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The Hidden Costs of Having a Direct-Sales Home-Based Business

So you want to start your own home business? The opportunities are everywhere, ranging from toys and books to make-up and clothing to pots and pans and sugar and spice. The offers sounds lucrative, too, especially at a bottom-barrel starting price of just $20 or $200 or some number in-between; for that amazing value, you also get a bunch of business materials to help you get your business off the ground. Too good to be true?

If it is a true MLM, then yes. You're better served running in the opposite direction, before you take your friends to the cleaners and destroy all of your social relationships.

But I'm not talking about MLM's here; I'm talking about legit businesses with products (or services) that are high-quality and well-established. These are household brands that have been around anywhere from five years to five decades. Many have great reputations and are internationally-renown; some are even publicly-traded! The products and services are usually so awesome that they practically sell themselves. These are the businesses I'm talking about.

Now, before you sign on the dotted line, however, let me do you a great service. I'm going to tell you what nobody else mentions when they recruit you onto their team or downline. While I'm not saying that anyone is intending to neglect the fine print, I do think that these things aren't mentioned in part because they differ from person to person, and it also doesn't serves a recruiter to dwell on the negatives of a business, does it?

I'm not dissing on these work-from-home business opportunities, either, because they can be very lucrative or at the very least, incredibly personally-satisfying. Heck, I was in direct sales too! I loved it. I try to support my friends who work in direct sales. I buy from them whenever I can! But - as a business owner/direct sales consultant - nobody ever told me about these hidden costs, and that was one of the big fat reasons why Hubbs withdrew his support once the costs started rolling in. A smart business person always counts their costs. Let me help you do so, too!

1. Promotional Materials
You're going to want business cards, and maybe a website (or an extension of the company's website with your name on it). You may also want brochures, posters, postcards, bookmarks, signs or table runners, or maybe even one of those vertical banners that you can get from Vistaprint that you hang on a stand. I don't know of any direct sales friends who don't have a business card or catalogue, and while you can get quite a number of business cards printed for a relatively small cost, it is still at a cost to you. Your starter kit won't contain business cards, although maybe if you're lucky you will get a template that you can rip off and print on your own devices. If you need to buy catalogues or extra brochures from your business head office (and depending on the company, these catalogues come out as infrequently as annually and as frequently as bi-weekly), those will also cost you money over time. In my case, I shelled out for a newsletter service, a website, way too many catalogues, and magnetic business cards. I also bought a table runner with the company logo emblazoned on it.

2. Selling Materials
If you're selling a product, you will likely need plastic bags, or labels, or that sort of thing. I can also think of receipt books, pens, boxes and a calculator or two as part of the "essentials" list of things you'd need for a party or vendor event. Again, these are minimal costs that just begin to add up over time. While I do know of folks using up their stockpiles of plastic grocery bags to house their sold items, generally speaking I find that for the sake of aesthetics and making a great impression, most will at the very least get unlabelled, unbranded paper or plastic bags to deliver their purchases. If you're like me, you even shell out for the fancy branded ones.

3. Sample Materials
Here's the thing about direct sales - most people want to see the goods before they lay their money down. This means that you have to be your business's customer first. You have to buy the latest clothing samples or product lines so that you can show these off to your potential customers. If you already happen to buy a lot from your business, then this isn't an issue. For many who are starting out in unfamiliar territory, however, their own personal collection of their brand's wares may not be very big. The "starter kit" samples tend to cover the full range of products offered by a company, but you literally only get like one or two items from each main category. In the case of books, which was my direct sales business, I had nearly 30 titles before I even signed on, and yet, because titles (much like make-up and clothing styles) get discontinued over time, I found myself needing to amp up my collection of samples to show at my parties. Usually, DS reps do get to purchase samples at a reduced cost, but if you're buying something you don't want/need simply to promote it to your customers, that is a cost that you will need to factor in for the sake of the business.

4. Stock
So often, I hear people talk about how their direct sales companies don't require them to carry stock. To a point, this is true; there are direct sales companies that work on a subscription basis, and most direct sales offer customers the opportunity to order online or through their rep. However, for any direct sales rep who wishes to sell or promote themselves at a local craft/vendor market or trade fair, not having any cash-and-carry stock is pretty much a deal-breaker. People who shop at those events aren't usually interested in hosting a party or putting in orders for delivery three weeks later; they want to drop down some cash (or a credit card) and have something in their hands when they walk away. Sure, you might luck out with a couple of leads if you attend these events with just samples in tow, but if you want sales, you're going to have to eat the cost ahead of time and stock up on your stuff. This is a cost and a risk, of course, because usually you're not going to be able to return $500 or $2000 of stock if it doesn't sell. In my case, I had nearly $2000 in books when I "retired" from the business.

5. Display Furniture
Again, this is not a cost that everyone needs to incur, but most folks who are selling at vendor events will have invested in clothing racks or display racks or tables or something to help get their products displayed in an attractive way. I bought a table, a rolling cart, and five racks for my books; thankfully my racks were not super pricey as they had been passed down over the years from rep to rep. Nonetheless, all of these added together were still 3-digit expenses in the end.

6. Space
Depending on what your type of direct sales business is, you're going to need space and containers. Space to store your stock and selling materials, and containers to hold all of your stuff. At my peak, I had 4 milk crates and 8 rectangular bins full of books. I also (thankfully) had a heated garage with space to house my wares. If you become a direct sales business owner, your work stuff will inevitably eat up some of your space.

7. Family Time
Most parties/shows/markets/fairs tend to be scheduled on evenings and weekends, because that is when most people are available to host them or attend. This also happens to coincide with family time for most mommies and daddies, so if you plan to become a direct sales rep/business owner, be prepared to sacrifice some of this quality time with your family. You may also need to make arrangements for childcare, which are costs that can be mitigated if you have a compliant spouse (which I did... for a while).

8. Building Time
In the direct sales business, the benefit of flexible hours can also be a detriment. Your customers (or downline) may be contacting you at all hours of the day or night. Even if they aren't, you will also be investing a significant chunk of your time to a) promoting your business online or in person, and b) making connections with folks who may be interested in hosting a party or buying a product or using your service. Direct sales is still sales, which means you have to hustle to sell. Despite all the talk of how easy it is to set up your own business, actually growing it to a profitable entity takes a tremendous amount of time and energy, both in person and on social media. It is true that you can work as much or as little as you want, but those who do well and actually stay out of the red every year are the ones who work a lot at growing their direct sales business.  You totally have to evaluate if that is something you'd be willing and able to do.

9. Relationships
A cautionary tale for all direct sales consultants/business owners is to find that sweet spot between managing friendships and being a recruiter/salesperson. After all, most direct sales businesses are built on the premise of selling directly to your social circles: your friends, colleagues, family and neighbours. Sometimes, those circles are the least receptive to becoming customers, and any DS person would be wise to heed those boundaries. If an existing relationship sees you as being predatory or opportunistic in your zeal to introduce them to your new business, there is a risk that the relationship won't continue. If you blitz everyone you know on Facebook continuously, you're likely to get blocked or unfriended. Therefore, it's important to tread carefully. I intentionally didn't mix business with pleasure, which probably cost me a lot of profit but saved every one of my friendships.

10. Recruitment
Most direct sales companies don't talk about this initially, but once you sign up, you're likely going to be encouraged to recruit others to start their businesses. It is often framed as a positive thing - expand your business and dream big, help others become small business owners, and/or win big incentives from the head office in the form of trips or vehicles or other bonuses and titles.

The direct sales model is designed with two revenue streams in mind: sales, and recruitment. The sales piece can only take you so far in terms of profit, if that is your goal; you would need to be doing a lot of events or parties or online sales, likely for 8 hours or more each day, to generate sufficient income to offset the costs of your time and your materials. However, most folks who sign on to become a small business owner are doing a day job as well. If you do sell at a home party/soiree/show, these will last a couple of hours; online parties tend to similarly last several hours once all of the preparations and post-party calculations are factored in. Events like markets and fairs take even longer; you have to add the transportation and set-up/take-down time to the actual market time (not to mention the cost of paying for a table or two at these events)!

The recruitment path provides residual income from the people in your downline; a percentage of what they earn/sell is credited back to you, and once you've recruited and trained your recruits (or downline) to run their business well, you can sit back and enjoy the profits without any more significant investments. If those recruits then build their downlines further, you get an even more significant percentage of the profits. Therefore, recruitment is the more potentially-profitable stream of a direct sales business. That said, it's easier said than done. Recruiting can be fairly challenging, depending on who you are and how ethically you run your business. Finding folks who want to join up and start their own business under your leadership is not an easy task to begin with. More challenging still is finding recruits who actually want to build a business, versus those folks who sign up thinking they're getting a good deal on a starter package. We used to call them "kitnappers," because they'd try to score the initial deal on a starter package, and then do nothing until such time that they'd end up having to pay for the difference on the deal that they received.

11. Competition and Customer Service
For some direct sales companies, the product is only ever distributed by reps, which limits how customers can access the product and keeps prices relatively the same. For other companies, however, there are also commercial distribution channels that make their goods available for purchase apart from a consultant. In these instances, one thing to consider is how good your hustle game is going to be, because you will need to be able to compete with shops and online stores who can mass purchase and mass sell your wares for way less money than you're paying as a direct sales business owner!

For me, seeing my products at Costco and local bookstores for literally half of what I pay to get them wholesale was more than a little off-putting. To offset this, then, I knew I'd need to up my customer service game to make the customer experience worth the extra money. Delivery at the door was just one way that I went above and beyond, but again, it was at the expense of my own time (and gas) - a cost I hadn't initially intended on. Plus, in my case, I also kept to the honesty policy and would let my customers know if they could get a better deal elsewhere. It didn't grow my bottom line, but it also didn't compromise my integrity!

I've listed just some of the costs you'll need to be wary of if you do pursue a career in the direct sales business. It isn't very glamorous to advertise these hidden costs, nor to say that direct sales is in fact a lot of blood, sweat and tears - but that is the truth. It isn't a get-rich-quick scheme, and it isn't for everyone. 

There's a common perception out there that these types of home-based businesses are super profitable and super flexible, but the truth is that you'd be hard-pressed to find anyone who actually nets even $500/month from their direct sales business without having a huge downline. Most of my friends who work at these businesses don't operate them to be wealthy; they do it because they love what they sell and they are customers first, so being a part of the company just extends to them an extra little discount when it comes time for them to buy their goodies.

If that is what you're looking for, then by all means investigate your options and congratulations on your new business! If these costs seem a bit steep to you, however, I would caution you against signing up for *any* direct sales company; the costs are always, inevitably, more than that limited-time super bargain sign-up price that is advertised. Buyer (and business owner) beware. 


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