if you want to check it out.
The following are twos posts on this topic to help you understand how this business model works and how to create a serious income from it:
And as always you can reach out to me in the comment section below with any questions on this and I will be sure to do my best to help you out.
Cheers to YOUR Success
P.S. If you are in MLM or considering becoming involved the large incomes are created by recruiting new distributors in order that you make commissions on their sales and the sales of their team or organization they build.
The key to your success is found in your ability to become very good at recruiting new distributors onto your team. I specialize in recruiting and have put together a FREE prospecting boot camp that shows you how to become a top dawg recruiter and create a huge residual income check. You can sign up for the free boot camp on the side of the blog!