The term “direct selling” may not be a familiar one, and most people probably wouldn’t think to name a direct-selling company off the top of their head. So, here’s a few examples: Mary Kay, Pampered Chef and NuSkin.
Direct selling, in its simplest definition, is the selling of a product or service typically outside of traditional retailers — it could be done in the home (think Tupperware parties), or, nowadays, it could be done through Facebook. Another, more familiar term for direct selling is multi-level marketing.
Of course, there is a lot of skepticism around these kinds of companies, and not without good reason — in January, the Washington state attorney general filed a lawsuit against the California-based clothing company LuLaRoe, the Associated Press reports. The lawsuit states thousands of Washington residents have lost money selling clothes for LuLaRoe.
Now, there is an organization dedicated to regulating these types of companies in order to prevent this kind of thing from happening: the Direct Selling Self-Regulatory Council.
The council was formed in January of this year after the Direct Selling Association partnered with the Council of Better Business Bureaus.
The Direct Selling Self Regulatory Council is in place to enforce general legal standards for direct selling companies, as well as the standards of the Direct Selling Association.
The Direct Selling Association is a group that’s been around since 1910 and over the years has developed a strict code of ethics that members of the organization must adhere to. Companies go through a rigorous application process of over a year to make it into the association. Only 150 companies or so can currently boast membership. LuLaRoe is not one of them.
Of course, the self-regulatory council is not just monitoring members of the Direct Selling Association, it’s working to regulate all direct selling companies — a huge undertaking, but an important one.
Joseph Mariano, president and CEO of the association, was recently in Utah visiting different direct selling companies, many of which are headquartered here in Utah. He said Utah is a “hotbed” for direct selling companies and sellers thrive in great part because of the culture that exists here. That is the importance of networking and family.
Because that’s often how direct selling works — sellers mostly sell to their friends and family the products that they’ve come to love. And it’s a thriving industry — in 2017, the most recent data available from the association, 18.6 million people were involved in direct selling.
That number breaks down into interesting categories. Nine million people became “inactive” as sellers, meaning, they did it for a few months and stopped. About 4.7 million people sold part-time, while only 0.9 million were full-time sellers. A whopping 4.1 million weren’t interested in selling at all — they became “sellers” just to get discounts on goods. Seventy-three percent of all sellers are women.
While the industry is thriving, its completed dependence on individual sellers is also what creates real or perceived problems, according to Mariano.
“Some will get too exuberant, they might engage in inappropriate or just undesirable behavior,” Mariano said.
Real problems include over-promising earnings, if a seller is trying to recruit someone, and also the promise that those high earnings will come “easily.”
“To us, it’s repugnant when we hear ‘it’s easy, it’s fun,’” said Adolfo Franco, the association’s vice president and COO. “It might be if you are prone to that personality.”
The reality, Mariano explained, is most sellers will only bring in a couple hundred dollars a month, and a few thousand in a year. Of course, some with the knack to sell and the drive to do it can make extraordinary amounts of money — but it’s the exception, not the rule.
Another problem the association runs into is the reality of pyramid schemes. From Mariano and Franco, here are a few tips to recognize if a direct selling pitch is actually a pyramid scheme:
Another thing to watch out for, is whether or not a company has a buyback policy. Companies with the Direct Selling Association are required to buy back product that hasn’t been sold if a seller decides they don’t want to sell anymore for at least 90 percent of the original price. In addition to a buyback policy, Mariano and Franco emphasized sellers should never be pressured to buy large amounts of inventory.
Of course, there are some exceptions — for example, if a person is going to sell gems or jewelry — the fee to join will be higher because the inventory is more expensive. But that’s the only example Franco and Mariano could come up with where a high fee would be expected.
Anyone who wants to know the credentials of a company can see if it appears on the Direct Selling Association list of members. Of course, not being a member of the association doesn’t mean a direct selling company doesn’t have good business practices, simply that it hasn’t tried to become a member of the organization.
And now, even if a company isn’t a member of the association, it will be held to the same standards, thanks to the self regulatory council, which has jurisdiction over all direct selling companies, not just companies that are part of the association.
But again, Franco and Mariano emphasized that it comes down to individual sellers.
“That is going to be a constant challenge, (regulating sellers), so long as you have human beings that are not lawyers and not ethics officers,” Franco said.
The Direct Selling Association offers educational resources on its website to further help with distinguishing between pyramid schemes and legitimate companies. Other things people can do, Mariano said, is contact local law enforcement or the local Better Business Bureau to see if a complaint has been filed against a company.
But at the end of the day, Mariano said, it’s not about money for most people anyway.
“It’s social recognition ... it’s the pleasure of being with other people, it’s learning business skills, it’s getting the products at a discount,” Mariano said. “These are all equally if not more important motivations for people.”