5 Reasons to Avoid Direct Sales or Multi-Level Marketing Companies for Residual Income - ToughNickel - Money
Updated date:

5 Reasons to Avoid Direct Sales or Multi-Level Marketing Companies for Residual Income

Cynthia is a business management professional with over 15 years experience. With a proven track record for exceeding sales goals.

Society was recently tossed into a chaotic pandemic resulting in job loss, lay offs and employees being furloughed. Many people are struggling with finances these days, and the pandemic only exacerbated the situation. The need to add residual or additional income to budgets has never been greater. Before you considering jumping in with a direct sales or multi-level marketing (MLM) company there are things you need to know. These are not going to provide you much if any income in the short term. Most also require out of pocket expenses for startup.

The notion that any direct sales or MLM company can provide any substantial income is overreaching. Before you make the decision to jump in with one of these company types to make some supplemental or residual income let’s look at what you need to know.

5-reasons-to-avoid-direct-sales-or-mlm-companies-for-residual-income

5 Reasons to Avoid Direct Sales or Multi-Level Marketing Companies for Residual Income

1. You must spend money to make money

2. To become profitable you must focus on building a down-line

3. Requires a large social following

4. It will pay less and take more time than a regular job

5. It can take years to become profitable or see a return on your investments

5-reasons-to-avoid-direct-sales-or-mlm-companies-for-residual-income

Spending Money to Make Money

In my younger years fresh out of high school I decided to give a few DS and MLM companies a go. I must admit the person who signed me up on their downline was an effective salesman. The pitch was perfect, it had me thinking I would be enjoying financial freedom in a short amount of time. Taking lavish vacations and rubbing elbows with high society.

So then came the all you need to do is buy the kit to get started. Still reeling from the pro con artist that sucked me into signing up. I purchased a kit of course, who wouldn’t after that sales pitch I was given. These kits will range you from $15 and upwards of hundreds of dollars. This is your kit to get started with the company. So, you have not sold anything, and have already come out of pocket for expenses for your new company.

So, I had the kit and started looking it over and guess what I was going to need to spend more money. A lot of promotional materials change with these companies and you keep having to shell out more funds to cover current materials. Many of these companies make little money off the actual sales of their products. They make more money of their private contractors and the samples, books and pamphlets they sell.

Do you like throwing out money on investments not knowing if it will ever return? I personal could think of many other ways I could put the money to good use to benefit my family.

5-reasons-to-avoid-direct-sales-or-mlm-companies-for-residual-income

Building a Down-Line

Building a down-line is where the money is. Why? Because you dupe people into drinking the Kool-Aid that is whatever business you have joined and get them signed up too. Shady I may add especially if you have figured out you were suckered into a non-profitable scheme but hey you can make money just get your friends signed right up!

Building a down-line is time consuming, and do you know 50 single mothers that want to sell whatever you decided to sell? It can be counterproductive. For example, you sign up single mom Sally as part of your down-line. Sally has the same friends you have, where is she going to be getting her clients from? That’s right the same ‘customer’ pool as you; your friends. The kicker is she needs sales too because you can sit back and make money off her sales as well. But you are now both pitching the same potential customers.

So, you built a down-line, you gain a percentage of commissions from their sales as well. But you must keep them motivated. In order to keep them motivated you must coach them, push them to excel and keep in contact with them daily while sharing information from the brand or company with them. Well I’ll be you just landed in a supervisory role at work. Only you won’t be getting the income normally associated with that added responsibility.

Think of building your down-line like hiring a bunch of high school kids. They often do not stick around very long and the same is true with sales. When building a down-line, you are looking for anyone who wants to join you. The problem is that not all people are cut out for work in sales. Constantly having to continue to build and add new additions to your down-line can be exhausting. For every one that joins three are likely deciding they made the wrong choice and leaving.

5-reasons-to-avoid-direct-sales-or-mlm-companies-for-residual-income

Social Following

Welcome to the digital age where shoppers are 80% more likely to buy something they have seen on social media. With low percentage on commissions your 300 Facebook friends just won’t supply you with enough sales to average any real additional income.

Now you realize you need a larger social following. Building a social following is not easy folks. I have been at it for years and while I have two large groups of over 20k members, maxed friends and an additional 2k+ followers on my personal profile and 5k following my fan page. It took years to get to that level. Why? Because I am like most people who consider starting with MLM or direct sales. An everyday person with no exceptional talents, I am not a comedian and I suck at video editing.

Now you could potentially use a follow for follow app or some other semi shady way of getting your following numbers up. Long run there is zero payoff in that. They are not followers who will every buy anything and often just ghost accounts. So now you will spend half the day everyday attempting to create engaging (non-product/sales) related posts on your Instagram and Facebook attempting to build a large following.

Congrats you just became a social media manager too! A full-time job on top of the other two jobs you now have associated with direct sales and MLM. First a salesman, second a supervisory and now you added social media manager. On top of being a full-time parent or holding a ‘real job’ how do you find the energy? In short, you don’t and you will never come close to being as profitable as you would be taking a single job in a position of that type.

Making Less Than a Real Job

At the end of the day you could be working part time at your Starbucks or fast food join and have more income in a faster time frame. Generally, commissions are paid monthly from many companies you can privately contract for under MLM or DS. At least with fast food or other retail positions you get a weekly or bi-weekly income. Generally, if in a supervisory position you will be paid accordingly for it too.

It may only be a minimum wage position for part time hours, but at least you get paid what you put in. With these company types you are never paid your worth. If you sit down and work out your hours invested against actual commissions once you deduct any overhead costs (kits/samples). You will likely find you don’t make near minimum wage for the time you put in.

So, you added much unneeded stress, already spent money and must wait on profits. And you may find that many companies have a payment threshold. Meaning you could have sales, and not receive commissions until they reach a certain amount. More time waiting on what you thought would be an easy way to make some side cash.

5-reasons-to-avoid-direct-sales-or-mlm-companies-for-residual-income

Seeing Any Real Profits Can Take Years

This adventure with direct sales was to add some needed cash flow or residual income to your household budget. To see any real profits coming in it can take years. Years, and you just needed to add some money to your budget as soon as possible. As mentioned, a side gig at a fast food joint will do that with little to no headache.

It can take years even assuming you are ready to commit to be a stellar down-line leader, to rock out engaging material for your social channels and build a following. You will need to invest so much time and effort into building up that you will work more than 40 hours a week trying to promote the products and mentor a down-line. Not only do you need to keep your sales flowing to be active, you need to help your down-line do so as well.

While there are a handful of extremely successful people working in MLM companies, you often find they switch companies often too. So, you can bank on whatever company you signed up with either going under, becoming less profitable or just fading into the background of the 500 others that exist.

Faster Ways to add Income

There are many other options for short term residual income. Instead of being sucked into what is often referred to as a legal pyramid scheme consider some alternate options.

  • Fast food
  • Retail
  • Freelancing
  • Lawn work
  • Selling items from around your house you no longer need

Whatever you decide to do will be more profitable and yield short term income increased rather than wasting time attempting to build a direct sales income. Even taking a part time job locally can add residual income in a short period. These days just about all of us have a lawnmower, you can cut grass as a side income.

Selling items from around the house that you no longer use is easy to do, and you maybe surprised at the value of some of your old items. Do comparison shops online and list your items. There are so many ways to add additional income that falling into an MLM company should not be one. All the items I listed are easy to do, and much less time consuming too.

If you want to be constantly making connections and attempting to build a bigger down-line. Investing insane amounts of time managing people and recruiting all day every day there are other companies you can do that for and make a decent income much faster.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2020 Cynthia Hoover