Is Your Direct Sales Company Stable or At-Risk?
Direct sales and network marketing are great business models if you have a go-getter spirit, and want to be able to sell products without the company overhead or infrastructure.
However, that also means that company changes can be quickly announced that affect your ability to sell, sponsor, or earn on your personal sales or team. And unfortunately in direct sales this means that independent consultants are often told after decisions have already been made and have no recourse.
Is Your Direct Sales Company Stable or At-Risk?
Let's explore different signs to help you “read the tea leaves” of whether your company is stable, or at-risk of a future announcement that may affect your income, and what you can do about it.
Signs of Positive Change
- Company is investing in new technology and executive leadership. This is often a good sign, as it indicates a capital investment into the company. This could include new back office systems, selling systems, or mobile app rollout.
- Company invests in field training that aligns with market trends. In 2020 and 2021, this includes shifting to online sales delivery, focusing on online parties, and encouraging consultants to adopt new social marketing strategies to stay competitive in the new online landscape where consumers are shopping primarily online.
- Company announces major partnerships or collaborations with established brands. This is a great sign of company stability, as paying for licensing and brand agreements will typically require a multi-year investment, and any brand would do substantial due diligence before making such a collaboration with a direct sales company.
Signs to Watch For
- Company changes compensation structure and eliminates (or significantly decreases) leader bonuses. This could go either way. The company could be competitively shifting to a selling market, and reducing their cost overhead. On the other hand, it could also be a sign of a cash flow issue, and they need to reduce overhead expense to shore up financial stability.
- Significant and frequent executive or corporate leadership turnover. This is a sign that the company hasn't found stability in leadership and strategy, and hasn't committed to a go-forward strategy. Bringing in new leadership is a good strategy to bring in new vision and ideas, but frequent turnover is a sign that executive leadership isn't open to implementing those new ideas.
- Low dollar join incentives. A low dollar join incentive often encourages kitnappers and discounters. And while I am a fan of never discounting your kitnappers (they may turn into super stars – I was a kitnapper!), this can also be a risk point. The company could be trying to bring in a substantial volume of new joins to position themselves more favorably to be acquired.
Signs of Risk
- Company changes to an affiliate-only model. This is a hard shift for direct sales consultants. While an affiliate-only model works well in the e-commerce space, direct sellers aren't typically affiliates. Meaning, they don't often have strong social audiences or funnels, and without proper transition training, many companies who shifted to affiliate-only eventually struggled or closed.
- Company eliminates their convention or incentive trip, OR few people have earned an incentive trip. This is a major warning sign, and should be an alarm bell to all consultants as it's typically indicative of lack of cash flow to cover the trip for all earners.
- Company is delayed in paying commission. Likely a cash flow issue, regardless of what excuses they share.
- Aging companies, fields, and lack of sponsoring growth. If a company has had a long tenure and consultants have had primarily in-person businesses, the pivot online can be difficult. This is both because learning the social marketing aspects are new and challenging, but also because consultants who have had primarily in-person businesses through parties and events don't likely have strong or large social followings. If the company isn't focused on either training the current field, or bringing in new social sellers that are focused in the online space, this is a sign that the company simply won't be sustainable in the new market landscape.
Direct sellers put a lot of hope and financial risk into their chosen company. And too often, companies make financial decisions that leave direct sellers cleaning up the pieces of their businesses. My goals with this article are to show some signs to watch for so you can be ahead of any company changes that will directly affect your income or livelihood.
As always, look to diversify your risk and protect yourself. I believe in the direct sales business model. But more importantly, I believe in protecting YOU and never want you to be caught unprepared, when there may have been signs that a major change announcement was coming.
And if those changes come, you can read up on what to do when your direct sales company closes or changes here.