Deadly Financial Mistakes in Direct Sales
We’ve all heard that you need to spend money to make money. That is true. If you plan to start a direct sales business and don’t have the financial investment to purchase a starter kit, along with a few necessities to get started, then operating a profitable business will be an uphill climb if not impossible.
They key is to balance income with expenses.
What often happens in direct sales is that for the independent consultants who are unable to balance their income/expense ratio, they end up quitting “because I’m spending more than I am making.” I sometimes get emails from team members telling me they are quitting “because they can’t afford to keep their business.” This is such a backwards mentality.
People join direct sales to make money (among a host of other reasons), not to lose money. They should be enjoying an income; and it shouldn’t cost them financially to stay in business. If they need money, then that’s all the more reason to work their business, as it’s a wonderful source of income already at their disposal.
Common financial mistakes that can be terminal to a direct sales business:
- Huge investment of inventory up front. Most starter kits should contain all you need to start a business. Sure you’ll need to invest more as you go along to grow and maintain a business. For starters, use what came in your kit. Then use a portion of your pay check to reinvest back into your business to purchase additional stock, marketing collateral or display items. Many direct sales companies also allow the consultant to also be the host to take advantage of the host rewards. This is a cost effective method to grow your inventory.
- Giving away the farm. Newer consultants are sometimes dismayed when they announce their grand opening and then the orders don’t come as abundantly as envisioned. Instead of keep on keeping on and working their business with a system that has been proven to work, they want to take the express elevator to the top. What I mean is they start issuing bribes to get recruits and hosts. Join my team and I will give you xyz. Host a party with me and in addition to the corporate host rewards, I’ll give you an extra [product]. Those are all items that come out of their profit margins. Any profits earned at the party or event will/can be eaten up in the extra giveaways the consultant had to fund out of her own pocket.
- Expensive samples. I’m all for samples. People love freebies and they love to experience products with their senses. However, a sample is defined as “A small part or quantity intended to show what the whole is like.” A small part, just a smidge, just a taste, just a sniff, just a dab. I sometimes see adorably crafted, and oft times large samples, that a consultant invested a large chunk of her time and finances to create these little beauties. When I ask how much each do-dad costs, generally the consultant has no idea. When she really sits down to calculate, she learns it’s a couple dollars each and she’s handing out a multitude. How much retail does she now need to sell just to break even?
- Undercharging. Selling at a discount or not charging shipping or taxes on products may be a nice perk for preferred customers but it can’t be a mainstay of the direct sales business if profits are to be maintained. Taxes are required by law to be collected; someone needs to pay them, if not the customer then the consultant eats it. Hopefully the consultant has selected wisely which company she represents and is confident the products offered are good quality and a good value. If not, why join that company? If so, then why cheapen the product by not charging retail price? If it’s worth it; customers will pay.
- Failure to grasp profit vs. cost vs. revenue. Not too long ago I overheard a consultant at the end of a vendor event announce that she “made $400″. What she did was SELL $400. She didn’t make/earn that. The consultant needed to factor in the cost of goods sold. If she sold a widget for $10, then based on an average direct sales commission of 25%, the consultant earned $2.50 on the sale of that item. If she sold $400 at the event, she earned 25% off that, or $100 (not $400). Out of that $100 profit, she has to deduct expenses such as booth fee, cost of samples, catalogs, order forms, business cards, and display items she may have needed to purchase, table cloth and such. Did she have parking fees associated with attending the event? What about gas to drive there? Lunch? Babysitter? Suddenly that $100 doesn’t go very far. She may have actually lost money at that event.
Many people enjoy direct sales because of all the perks – fun business, freedom to work around your schedule, plus the social aspect of partying for a living. Yet the accounting aspect of business ownership can be boring and less exciting to some. To me, earning money and maximizing profits IS fun and exciting because it gives me the opportunity to engage in other activities that are fun.
If you want to earn money in direct sales it is absolutely possible. Many of us are doing just that. If the finances completely overwhelm you, seek help. Ask your sponsor; spend time in the training center in your workstation; read your training guides; ask an accountant; ask anyone. It’s too important not to have a good grasp of how you make your money.
See you at the top!
About the Author: Laurie Ayers is a Michigan work from home mom and a Superstar Director with Scentsy Wickless Candles. She enjoys helping men and women start and maintain a home based business in the US, Canada, Mexico, Puerto Rico, Germany, Ireland, Spain, Poland, France, Austria, UK and Australia. To download a FREE Start Up Guide which provides more details about how to start a home business as well as to learn about our compensation plan go to http://www.thrivingcandlebusiness.com/how-to-start-a-candle-business/