Building Your Business Becoming an Owner Is a Direct Sales or MLM Business Right for You? Direct Sales vs. MLM By Susan Ward Susan Ward Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses. learn about our editorial policies Updated on September 19, 2022 Fact checked by J.R. Duren In This Article View All In This Article Direct Sales vs. MLMs Most Direct Sellers and MLM Reps Don't Make Much Money You Have to Like Selling Direct Sales and MLM Advantages and Disadvantages Frequently Asked Questions (FAQs) Photo: Image (c) Steve Depenport / Getty Images Primerica. Amway. Herbalife. Scentsy. These well-known direct sales companies are extremely profitable. The four companies named above made more than $18 billion in 2021. But does that mean that becoming a direct seller for a company such as Amway or Scentsy is a good business for you to get into? And how can you tell the difference between a direct sales company and a multi-level marketing (MLM) company? Here’s what you need to know about direct sales and MLM so you can make an informed decision. Key Takeaways Direct sales companies generate revenue by its salespeople selling product.Multi-level marketing (MLM) companies generate revenue primarily by getting people to sign up for the business.Not every direct sales company is an MLM, but many are.Direct sellers make an average of less than $600 per year. Direct Sales vs. MLMs Direct sales describes the business model where independent contractors (or representatives or distributors) sell a company’s products or services directly to consumers. They might do this online or by having parties in their homes. There is no fixed retail location. MLM is a business model where independent contractors sell a company’s products or services directly to consumers, too. However, the key difference is that, in the MLM business model, the independent contractors also make money from recruiting others to work for the company. So, if you work for an MLM company, you make money from your sales but also from the sales of your recruits and the recruits of your recruits–your "downline." Many direct sales companies are generally considered MLM companies, including Amway and Primerica. Some MLMs May Be Pyramid Schemes That’s exactly why some unscrupulous fraudsters have latched onto the MLM business model and used it to create pyramid schemes. MLM is perfectly legal in both the U.S. and Canada but pyramid schemes are not. The core difference between MLMs and pyramid schemes is that MLM companies make money off selling products or services; pyramid schemes make money off you. In other words, the main focus of a pyramid scheme is to get you to put your money in and recruit others to do the same, rather than by selling products or services. If you are in any doubt that an MLM company you are interested in is a legitimate company or an illegal pyramid scam, ask these six questions: Are you required to "invest" a large amount of money up front to become a distributor?If you do have to pay for inventory, will the company buy back unsold inventory?Is there any mention of or attention paid to a market for the product or service?Is there more emphasis on recruitment than on selling the product or service? Is the plan designed so that you make more money by recruiting new members rather than through sales that you make yourself?Are you offered commissions for recruiting new members? Most Direct Sellers and MLM Reps Don't Make Much Money A common theme among direct sales and MLM companies is that their products can generate a desirable amount of income. However, the data shows something different. A 2018 study from AARP revealed that nearly half of those who participated in MLMs lose money, about a quarter broke even, and another quarter earned a profit. Of those who made a profit, around half made less than $5,000 and around 30% made between $5,000 and $9,999. And, according to data about the direct sales industry in 2021, there were 7.3 million direct sellers and $42.7 billion in direct sales, which is an average of less than $600 per seller. Note Not everyone who has signed on with a direct sales company as a contractor or consultant is actually doing it to make money. Some have become consultants just so they can buy the goods or services themselves at a discount. Internal consumption, as it’s called, is common in direct selling and MLM companies. Even extremely active sellers normally use what they’re selling. You Have to Like Selling Direct sales is not for the shy or introverted. You have to be willing to get out there both online and face-to-face. Many companies encourage Unless you are blessed with thousands of friends, you have to be the kind of person who is comfortable conversing with strangers. And you have to learn how to sell to them, which involves a lot more than texting a friend or posting on social media. Note Generally, your sales will take place person-to-person, at parties and events, or via recruiting others to join the company. Each of those selling strategies requires a different skill set. Direct Sales and MLM Advantages and Disadvantages Advantages Direct sales jobs have the typical work-from-home advantages. First, you don't have to open up a storefront to run your business. You can set your own hours and sell when you want, where you want, and to whom you want; you are your own boss. You get the benefit of face-to-face sales—you see the customers' reaction when they purchase and, in some cases, use the product or service you sell. Disadvantages Direct sales and MLM companies have several considerable disadvantages. First, the pay tends to be minimal for most people. Second, your business can impact your personal relationships, as many direct sales and MLM companies encourage you to pitch your product to your family and friends first. Finally, some companies may require you to pay for inventory or training upfront, so there may be some startup costs involved. The Bottom Line If you’re willing to do what needs to be done to actively sell products or services to people besides your friends, direct sales could be a good business opportunity for you. You'll work flexible hours and you can be your own boss, but you likely won't make much money and you may get caught up in an MLM. Frequently Asked Questions (FAQs) Should I do direct selling? The answer depends on your personality and work style. If you like being around people, don't mind carrying on small talk, are comfortable with selling face-to-face, and you're willing to deal with the risk of having up-and-down income or low income, direct selling could be a good fit. Can you make good money in direct sales? Unfortunatley, most direct sellers and MLM reps don't make much money. On average, direct sellers make less than $600 a year and half of MLM reps make less than $5,000 per year. Updated by J.R. Duren Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Direct Selling News. "Global 100 Lists." Federal Trade Commission. "Multi-Level Marketing Businesses and Pyramid Schemes." AARP. "AARP Study of Multilevel Marketing: Profiling Participants and Their Experiences in Direct Sales," Page 8. Direct Selling Association. "Direct Selling in the United States: 2021 Industry Overview." Federal Trade Commission. "Business Guidance Concerning Multi-Level Marketing." Hubspot. "How To Survive and Thrive in Direct Sales." Direct Selling Association. "What Is Direct Selling?" World Federation of Direct Selling Associations. "Benefits of Direct Selling."