Six Steps to getting started:
+ Identify a company or product that appeals
Experience suggests that to be successful in direct selling you need to choose a product or service you really love. Sales representatives who love their products are customer magnets, attracting others with sheer enthusiasm and commitment.
Once you have established your preferred product(s), go to a party or schedule an in-home demonstration. Can you imagine yourself doing it? Are you attracted to the company’s mission and message? If the answer to these questions is yes—well, congratulations! If you decide it’s not the one for you, all you’ve invested is a little time.
When choosing an organisation, it is also important to know if they are a member of the DSAA. These companies are committed to ethical business practices and consumer protection.
+ Ask the right questions
Before committing to an organisation, it is important to know:
What start-up investment is required?
One of the best things about direct selling is the low cost of entry; it is often less than $100 for your initial demonstration kit. These start-up costs are usually a small proportion of the actual cost of the kit, which makes it easy and inexpensive for new salespeople to join. Beware any organisation that has a high start-up cost; it may be a pyramid scheme and not a legitimate direct selling opportunity at all. Click here for more information on pyramid schemes.
Can I return unsold stock?
A legitimate direct selling company will have reasonable provisions for the return of unsold inventory and will discourage their salespeople from holding stock. A condition of DSAA membership is that direct selling organisations have a buy-back policy; usually specifying that if a salesperson leaves the business, the organisation will buy back unsold marketable products purchased in the 12 months prior at 90 percent of cost.
Think carefully about opportunities that require the purchase of large amounts of unreturnable inventory as a condition of entry. This is often referred to as “front end loading”. Reputable direct selling organisations do not have these requirements.
Are the company’s products sold to consumers?
Legitimate direct selling businesses make their earnings from sales, not recruitment. Direct selling, like other retail channels, depends on selling quality products at competitive prices. Be wary of businesses that claim you can get rich solely through recruiting new people into the business.
What training does the company offer?
A quality direct selling organisation will train its salespeople and help you get started.
What is the compensation or reward structure?
It is vital that you fully understand the bonuses, profits, commissions and other financial responsibilities of your preferred company. It may take a relatively short amount of time to begin earning supplemental income, but be aware it may be a while before you rely solely on this new income stream or achieve the high-profile rewards. In direct selling, financial success is driven by effort and activity.
Ignore promises of extraordinarily high earnings or guaranteed profits. It’s important to remember that, as in any business, financial success requires time and effort.
What are the organisation’s guarantees, warranties and return policies?
Take time to fully understand your company’s product guarantees, warranties and return policies; more importantly, make sure you feel comfortable that they are fair and reasonable.
What happens if you decide to leave the organisation?
There should not be any penalties if you leave the direct selling organisation. The DSAA Code of Practice requires that member companies allow its departing salespeople to return marketable products on reasonable commercial terms.
+ Investigate and verify all information
If it’s worth your money, it’s worth the time to fully investigate. The DSAA recommends that you:
- carefully read the organisation’s literature
- understand all requirements before signing anything
- don’t assume that documents are official, accurate or complete—check out anything that seems suspicious with the organisation or the DSAA
- verify the products or services that are actually being sold to consumers
- if it’s a party plan organisation, attend a party or demonstration to experience the role first-hand
+ Consult others with experience
Use all the resources at your disposal—including personal referrals and online technology—to find out what others have to say about the organisation. It can be a difficult process to separate the reputable information from negativity and vitriol, especially in online media, so it’s important to consider all material in context.
+ Take your time deciding
Choosing the right direct selling organisation is an important decision. It’s great to be enthusiastic about getting involved—this energy will drive your success in the industry—but it’s crucial that you take time to feel totally comfortable with your decision. If one organisation doesn’t seem like the right fit, explore other options. Don’t rush into anything and don’t be pressured by time-sensitive offers. Legitimate opportunities will not disappear overnight.
+ Identifying fraudulent or illegal schemes
Unfortunately, some unscrupulous people try to use the direct selling method to engage in unethical and illegal activity. There are several warning signs to look out for:
- the company is not a member of the DSAA
- pressure to sign a contract quickly
- pressure to pay a large sum of money before sales claims can be investigated or legal advice obtained
- promises of extraordinarily high or guaranteed profits
- claims that profits can be achieved easily
- a required initial fee which greatly exceeds the fair market value of any products, kits or training
- a large fee payable before you receive anything in return
- salesperson who is evasive about or unwilling to provide disclosure documents
The most typical fraudulent schemes are pyramid schemes and Ponzi schemes.
In a pyramid scheme, large numbers of people at the bottom of the pyramid pay money to a few people at the top. Each new participant pays for the chance to advance up the pyramid; in reality, each new level has less chance of recruiting others and a greater chance of losing money.
To identify a pyramid scheme, ask three questions:
How much is required to pay to become a distributor?
Pyramid schemes make nearly all of their profit on signing new recruits, therefore the cost to become a distributor is usually high. These high entry fees may even be disguised as the costs of training, computer services or inventory. A good way to tell a Pyramid scheme from a legitimate business opportunity is to compare the sign up costs to the value of inventory received.
Will the company buy back unsold stock?
If the company does not have a buy-back policy, be careful. Legitimate direct selling companies will usually buy back unsold products if you decide to quit the business. The DSAA Code of Practice requires that its member organisations will repurchase marketable product for at least 90% of your original cost.
Are the company’s products sold to consumers?
If the answer is no (or not many), stay away. Pyramid schemes are not concerned with the sale of product to consumers, rather their profits are made through new recruits. Inventory purchases should never be more than you can realistically expect to sell or use yourself.
Ponzi schemes, named after Italian immigrant Charles Ponzi, who defrauded thousands in the early 1900s, offer abnormally high short-term returns to entice new investors.
Several characteristics distinguish Ponzi schemes from pyramid schemes. Ponzi schemes:
- centre around a person who acts as a “hub”, interacting with all new participants directly
- often attract well-to-do investors on the claim of a revolutionary investment approach, insider connections, etc.
As an Incorporated Company
Most direct selling organisations will accept incorporated companies as independent agents or distributors. However, it must be remembered that when the “salesperson” is a company, it is difficult to properly recognise the achievements of that “salesperson”.
For this reason, most organisations will require that one person is nominated as the representative of the company. This person, not the company, will be recognised as the achiever at conferences, seminars and meetings. In addition, the nominated person will be responsible for the company’s activities and contractual obligations, including compliance with the DSAA Code of Practice.
In most cases, the direct selling organisation will require the names and details of all other members of the company, including directors and executives, and will require prompt notification of any changes to the staffing or administration of the company.
When considering a company structure for your direct selling business, it is important to be aware of the relevant compliance and taxation issues that may apply to the operation, including:
+ Corporation law
Once the company is incorporated, the members must appoint one or more directors, one of whom must be an Australian resident. The directors must appoint a company secretary and public officer; it is permissible for one person may act in all three roles. The director(s) is responsible for the company’s operations and its compliance with the corporation law.
+ Workers’ compensation
If a company is used to conduct a direct selling business, the company is required to establish a workers’ compensation policy with the relevant State or Territory government and pay the appropriate premium.
+ Occupational Health and Safety
As an employer, the company will be responsible for all aspects of workplace health and safety. If the business is conducted from a private home, that home will be the company’s place of business for purposes of the Act.
Under Commonwealth Superannuation law, the operating company is required to pay superannuation contributions (currently 9% of gross earnings) for each employee. These contributions are required to be paid quarterly to an approved superannuation fund.
+ Fringe Benefits Tax (FBT)
This tax is payable on non-cash benefits provided to employees, for example, cars and private-use telephones. Where fringe benefits are provided, an FBT return must be prepared each year and lodged with the Australian Taxation Office on or before 30 April. The FBT year, for tax purposes is 1 April to 31 March.
+ Pay as You Go tax (PAYG)
The company will be required to deduct tax from the earnings of its employees and remit the tax to the Australian Taxation Office quarterly with a completed Business Activity Statement (BAS).
+ Goods and Services Tax (GST)
The company will be required to obtain GST registration from the Australian Taxation Office when total gross revenue reaches $75,000 per annum. There are rules that set out how the $75,000 threshold is to be calculated.
+ Business Activity Statement (BAS)
Once registered for GST, the company will be required to lodge a quarterly Business Activity Statement with the Australian Taxation Office.
+ Australian Business Number (ABN)
Before commencing operation, the company must obtain an Australian Business Number from the Australian Taxation Office.