Do you want to start a direct selling company? If YES, here is a complete guide to starting a direct selling business with NO money and no experience.
Okay, so we have provided you an in-depth sample direct selling business plan template. We also took it further by analyzing and drafting a sample direct selling marketing plan backed up by actionable guerrilla marketing ideas for direct selling agencies. In this article, we will be considering all the requirements for starting a direct selling business. So put on your entrepreneurial hat and let’s proceed.
Table of Content
- 1 Why Start a Direct Selling Business?
- 2 Starting a Direct Selling Business – Market Research and Feasibility Studies
- 3 Starting a Direct Selling Business – Legal Matters
- 4 Is Professional Certification Needed to Run a Direct Selling Business?
- 5 Starting a Direct Selling Business – Technical and Manpower Details
- 6 Starting a Direct Selling Business – The Marketing Plan
Why Start a Direct Selling Business?
If you are one who can talk persuasively to people in order to get them to do what you want, then you can start a direct selling business. There are several ways by which you can start your own direct selling business, you can either start from the scratch or sell for an existing company on your own terms; either way, you will be able to sell products to consumers. Before starting this business you will need to determine what products you intend to sell as the products you sell can have a very huge impact on how much revenue you generate for your business.
Just like with any other business, you would need to conduct a thorough research about the business you intend to start up. This is because while some products might sell easily in the market, others might need a whole lot of convincing before customers can be persuaded to buy them.
Also, because you won’t be able to totally focus on different products at the same time, it is best you choose a product or few products that you can easily get a quick turnover for. Carrying out a research will also help you determine how your competitors in the niches you intend going into are coping and how much they are able to sell the products to the target market.
Even though this is a business where you will be majorly selling products to interested customers, drafting a business plan is still essential if your intention is to start a business that will enable you generate the needed revenue that will grow and sustain your business.
Once you have known the target market for your products, it is important that you decide how best to market your products to them. For instance, if your products have to do with housekeeping or kitchen utensils, you might need to attend social clubs, tenants and homeowners associations in order to showcase what your products can do. Once you have been able to generate a certain amount of interest for your products, you can then make arrangements with your wholesale supplier to supply the intended amount that will enable you to meet the needs of your customers.
Starting a Direct Selling Business – A Complete Guide
- Industry Overview
The direct selling market is worth $41 billion annually in the United States of America even though there are no companies having a dominant market share in the industry. Between the periods of 2012 to 2017, the direct selling industry has grown at an annual average of 0.6 percent.
There are more than 700,000 direct selling companies in the United States of America employing nearly 800,000 people, which means that the industry is one with small unit businesses as most of the entrepreneurs in this industry work alone or employ one or two people to help. Only large scale direct selling companies can be said to employ more than the normal average in the industry.
Even though there has been an intense competition from other industries especially from department stores, mass merchandisers, and online retailers between the periods of 2012 to 2017, which has threatened to have a negative impact on the industry, the industry is still one that has continued to grow especially due to the growing stability of the economy.
The advantage the direct selling industry has over external industries includes the fact that operators in this industry have no physical locations. Also, the growth experienced in this industry is due to an increase in the confidence of consumers in the fact that they have more disposable income. With the growing economy, it is anticipated that the way consumers spend will continue to rise even to 2022.
The direct selling industry is one that has a low entry barrier for intending operators, and existing operators don’t have to deal with licensing requirements or high establishment costs; new entrants into this industry have to be aware of the intense competition in this industry and the awareness of the target market.
Most of the operators in this industry have small establishments that are individually owned but that are able to cater to the immediate and local community. Start-up costs for this business is extremely low as operators do not need to invest in technological equipment or sophisticated software.
Globally according to the World Federation of Direct Selling Associations (WFDSA), the revenue of this industry is valued at $180 billion. It is expected that the global market will grow and show potential strength in regions such as Latin America, India and China, with the markets in this regions according to Bloomberg expected to surpass that of the United States within a couple of years.
In the United States, direct selling establishments are about 20,000 and this number is inclusive of companies that are just in a single location and those that have multiple locations and the revenue generated in the United States stands at $36 billion according to the Direct Selling Association (DSA).
According to the World Federation of Direct Selling Associations (WFDSA), the sales volume that was generated in 2015 by member countries of the association as well as individual direct sellers amounted to 103 million. These figures excluded companies and individual direct sellers in China as there was no report from the country.
This sales volume represented a more than 7 percent growth for the industry globally especially against its previous years. The largest direct selling region as at 2015 was the Asia-pacific which had a 46 percent share followed by North and Latin America, Europe and finally Africa and the Middle East with a tiny 1 percent share.
The fastest growing region has been Europe which grew from 16 percent in 2011 to 19 percent in 2015, while the Asia-Pacific grew from 44 to 46 percent within the same time period. While these two regions have been increasing, North and Latin America have however been decreasing as it went from a 39 percent share of the market to 34 percent within the same time period.
The United States has however still retained its top position as it has annual sales of more than $36 billion, with China following closely behind with annual sales of $35.5 billion. The market growth rate in 2015 for the United States was 48 percent compared to that of China that was at 19 percent.
The top ten markets with their shares ranked in global volume are the United States with 20 percent, China with 19 percent, South Korea with 9 percent, Germany with 8 percent, Japan with 8 percent, Brazil with 5 percent, Mexico with 4 percent, France with 2 percent, Malaysia with 2 percent and the United Kingdom with 2 percent. Direct selling companies in the United States who lead in 2015 was Amway, which global sales stood at $9.5 billion. However, this was a 12 percent decline from what the company had in its previous year.
Starting a Direct Selling Business – Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographic composition of those that benefit from direct selling are numerous because direct selling can be in any industry from health, finance, home and garden supplies, beauty, educational and most other industries.
If you therefore are looking to restrict your demographics to just a certain group of people, you will be limiting your business and how much you can generate to grow and sustain your business.
List of Niche ideas Within the Direct Selling Business That You Can Specialize in
The direct selling business is where an entrepreneur retails a product and or service to an intended customer but away from a fixed physical location. Sales in this industry are usually done via work places, home parties, street corner carts, trucks, or door-to-door.
Now because of how varied the mode of selling in this industry can be, entrepreneurs going into this business and needing to stand out usually go into certain niches that have more target customers and will lead to a quick turn over. Before choosing a niche or several niches to go into, it is important that you conduct a thorough research about the business and use that to decide which niche would be best for your direct selling company.
Below are some of the niches you might need to consider when starting your direct selling business;
- Wellness and personal Care Products
- Home and Family Care Products
- Clothing and Accessories
- Leisure and Educational Products
- Other Products and Services
The Level of Competition in the Direct Selling Industry
The level of competition in the direct selling industry is both dependent and non-dependent on the location of the business because even though one can operate the business from any part of the world, those that are directly involved in selling the products and or services have to be physically present in order for the transaction to occur.
When it comes to the direct selling business, having representatives on ground in areas where there is a huge number of your target market is very necessary because what these kinds of customers are looking for is to be able to test the products that are being shown to them before making a decision on whether to buy the product or not. Therefore, regardless of the target market, you can still achieve excellent results especially if you get the right representatives.
The United States of America is the leading market in the world because of the number of entrepreneurs in this industry. Therefore if you are looking to start your direct selling business in the United States, you should be prepared to meet with stiff competition not just from the state you are operating in, but all over the country. Companies that have products in the popular categories such as wellness and beauty are often times determining the trends in the industry.
List of Well – Known Brands in the Direct Selling Industry
Even though the direct selling industry is a peculiar one, there are still brands that due to several factors are regarded as more popular than others. Some of the factors that make these brands more popular than others are their length of time in the industry, the category they are in, how they treat their representatives in terms of training and support and many other such factors.
Therefore, it is safe to say that some of the leading direct selling companies in the United States of America and even globally are;
- Culligan International
- Mary Kay
- Schwan Food
- World Ventures
- NHT Global
While this might seem like an industry that is solid with all the positives, it is not so as the increasing competition from department stores and even e-commerce has begun to threaten the industry. Also increasing competition from external industries has been a further threat to this industry. However, with the fact that the industry has appeal and is largely persistent due to the activities of the direct selling companies, it is likely to continue to expand.
The wellness category was the largest selling one in 2015 with a 34 percent share followed closely by the cosmetics category with a 32 percent share volume. Other categories such as household goods and durables as well as clothing and accessories accounted for 11 percent and 7 percent respectively.
Demand in this industry is driven by personal income as well as preferences of the consumer for the different products sold by companies in this industry. The profitability of individual companies is totally dependent on how its representatives sell the products to the public.
Large scale companies usually have an advantage over smaller companies in terms of training and support of its representatives in the field, while small scale companies usually compete by offering its target market popular products. The direct selling industry in the United States of America is largely fragmented as the 50 largest companies in the industry account for just 40 percent of the total industry revenue.
Starting Your Direct Selling Company from Scratch vs Buying a Franchise
Starting your business from the scratch or buying a franchise are choices you will need to make on your own as an entrepreneur and this is because whatever options you choose must align with the set goals and objectives of your business.
If you are buying a franchise, ensure that your franchise has the capabilities you need. You might need to conduct a research on several franchises before settling for the best, but while this might be so for most businesses, it isn’t for the direct selling business as there are no franchise in existence in this sector. What exists is either joining an existing company or starting totally from the scratch.
In starting from the scratch, there are many factors – marketing, accounting and managing- which you have to be mindful of as starting from the scratch can be pretty overwhelming especially if you are a newbie. Most entrepreneurs with no experience usually take certain courses that will allow them to be at least proficient in the basics of the business, while they hire someone with expertise to handle the major aspects.
If you have created a business plan for your business, then starting your business from the scratch might not be so overwhelming. Also, being in charge of your business from scratch means you are able to control all the aspects of the business and react proactively to trends in the market.
Possible Threats and Challenges You Will Face When Starting a Direct Selling Company
In every industry, there are always threats and challenges that crop up to operators already existing in the industry. Therefore, if you are looking to start a business in the direct selling industry, you should be prepared to face certain challenges and threats that will occur during the process of starting or running the business. While some of these threats and challenges can be controlled, some cannot be and you will therefore need to remain optimistic and hope for the best.
Some of the threats and challenges that you are likely to face when starting your direct selling business in the United States are economic downturn that would affect the purchasing power of your intended customers, government policies that might negatively affect the direct selling industry and your business, having to battle with already existing competitors as well as new entrants.
Starting a Direct Selling Business – Legal Matters
- Best legal entity to use for this type of business
When looking to start your direct selling business, you ought to consider the legal entity you would need to choose as what you choose will go a long way in determining how your business can grow and expand. Even though the direct selling business requires a one on one meeting with your potential customers, companies have been known to grow and operate in different states at once which wouldn’t have been possible if they have chosen the wrong legal entity for their business.
When choosing a legal entity for your business, there are several factors that you need to take into consideration as this will determine the level to which you can grow your business. Some of these factors are ease of setup and ownership as well as transferability, taxation structure, extent of liability and others.
Critically studying the pros and cons of each legal entity can be overwhelming which is why you need to consider engaging the services of a lawyer to help choose what legal entity would be most suitable for your direct selling business especially depending on the state you would be operating from.
In the United States of America, there are four basic legal entities that an entrepreneur can consider when starting out a direct selling business and they are; sole proprietorship, partnership, corporation and Limited Liability Company (LLC). The corporation can be split into the S Corporation and the C Corporation, and an entrepreneur going for either one will depend on the needs and requirements of the business at that particular point in time.
Catchy Business Name Ideas Suitable for a Direct Selling Company
Choosing a name for your direct selling business is very important as the name you choose must be one that is memorable, catchy, unique and easily pronounceable. You also must be very creative when picking a name and you must pick several names also so that if you try to register the business name and it has been picked, you will have several alternatives to choose from.
Therefore, if you are considering starting your own direct selling business, here are some catchy names that you can therefore choose from;
- Slavo Inc
- Chris Logan Ventures
- Triple Inc
- World Global
Having insurance no matter what kind of business you are into is very important for entrepreneurs that are looking to start their business in the United States of America. Insurance policies protect you from having to pay from your pocket should anything go wrong when you are running your business. It is important that you create a budget for your insurance policies and in order to do so, you must meet with an insurance agent or broker to help you in choosing the most appropriate insurance policies for your direct selling company.
Therefore, below are some of the basic insurance policies that you should consider purchasing if you are looking to start your own direct selling business in the United States of America;
- General Insurance
- Liability Insurance
- Workers’ Compensation Insurance
- Auto Insurance
- Health Insurance
- Business Owners’ Policy (BOP)
- Errors and Omission Insurance
- Payment Protection Insurance
Intellectual Property Protection/Trademark
The direct selling business is one where you would need to contact manufacturing supply companies in order to get products that you feel you will be able to sell in certain places such as their homes, at parties and certain events. Therefore, there is no intellectual property to be considered when starting or running this kind of business.
However, regardless of what kind of business it is, there are several aspects of the business that requires intellectual protection; such aspects are the company’s logo, slogan, website domain name and jingles or media production. Therefore, if you are looking to register your trademark, you will need to engage the services of a lawyer who would help you file an application with the United States Patent and Trademark Office (USPTO).
Is Professional Certification Needed to Run a Direct Selling Business?
The direct selling business is one that can be started by anyone who feels they have the skills required to persuade customers to buy the items that they are selling.
Therefore, if you are looking to start this business, you might take some certification courses in sales and marketing to brush up your skills but these are hardly considered by customers in this sector especially if you are trying to convince them to buy the product which you are selling.
List of Legal Documents You Need to Run a Direct Selling Company
It is very important that you have the necessary documentation in place if you are looking to start your own direct selling company in the United States of America as not having any sort of documentation is not only going to make your business illegal, it is also going to put you into trouble with the law. In fact, no business can run in the United States of America without proper documentation.
Therefore, some of the basic legal documents that you are expected to have if you intend running your direct selling business in the United States of America are;
- Certificate of Incorporation
- Operating Agreement
- Business License and Permit
- Seller’s Permit
- Business Plan
- Insurance Policy
- Employment Agreement
- Employer Identification Number (EIN)
- Contract Document
- Non-Disclosure Agreement
- Federal Tax Identification Number
Financing Your Direct Selling Company
Even though the direct selling business is not one that is capital intensive, it still requires finance to start the business and as an entrepreneur, you must be able to source for start-up capital that would grow and sustain your business; which is why having a business plan is very important because a business plan will help convince potential investors of how serious you are regarding the business, how they will get their invested capital with interest back and for how long.
Below are some of the options that you can explore if you intend to source for start-up capital for your direct selling company;
- Raising your start-up capital from sale of personal stocks and personal savings
- Sourcing for soft loans from family members and friends
- Raising money from business partners
- Applying for loan from the bank
- Souring for start-up capital from private investors
Choosing a Suitable Location for your Direct Selling Business
The direct selling business is one that requires you to meet physically with your intended clients in order to demonstrate the products and services you are offering and then get them interested enough to buy. Due to this, most operators in this industry do not usually consider it very necessary to think of where they would like to locate their business as most often operate their business from home.
If you are looking to run your direct selling business from home, you would be saving on a whole lot of overhead and certain running expenses especially if you are starting off on a small scale and you are the only one running the business.
However, you should ensure that your home is within or not very far from your target market so that you do not have to commute long distances lugging different products all the time. If the category of products you intend selling will require you to go very far from your home all the time, then you might need to consider renting an office or facility for your business.
If you are willing to rent or lease a facility, you must ensure that the facility is very conspicuous and not in a hidden location so that customers that are looking to make enquiries or wholesale suppliers looking to make a contact might be able to locate you.
You must have a considerable budget at hand for the facility you intend to lease or rent and if you aren’t sure of what area to lease a facility at, consider engaging the services of a real estate agent.
Starting a Direct Selling Business – Technical and Manpower Details
When starting a direct selling company, you must have the persuasive skills and charming personality that is needed to convince your intended clients to buy your products. This business is not one that requires any complex skills or technical ability, if you however do not have the basic skills needed, you will not succeed in the business as you will not be able to convince your intended customers to buy from you.
Some of the popular categories in this industry are wellness, beauty and household products. Wellness has particularly received more attention due to the fact that there are more people looking for products that would them healthier without necessarily having to go to the hospital.
There really isn’t any major equipment you would require to run this business successfully. However, some of the equipment that you would require to successfully run your direct selling company are; vehicle, Point of Sale (POS) machine, phone, computer and printer.
If you are going to be running a large direct selling company then you would require employing people to help you and those you would need are; Chief Executive Officer (CEO), office manager, marketing and sales representatives, front desk officer and accountant.
From the above break down, you will need at least 7 key people to be able to run your direct selling business successfully.
The Service Delivery Process of a Direct Selling Company
The service delivery process involved in a direct selling company starts when the entrepreneur contacts a wholesale supplier in its interested niche and requests for a product sample in order to market and see how many people would request to buy the product.
Once the sample has been sent, the entrepreneur attends home parties or goes from door to door to get potential customers to commit to buying the product. This usually requires the entrepreneur to be quite persuasive. Once the customer has shown interest in the product, the entrepreneur can then proceed to sell the product or order the product for the customer.
Starting a Direct Selling Business – The Marketing Plan
- Marketing ideas and strategies
Marketing is a form of pushing a product or service into the awareness of a target market in the hope that the awareness is able to convert to sales which will mean revenue for the company. Therefore, marketing can be regarded as a double edged sword where a company not only generates revenue but also indirectly promotes the business.
If you choose a category that is very popular and in high demand, it will not be too hard to carry out marketing except if it is in a category that isn’t too popular.
Even though qualifications are not required to successfully market your products in this industry, experience is needed and so you might need to look at how your competitors are able to get the attention of the target market, so that you can know what means will be more effective in marketing the products in your direct selling business.
You can engage the services of a marketing consultant to help you with marketing strategies that will help boost the chances of your company and allow you have a fair share of the market. Below are some of the platforms that you can utilize in order to market your direct selling business;
- Ensure that you distribute handbills and paste fliers in strategic locations
- Install flexi banners in strategic locations
- Pass out your business cards in gatherings and strategic places
- Engage your marketing and sales executives to physically meet with your intended clients
- Tell your satisfied customers to help spread the word about your business
- Use social media platforms such as Facebook, Twitter, Instagram and Snapchat to market your business
Possible Competitive Strategies for Winning your Competitors in the Direct Selling Industry
There are more than 700,000 direct selling companies in the United States of America which makes the industry one that is intensely competitive. Therefore, in order for you to survive and grow in this industry, you must have innovative and unique strategies that will enable you to not only stand out but to also outsmart your competitors in the industry.
Because this industry does not require technology or any huge equipment, operators have to rely basically on their skills in order to survive. Therefore, ensure that you get representatives that are passionate about the niche you are in and the products you intend to get from your wholesale suppliers so that you can compete against your competitors and get quick turnovers
Strategies to Boost Your Direct Selling Business Brand Awareness and Create Your Corporate Identity
Whilst starting your direct selling company, you must be deliberate about boosting the awareness of your brand and creating a corporate identity for your business. Publicity is very important for a business as this is how you can not only get people to be aware of your business but to also patronize you as well.
If your intentions are therefore to become a brand that everyone in the whole country and even abroad knows about, then you must engage in promoting your brand and also creating a corporate identity for your business. There are several strategies which you can deploy to boost the awareness for your brand and the internet has made it very easy and cheap for entrepreneurs to promote and publicize their brand.
Below therefore are some of the platforms you can leverage on to boost your brand and also create a corporate identity for your business;
- Create a website and use this to vigorously promote your business by employing strategies that would bring traffic to your site
- Use social media platforms such as Facebook, Twitter, Snapchat and Instagram to promote and publicize your business
- Pass out handbills and paste fliers in strategic locations
- Put a brochure of your products in the mailbox of your intending clients
- Ensure that you pace adverts about your products in local newspapers and magazines as well as on radio and television stations
- Ensure that you brand your official car and ensure that your representatives wear branded shirts or caps whenever they are out on the field