How much does it take to run a direct selling company?

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A lot….. it takes a lot to run a direct selling company.

I remember when I first came into the direct selling industry, as an outsider, I wondered “how hard can it be?”

You have your products on a website, people get commissions for selling the products, you ship it, all good. As the CEO of a fast-growing, directing selling startup, I quickly realized there is much more to it. 

My first Direct Selling company did $14M in revenue in its first full year of operation.

We made a lot of mistakes during this period, but fortunately, got enough right to continue to grow and do over $33M in revenue in our 2nd year.

Since this early experience I have gone on to start and manage multiple direct selling companies. This article will attempt to distill down my key operational principles for Direct Selling or Affiliate Plus companies.

Before we do that, it’s important for me to share one overriding lesson we learned that has evolved into my guiding operational principle, virtualization. 

My recommendations are made with preference provided to outsourcing and virtual resources, with the desired end result a variable cost run organization. Built properly, these organizations can scale far north of $100M per year in revenue. As an example, look at Le-vel, who in their 3rd year did $450M in revenue as a completely virtual direct selling company.

Virtual companies can scale up faster than anything we can build in house, and as important, can scale down just as fast to keep the business profitable in rocky times. 

Here are some baseline monthly costs you probably will need to account for. Your mileage may vary:

Website Design and cut up

Imagine having an amazing restaurant concept with food that customers will love, as long as they try it. But, in your quest to open this restaurant, you ran low on capital and had to cut corners on the location and ambiance. Commissioning a poor website design, will have the same effect on your direct selling business. 

If you have nothing today, you will need a logo, website design and HTML cut up which takes the artistic design and turns it into a functional website. 

Budget $15k for logo design, web design and cut up. Once up and running though, you should only have to invest about $500-$1,000 per month to maintain and keep current. 

Direct Selling Software

When launching a direct selling company, you will need to select a back-end software platform that runs commissions, merchant processing, affiliate payments and quite a bit more. In fact, the business generally is dependent on this system to function properly. 

There are a number of reputable vendors in the marketplace that can customize a solution to your business. It’s really important to create a scope of work and to clearly understand expectations early.

Once live, the platforms will either charge a per distributor/affiliate fee or a per transaction fee. It gets expensive fast, but not to worry, you can pass those costs on to your field in the form of a back office or monthly tool fees. 

Cutting edge technology helps you to stay ahead of competition. 

Budget $2.5k-$3k per month early on. This number scales up as you grow so it’s important to negotiate a cap with your provider. Most providers will negotiate a $15-25k monthly cap with you if you’re willing to invest in the partnership. 

Customer service

In the past, we built contact centers with agents in our buildings to answer calls from customers and distributors. It’s long been believed that this live interaction is required as a part of our complex, person-to-person business. But, that’s no longer true. It is completely acceptable today to use email or contact forms for customer service. As long as you make it clean, easy and super responsive, all parties involved will be happier.

Because its email only, you can now hire stay at home moms to login on their off hours to handle customer emails. A customer service agent, who gets to put her children down to sleep for the night, then logs on to work on customer emails for an hour or two is a happy agent. That happiness leads to better empathy towards the customer. 

Other benefits include having extended customer service hours, broader pool of talent to draw upon and records of conversations.

Budget $4-6K per month. Start with the manager and one rep and grow from there. 

Content Strategy and Digital Marketing

Its critical to invest aggressively in creating unique, engaging content that engages the audiences and connects them to your brand. 40% off sales postings in their Facebook feed every day will not get it done. 

Start with the story of the company and build off of that.

What is it about your companies’ mission or your founders’ background that moves the tribe?

From there connect the audience to fresh content that is related to your mission and can either be re-used or incorporated into the affiliate’s message. 

A sound content strategy supports people on both sides of your product:

Those who are still figuring out what their main challenges are, and those who are already using your product to overcome these challenges. Your content reinforces the solution(s) you’re offering and makes your customers more qualified users of your product.

Budget $5k per month for content creation and to promote your content. Commit to an intro video and four unique social post per week. 

Legal

We don’t give legal advice other than you should set aside a budget to hire good lawyers to give you legal advice.

For the Direct Selling startup, you need basic business legal support and possibly, direct selling specific legal advice from firms such as www.mlmlegal.com

Budget $500-$1000 to get your basic corporate structure done. If you need more complex documents such as operating agreements or buy/sell agreements your costs will go up. 

Budget $5-25k or more if your compensation plan or product offering requires it. 

Inventory

Only you can forecast your inventory costs. Ideally you have at least three months inventory with heavier investments made on the fast movers. This is usually the biggest budget item and hardest to get right. 

I recommend to error on the side of under buying whenever possible.

You can always turn off sign ups and slow the business down while your manufacturers try to catch up. Every time we have done this it has only acted to drive more interest and excitement when we eventually turned signups back on. 

For the small startup, this budget number usually is between $20-50k. For the larger brand with an existing base transitioning to Direct Selling, the budget number is likely much more. 

Accounting

One of the most exciting things in business is……not……accounting. Because of this, it’s smart to invest in some helping hands and software to keep it all together. 

Marketing and accounting must work closely so that management can see where the marketing campaigns are successful. Another reason marketing and accounting work closely together is to prepare budgets for future expenditures in the fields of marketing, advertising and supply chain. 

Budget $1k per month

Other Salaries

Salaries are another budget item that’s difficult to forecast because each direct selling company has different needs and selling strategies.

I ask the founders or equity partners to either work on sweat equity or with very little pay. This keeps everyone hungry and focused, and it keeps our capital in the bank, available for us to invest.

Once the business begins to cash flow, we quickly pivot to paying those most instrumental in our success from the revenues of the brand. 

Budget $5-10k per month with an expectation to make changes fast. 

The idea of owning your own company is brilliant – you can start one with relatively little capital compared to traditional enterprise;  it will be built on the relationships you make with your affiliates or distributors who do all the selling for you; and you get to benefit from them building your brand!

While there are literally thousands of things that you must do to set up and start a direct sales company that does not mean you need to have everything in place before you get started.

Brian Palmer
ThinkboxHQ CEO
https://thinkboxhq.com