Get the SELL out of retail
If you have been involved in selling through retail outlets for any length of time, you will probably have experienced some challenges along the way. Let’s see if you can relate to the following story.
For many years I owned a very successful advertising agency. One day, a small manufacturing company approached us to help them market their new and improved product “that shall not be named”, via a national retail chain. At the time, the product type was all the rage and the famous brands were advertising like crazy. We agreed and the most unpleasant journey of my life began.
Getting listed was challenging and to say the big retail buyers were difficult would be an understatement. Before they would list our product, our client was forced to drop their pricing to well below that of the leading brands. They wanted a substantial listing fee and minimum guaranteed stock levels. There were additional monthly charges for eye-level shelf space, on-time payment and various other concessions. Their terms were a take-it-or-leave-it 90 days from invoice and the invoice was only accepted once the stock was on the shelf. This made the actual term closer to 120 days. To crown it all, our client was required to commit a considerable portion of their budget to a national above and below the line advertising campaign.
The product was distributed nationally, the advertising broke and the product flew off the shelf. Within two weeks, our client started to replenish stock. Within the first 6 weeks, the stock was replenished 6 times. Please keep in mind that the client had not yet received payment for the first order and was now financially exposed for 6 times the initial order value. And then the bubble burst…
The advertising campaign came to an end and our client no longer had the cashflow to extend it. The sales slowed to a trickle over the following month. As a result, the retailer decided to pull the plug. Our client was instructed to uplift all his stock and if this was not done, the retailer would dispose of the stock and recover the cost of the disposal from the outstanding invoices. To add insult to injury, the retailer leveraged our client's limited success to renegotiate a better price from the leading brand. Our client went under.
Some years later, I decided to manufacture and sell a product range for which I acquired the rights. As you can imagine, the retail option was not even on the radar. We decided to go the direct selling route and the picture was totally different.
Imagine a world where you control the value chain from manufacturer to retail sale. Where your staff is self-motivated and self-funding. A world where there is little to no price resistance and all sales take place on a cash upfront basis. Imagine being able to bootstrap your business and grow rapidly using your cashflow and reasonable supplier terms and turnaround times. This is not a pipe dream or magic. If you adopt a direct selling model then this could be your world.
Why Direct Sales?
There are so many misnomers when it comes to Direct Selling (also known as Network Marketing, MLM, Direct Selling and Partly Plan selling). If you ask 10 people you will get 10 different answers, even from people who are in the industry.
If you break it down to its most basic form, MLM is the ultimate micro business. A company makes a product or service available through a network of agents. These agents purchase the product at a discount and then resell it to a personal customer base at a profit. The profit margin normally ranges from 15% to 40% depending on volume.
The direct selling model is based on a traditional sales model. Typically, a company would set up a national manager, regional managers, team leaders and sales agents. The agents would be responsible for making the sales. The team leaders would recruit and train the agents, and the area managers would be responsible for motivating the team leaders. They would also be responsible for identifying and promoting agents to team leaders based on pre-defined criteria. The national manager would make sure that everyone hits their targets. The agents make a retail commission based on their personal sales. The team leaders earn commissions based on their agents' sales volume. The regional managers receive a commission based on the sales volume of the team leaders within their region and the national manager receives a commission based on the national sales volume. These structures are traditionally flat and wide with highly defined roles and limited opportunity to rise through the ranks. As there is only one national manager, the rank and file have no hope of achieving this position. This is risky as your entire business is vested with one national manager. To encourage growth and spread the risk, companies adopted the direct selling model to include a greater degree of opportunity. They called this version of direct selling Network Marketing, MLM or Multi-Level Marketing.
To encourage the recruitment of new agents, companies started offering commissions to their agents. Each agent could recruit any number of new agents and their agents could do the same. Each agent could earn a small commission from the sales of all the agents in the team below them. This created a network of sales agents and the term Network Marketing was born. These structures can become extremely complex and as a result, they cannot be run without powerful Network Marketing Management Software. Every promotion, commission, bonus, incentive and status change needs to be tracked in real-time. Without robust and scalable MLM management software there is no way of managing a Network Marketing Company.
Network Marketing Case Study
For the past 20 years, I have been dealing with large companies with massive budgets. These companies have been extremely successful, but I was sure that their success was more to do with the MLM marketing plan than their big budgets.
In June 2018 I was approached by two young South African men with very little money and a great product. They had tried marketing the product through the retail outlets in South Africa but had met with a great deal of resistance and little to no success. They asked for my help.
Over a few weeks, I helped them establish their Network Marketing Company. I set up their MLM Management Software, created a launch strategy and then stepped back to watch the fireworks. In July of 2018, they launched with one product and no agents. By January 2019 they had recruited 60,000 agents and generated almost R60M in turnover. WOW!
Call it Direct Selling, MLM, Multi-Level Marketing, MLM or even Party Plan selling. In all cases, it is a license to print money while setting a vast number of people financially free. If you are trying to market a product in the traditional way, you need to take a serious look at the Direct Selling Model. It will change your business forever.