In slow economy, entrepreneurs turn to direct sales

Jane Currin liked The Pampered Chef's kitchen products, but wasn't sure she wanted to sell them.

Maybe in "another season of life," Currin said.

In 2009, Currin hosted an in-home show for a consultant who sells the company's kitchen wares. But Currin declined the invitation to start a Pampered Chef business herself.

She changed her mind five days later after her husband lost his job.

"I called up my consultant friend and said, 'Tell me more,' " said Currin, now an independent director with The Pampered Chef.

Currin, who lives in Raleigh, N.C., is one of millions of entrepreneurs who have turned to direct sales as a way to start their own business.

About 15.6 million people are involved in direct selling in the U.S., according to the Direct Selling Association. In 2011, U.S. retail direct sales totaled about $29.87 billion, up from $28.56 billion in 2010, according to the association.

Also, more than half of direct sellers report net income. The median income for direct sellers is about $2,400 a year, and most people work less than 10 hours a week on their business, said Amy Robinson, the Direct Selling Association's chief marketing officer.

The median income for a direct seller working 40 or more hours a week is $34,130, according to the association.

Currin and others who sell merchandise such as kitchen products, skin care, jewelry and energy drinks praised the direct-sales process, which they say makes it easy to build a flexible, at-home small business by selling an established brand with an approachable sales infrastructure.

Direct selling is the sale of a consumer product or service marketed through independent representatives who are referred to as titles such as consultants or distributors, according to the Direct Selling Association. Sellers are not employees of the company they sell for; rather, they are considered independent contractors who market and sell the products or services of a company.

Direct sellers may direct or work with a team; however, each team member is generally considered an independent contractor - not an employee of a director.

Direct sellers should set goals and create a plan to accomplish them, Robinson said. Some sellers want to earn a full-time income or buy products at a discount, but most want a supplemental income, Robinson said.

Individuals make money by selling products, recruiting, training and motivating others.

Under a single-level compensation plan, which is offered by cosmetics company Mary Kay, distributors' return is based solely on sales, according to Direct Selling News.

Multi-level plans, used by companies such as Pampered Chef and Amway, offer compensation based on sales and a consultant's "downline," a group of people that a consultant brings into the company to generate sales and recruit others.

Some companies, such as Avon, offer single-level and multi-level plans.

Pampered Chef consultants earn a percentage of product sales. A consultant's cut starts at 20 percent, but increases based on sales and the number of people in their downline, Currin said.

Many people start their direct sales businesses by reaching out to friends and family and using those connections to meet new customers.

In 2011, 64.59 percent of direct sales were achieved by selling person-to-person, while about 30.9 percent were attributed to a party or group selling strategy, according to the Direct Selling Association.

Before getting started, newcomers should examine three things about the company that they are considering representing to ensure they are not entering a pyramid scheme, Robinson said.

Make sure the startup costs make sense in relationship to what the company provides. The median cost for a startup kit is $99, Robinson said, but that price varies, depending on the product. Also, individuals should make sure compensation is based on product sales and not solely on bringing others into the company. Finally, potential sellers should make sure that the company has a buy-back policy. The Direct Selling Association requires that its member companies include an option for consultants to sell products and materials purchased in the past year back to the company for at least 90 percent of the original cost.

Direct selling isn't a get-rich-quick scheme, Robinson and others said. Just as in any other business, success requires commitment and an effective plan to reach customers.

"You need to have a business plan, essentially just like you would if you are going to start a brick-and-mortar business," Robinson said.