Sales report: once tainted by get-rich-quick schemes, the direct-sales industry is changing its image. See what experts and business owners have to say about going direct

Entrepreneur, July, 2004 by Nichole T. Torres

To buy and sell in the comfort of a home setting--that's the heart of the direct-selling industry. From kitchenware to vitamins to cosmetics to stamps--if it can be made, it can likely be sold via the direct-sales route. Today, direct selling is usually characterized by an independent consultant with a portable kit of wares. The seller visits people's homes by appointment to have home shows where items are displayed; customers invite family and friends to share in the demonstration. The latest available figures from the Direct Selling Association (DSA) show retail sales of more than $28 billion for the direct-selling industry in 2002--and an estimated 13 million independent direct salespeople across the country. This is an increase from about $22 billion in 1997, with 9.3 million salespeople.

How has this industry evolved? "There are five elements I see," says DSA president Neil H. Offen. "We have a lot more people involved, we're more sophisticated as an industry, we have more college graduates [as consultants], we're very global and international, and we're [now] very attractive to Wall Street investors and VC groups."

Direct-sales consultants, though still primarily made up of women, are becoming more diverse. Offen notes that the male contingent is steadily growing; 25 percent of consultants are men, compared with 10 percent in 1990. Offen attributes this change to the pervasiveness of new products on the market--vitamins, food supplements, long-distance telephone service, etc.--that are not seen as typically female-centric products like cosmetics or housewares.

The Stigma

Even with all the growth, entrepreneurs in direct sales often have to deal with the stigma that direct-sales opportunities are like pyramid schemes. Pyramid schemes require participants to lay out cash for the right to recruit others. Usually, no product is involved, and profits for those at the top levels of the pyramid come solely from new recruits who join at the bottom. Direct sales, on the other hand, involves selling legitimate products or services, the profits from which go to the seller and his or her recruiter. At the higher levels of a direct-sales company, consultants usually have a group of recruits selling below them, from which they receive commissions--also known as a downline.

Savvy direct sellers would benefit from distinguishing themselves from pyramid schemes. The DSA can help them do this: According to Offen, the DSA acts not only as an industry advocate in Washington, DC, but also as a watchdog. It helps set the standards by which direct sellers should abide, from instilling a 90 percent inventory buyback clause for all DSA members (meaning consultants don't lose huge amounts of money on unsold merchandise if they choose to leave) to issuing warnings about high-pressure selling and pyramid schemes (see "Truth or Dare," above). The result is more entrepreneurs coming into the direct-selling fold.

Leslie Caperton, an executive-director-level entrepreneur with The Pampered Chef in Gainsville, Virginia, entered the direct-selling field part time in 1994. Selling specialty kitchen and cooking aids, Caperton, 40, came from an insurance background. After attending a Pampered Chef home show in 1994, she was impressed by the array of products as well as the discounts and rewards she received as a hostess a few months later. "That got my attention," she recalls. "I said, 'I think I'm going to do this.'"

Wanting to try something with a flexible schedule, the direct-selling avenue seemed to be a perfect fit for Caperton--though she confesses that, at first, balancing her time between planning, doing home shows, and recruiting and training new consultants was a big challenge. Since her business is equally involved with selling directly to customers and recruiting new consultants, she has been able to go from merely supplementing her income to grossing a projected $3.7 million in sales with her group of consultants this year, And she debunks the notion from outsiders who think only a few people at the very top levels of the company make money: "The first month I was in [the company], I made our [monthly] car payments."

To alleviate customer concerns and distance her business from any possible stigma, Caperton emphasizes customer satisfaction and product warranties. "In selling something," she says, "I want the [parent] company to back that product."

That's key in whether or not a company is legitimate says Often, DSA president. Ask them what kinds of warranties and protections they offer; ask their current consultants and customers how their problems and issues are treated. And even if a company has a good track record, make sure you absolutely love the product or service you'll be selling, because that will determine how successful you are.

Loving the Business

It was after falling in love with the decorative baskets from The Longaberger Company that Lisa Lashley decided to become a consultant. She started collecting the baskets from home shows she attended in 1995 and took the leap into her own business in 1998.