You may have noticed an increase in the number of your friends, family, colleagues, and neighbors selling a variety of products or services on your social media over the last five years. Newer companies such as Rodan & Fields, Thirty-One, Stella & Dot, CAbi, Jamberry, LuLaRoe, and Beach Body have joined the longer-standing companies such as Arbonne, Avon, Mary Kay, Herbalife, Amway, and Tupperware. According to research from the Direct Selling Association, the number of people involved in direct selling has increased from 15.6 million in 2011 to 20.5 million in 2016, a record number. The industry is growing because of social media and the low costs of entry, which have made joining direct sales companies easier than ever before.
When our clients ask us about the financial pros and cons of direct selling, we suggest turning to the facts. Here are a few statistics:
- U.S. Retail sales is $35.54 billion, with wellness products topping the charts in category sales. (Source)
- Of the 20.5 million people involved in direct selling in 2016, 4% are full-time, 22% are part-time, and 74% are simply “discount customers” (only became a consultant for access to a personal discount). (Source)
- In 2016, 74% of the people involved were female, and 26% were male. (Source)
- In 2016, 72% of the people involved were selling “person-to-person”, 21% were selling by the “party plan”, and 7% comprise the “other” selling category. (Source)
- In a survey of 33 tax preparers who filed 14,400 tax returns collectively in 2002, zero tax returns showed a profit from a direct selling company. (Source)
- The odds of winning a hand playing blackjack is 42.42%, versus the odds of profiting from a typical direct selling company is less than 1%. (Source & Source)
- An average of 99.7% of people involved in direct selling lose money. (Source)
- An estimated 90% of direct selling participants have quit their business after 5 years, and 95% after 10 years. In comparison, 50% of small businesses have failed after 5 years, and 64% have failed after 10 years. This is one of the reasons why direct selling participants don’t qualify for SBA loans. (Source)
If you are considering participating in a direct sales business opportunity, the Federal Trade Commission offers a guide for evaluating the proposed opportunity. Finding out as much information as possible will help you make an educated decision before jumping in.