Ep. 1 - The First Lie: What is Direct Selling?
Whether it’s selling leggings, make up, or knives, we hear about business opportunities to make full time pay for part time work. Are they too good to be true? Multi-level marketing companies such as LuLaRoe, Mary Kay, and Cutco Knives claim to be direct selling opportunities. What exactly is direct selling?
Listen to full episode :
Scroll down to read this episode’s transcript.
Resources:
Robert’s book: Ponzinomics
Robert’s Website: Pyramid Scheme Alert
Melissa’s Podcast: The Teacher As
The Teacher As… Episode 66: The Teacher As Anti-MLM Advocate
Transcript:
Robert FitzPatrick 0:16
Welcome to Ponzinomics 101. I'm Melissa Milner. I'm a 30 year veteran teacher and host of The Teacher As... Podcast.
Robert FitzPatrick 0:24
And I'm Robert Fitzpatrick, author of the book Ponzinomics, the Untold Story of Multi-level Marketing.
Robert FitzPatrick 0:31
We are hosting Ponzinomics 101, a monthly educational podcast, for anyone who would like to learn more about multi-level marketing and why it should be avoided.
Robert FitzPatrick 0:41
We hope this podcast will be a resource for teachers and parents and provide valuable information that is not currently being taught in our public schools, colleges and universities.
Robert FitzPatrick 0:54
If you are a teacher who has created lessons about MLMs, and you're willing to share your work with other teachers, please go to our website, ponzinomics101.com to contact us. If we get enough lessons from teachers, we may start a Teacher Resources tab on our site to share the great work we are all doing. In addition, if you use Robert's lessons from this podcast, in your classroom, or with your own child, and you might have even tweaked his lesson, we would love to hear from you to know what you did with the lesson and how it went.
Robert FitzPatrick 1:27
The best defense is awareness. Be informed, think, question everything and keep your mind engaged.
Melissa Milner 1:37
You and millions of others are being invited to join multi-level marketing (MLM) companies to sell products, to become self employed, be your own boss, and to have unlimited opportunity. Everybody, teachers, parents and students all get the same invitation. And millions are accepting to become quote, direct sellers. What is it all about? Robert explains direct selling in this lesson. On the Ponzinomics 101 website, we have the transcript of this episode and other resources. We hope parents and teachers will share this lesson at home or in the classroom. It can be linked in a Google Classroom assignment, or whatever digital platform your school uses, with pre-listening questions and post-listening questions for students to complete that could lead to discussions in groups. Another teaching option would be the whole class listens together, and the teacher stops at a few key moments for turn and talk opportunities. Part of your prep could be to listen to Robert's lesson and maybe print out the transcript for the lesson and highlight and annotate your turn and talk moments and discussion questions. I absolutely see this lesson as a resource for concerned parents as well to share with their child who is maybe in high school or college. Until this is taught in all schools everywhere. Parents are the main source of teaching our youth about the dangers of MLM. Here's Session One, invitation to quote direct selling.
Robert FitzPatrick 3:11
So, this discussion begins at the very beginning, which is about the term direct selling. Whatever the multi-level marketing product is cosmetics, vitamins, supplements, clothing, life insurance, hobby supplies, weight loss powder, and whatever the income promises by the multilevel company, whether it's you can become a millionaire, or it's a side hustle, extra money gig. However it's portrayed, it's always presented as direct selling. Multi-level marketing describes itself as a type of direct selling. So before MLM can be understood, we need to know what direct selling is. It's been around forever. It sounds simple. Most of us sort of assume we know what it means. But do we know what it involves? And what it requires when we say yes to the invitation to do direct selling? So first, we start with questions.
Robert FitzPatrick 4:22
The first question is the most obvious one, even before you get into the actual nuts and bolts of direct selling is the word selling. Are you experienced and knowledgeable in the business and the work of selling? Many people are averse to selling or have never done it? And so this is a valid question and maybe the most important question even before you knew what all was involved is would you even be interested and qualified to begin with? Is this an area of work you're particularly interested in or considering as a life career or a career change? Do you know what the costs are, time requirements, the profit potential, or the needed skills for success in direct selling? That's what we're going to look at now. What's direct selling? Well, the FTC, the Federal Trade Commission, actually offers a very simple definition. Direct Selling, according to the FTC, is person to person selling in locations other than a retail establishment, such as social media platform, or in the home of the salesperson, or the prospective customer. So it's selling, but not in a store, and not with mass advertising and ordering. It's one on one, you and the customer, one sale at a time. That's direct selling.
Robert FitzPatrick 5:49
So the second question, I think anybody would ask him on any kind of a business proposition, because these invitations to multilevel marketing are business propositions, "How do you get paid? How do you get paid and direct selling?" Well, like in any other work, you would need to know before you get started, how you get paid. In direct selling, it's not with a salary, or wages, it's take home profit. Take home profit is the money received from customers, when they buy your product, minus the cost to you as a salesperson to acquire the product you're selling. Then subtracted from that are all the costs you incurred in doing the work and making the sale. That might include your computer, car, your telephone, marketing materials, advertising, internet costs, meals, it might also include childcare, travel, training, tax prep. After these costs are deducted, that's what you get to keep to live on and spend as you wish, after doing all the work. That's take home profit. What are the requirements, in direct selling to take home profit? What's required for you to be able to make this successful? That would start with you. Do you have skills, the aptitude and the knowledge, any work would have the same first requirement. And there are thousands of books offered on the special skills for selling. The type of personality best suited for it, the special attitudes and mental habits that support selling. Most people are not in sales because they don't have the specialized requirements or they don't want to have them. So they're not in sales. But there are these special skills, aptitude and knowledge that are required.
Robert FitzPatrick 7:48
Then there's the product. For direct selling, you need a product that is already needed and wanted for something or something new, that meets a special need, and that not everyone else is also selling. Something unique or unusual or available only from you. And maybe only a few other salesmen like you. You're out there by yourself. You're selling from your house or your apartment. You can't just sell what everybody else sells, you need something different. And after that the product that you have that special or different or new and that people already need or want, it has to be competitively priced. If somebody could get the same or similar product at a lower price, or even the same price as you're selling it for, you're at a disadvantage, a special product at a competitive price.
Robert FitzPatrick 8:42
And then you need a profit margin. Now, this is something if you've not been in sales you might not think about or know about. But the margin we're speaking about here is the margin between what you buy the product for as a salesperson, and what you sell it for. That margin is what will cover all your time and costs and then leave enough to make your time and effort worthwhile. The profit margin in direct selling needs to be very high because the costs of selling and the time requirements are very high. They don't have to be high in a department store or a grocery store because the customers already come in and they're coming in and huge numbers and so on. But if you're going to the customer one at a time, you need a very large profit margin per sale to cover all your costs and all your time and to make it all worthwhile to you. You have the skills, you have the product, it's competitively priced, and there's a big enough margin for you to go out and spend that much time finding people now you need ways to find enough customers because a lot of prospecting is required to find enough customers who will buy over and over again from you. This might be done with advertising, your advertising. It might be done by just playing knocking on doors, social media promotions, staying in regular communications with each new customer. All of these will be involved in finding and keeping customers. So you need good ways, economical ways, efficient ways to find enough customers for you to sell enough product to make this worthwhile.
Robert FitzPatrick 10:34
Then you need some protection because you've now invested a lot you've bought product, you've cultivated customers, maybe you've leaned on friends and family to become your customers. You're putting in a lot of effort. You've committed yourself. You need protection because the customers you find you need to keep. This might involve a territory of your own, or a product that no other salesman like you has, so customers will come back to you. This protection requires an agreement with whomever you're buying your product from, your supplier, that guarantees restrictions on the number of salespeople, or granting you complete exclusivity in an area. That way, the money, the time that you invest will keep coming back to you. And then you need something that you may not see in business school. So you need something that is often called tough skin. Because, truth is, selling is going to involve a lot of rejections, even insults, or just being ignored. Beyond skills, there is a kind of personal ability and willingness that's needed to take rejections. Not everybody is set up for that. For every sale, there's going to be a lot of "NO"s. And if "NO"s are something that are particularly abhorrent to you, upsetting, that's going to be a problem for selling. So tough skin against rejections, insults, or just being ignored. Remember, as we said this is take home profit. This is you, in your home, on your own, by yourself, independent, with a product, selling one at a time. You need the ability to just do it. Day after day. Self initiative each day to do prospecting, selling, managing costs and products and promoting yourself. There's no boss, nobody's watching. Nobody cares. It's just you. You have no personal manager. There's no clock to punch. It's just you doing it day after day. That's a skill. That's an ability. Not everybody has it. It's an aptitude. And it's a requirement.
Robert FitzPatrick 10:34
So now we know a bit about what direct selling is. We know its definition. And we've got an idea of what's required for it to work. Let's go a little further about direct selling. What is it? How do people think about it? You're going to be a direct seller. What does that actually mean? You're not a teacher, you're not a lawyer. You're not a civil servant. You're a direct seller. How is that seen by other people? It does have a history. It's been around for a long time. And I think it's proper to say this that direct selling has always been understood as one of the toughest of jobs, on a personal level, for the reasons we just walked through. And financially, it is regarded as one of the most difficult to make money in, for the reasons we just walked through. The biggest obstacles are insecurity. You don't make a sale, you don't get paid. And the personal initiative requirement, it's all up to you. And then there are these costs. And they're often unknown as you begin. The cost to find customers, and then to maintain protection from competition. All of this goes into why direct selling has this reputation of being very tough, tough on the person and tough to make money on. I think it's also fair to say this, that those who knock on doors and personally try to get us to buy stuff are often depicted negatively. There aren't too many sales people heroes in literature, in plays. Think of descriptive terms. Like it looks like a salesperson making a pitch, the fake smile. That's the reputation. The work definitely requires special determination and independence, not to get discouraged by difficulties, by the high risk and the poor reputation.
Robert FitzPatrick 12:59
So there's some other things to look at too if you've received this invitation. Somebody telling you, "Don't you want to become a direct seller at this great opportunity." There is some history behind direct selling too. In the United States, it mostly disappeared when big box stores emerged and retail stores were everywhere. There was a time in the United States when many products were simply not available to everybody everywhere. So salespeople provided a tremendous service. They came to you with these various products. People used to buy from catalogs for the same reason. The store wasn't in their area. But now, big box stores are pretty much everywhere. And on top of that is online selling, you don't even have to get out of your house. And virtually anything you could ever want, comes right to you. That affects direct selling. Notice there are no door to door salespeople. Have you seen one lately? They used to be around? You don't see them now.
Robert FitzPatrick 15:10
And then the question that is again, a common sense question that many people when solicited or invited to multi-level marketing, don't think to ask. What products are still sold by direct selling. In other words, what products are best sold this way, as opposed to being in a big box store or online? Are there any, in the home, one on one? Which is what you're going to be doing as a direct seller. There are some: home improvements, for example, siding, roofing, solar energy, landscaping, these are often sold directly by the person doing it comes to you talks to you. And then there are a few financial products, insurance for examples. But this is often going online now as you see all these constant advertisements for insurance. Some of them are very funny on TV. You don't need a salesperson you're already sold, you can go online and sign up. And financial services, investment, stocks, often there's an agent that will come and talk to you. But even that you can do online, you don't really need salesperson for that either.
Robert FitzPatrick 17:36
One more thing, we should probably bring it up to date, what's the current status really of direct selling of the selling we've just described? You don't need data here, or special research on this question. These are common sense questions I would call them. Yet in the pitch that is often made for multilevel marketing, people don't ask them and don't think to ask them. Let's put a few of them out there that keep you engaged in in determining what's best for you here. When did you last buy something directly from a personal salesperson offering a product or service that you couldn't have gotten more easily in a store or online? In today's time, who has time anymore for personal sales, presentations, when the information needed is available online? Even YouTube? Can you get online to get a complete presentation offered to you or a demonstration on YouTube? So who has time for some to make an appointment and have someone come to you? How many people are even at home enough to listen to salespeople? How many people would let a person, a salesperson into their home these days, unless they already know them or even know them well. So you can see that direct selling has a reputation from a past era, that in today's time, where people are often not at home, don't really want to hear from a salesperson for a product they don't need them for, or if they are at home they just don't have time to dedicate to this.
Robert FitzPatrick 19:13
And perhaps another final factor might be this. We are inundated, all of us, with commercial messages day after day after day. Advertising. It starts when you're a child and never ends. Now someone invites you to become a direct salesperson and engage in direct selling. That's what you're going to be doing for money now. Not whatever else you're doing, or in addition to all that this is what you're going to be doing. And you might ask that question, "Who even wants to hear from salespeople today?" I mean, "Is this really a viable thing?" That's what all of these questions come down to? You need to know what direct selling is long before they get into how much money you can make, how wonderful the product is and so on, these basic questions, but maybe it would begin with who even wants to hear from salespeople these days, but that's what you would be invited to go and do.
Robert FitzPatrick 20:11
So we'll end with that. As an intro, it's enough for a person if they got this far, they would be so well armed to make a decision for themselves properly. If they didn't ask these questions, they might have gone forward either without information or with misinformation with an impression based on the past, or an impression that simply doesn't even exist and never existed. I hope this first session here can equip you to begin your thought process so that when these solicitations come in, or to some member of your family, you're ready to critically examine them and come up with the right answer for you.
Melissa Milner 20:57
If direct selling is so difficult and risky, and it requires rare personal attributes of self starting, persistence, communication skills, and ability to take rejection, plus management of time, accounting, and other business factors, and if it has been mostly replaced by stores, advertising, and online selling, why do millions of people sign up for multi-level marketing, which describes itself as direct selling? Is MLM direct selling or something else? If it's not direct selling, what is it? Robert will teach about this in our next episode?
Melissa Milner 21:37
Please remember to check us out on Twitter, Facebook, and Instagram @ponzinomics101 and check out our website www.ponzinomics.com. We hope you spread the word about this podcast because the best defense is awareness. Thanks for listening.