There are two predominant ways to launch a direct selling company:
- The Traditional Approach
- The Lean Approach
Traditional Approach: A heavy investment $400,000 – $1,000,000
When you launch a direct selling company with this approach, it’s common to invest serious amounts of money into your new company to build out the entire operation.
Here are some areas where the money gets spent:
- Setting up the company.
- Forming the corporation.
- Paying for inventory.
- Independent distributors.
- Web development.
If you’ve never launched a direct selling company, you quickly learned that you needed dedicated distributors, experts who can write a compensation plan, and legal advice you can trust.
Launching a direct selling company requires unique contracts that allow you to stay in compliance with the local and state authorities.
Company structure. You need a place where your employees will work. Equipment for handling orders. Desks, and more.
Can you see how a million dollars quickly evaporates?
– Full Line of Products
Companies who launch with the traditional approach tend to go too deep on their line of products.
A new company might want to launch with a full line for weight loss:
One meal replacement shake with three flavors. Three SKU’s.
- Protein bottle. One SKU.
- Product for burning fat. Three SKU’s, 30, 60 and 90 capsules.
- Product for hunger control. One SKU.
- Product for hydration. Two SKU’s. One as a stick-pack for on the go and one as bottle.
- Tumblers with the company logo.
- Towels with the company logo.
I can continue but let’s pause and run some numbers.
So far you have 12 SKU’s. An SKU (Stock Keeping Unit) is a number you assign to each individual product for inventory and management purposes. For example, product for burning fat, the one with 30 capsules has a unique SKU, the one with 60 capsules has its own SKU. Why am I sharing this? Because if you’re planning to launch a direct selling company you should start getting familiar with the terminology.
12 SKU’s doesn’t seem like a lot, so let’s look at some numbers.
Suppose a manufacturer has an MOQ (Minimum Order Quantity) per product of 2,500.
2,500 x 3 shake flavors= 7,500 units.
2,500 x 1 protein bottle= 2,500 units
2,500 x 3 SKU’s for burning fat product= 7,500 units
2,500 x 1 hunger control= 2,500 units
2,500 x 2 SKU’s hydration product = 5,000
I will omit the tumbler and towels because that’s a different beast when ordering inventory.
So far, we have a total product inventory of 25,000 units. It’s not uncommon to see this. Here’s why: To get a favorable price, new direct selling companies choose to go with higher unit orders. If you choose a custom formula or blend, those minimums go even higher.
– Established Corporate Team, around 10 people
With the traditional approach, companies want to follow an established organization chart.
VP of Operations
– Director of Operations
– Director of Product Development
VP of Marketing
– Director of Brand
VP of Accounting
– Director of Accounts
VP of Sales
– Account executive
– Account executive
VP of IT
– Junior Developer
I haven’t finished adding all the team members and you can already see how big the payroll of this type of company can get.
– Complete Support Team 4-10 full time
Here you have employees who will answer the calls from customers and distributors. Who will take orders, help them set up their accounts and anything related to making your clients and distributors happy.
Also, you have employees who will be doing very intense labor, such as sending products, kitting business kits and more if you keep those functions in house.
With the traditional approach, you have around 4-10 people working full time.
– Top of the line compensation plan engine $80,000 – $100,000 investment
You can’t launch a direct selling company without compensation plan engine. This is necessary to run and calculate commissions in all the plan’s levels.
There are only a few providers in the industry who can do this right.
When a new direct selling owner starts looking for providers, they start to stack every possible feature such as:
– A compensation plan to run in multiple countries.
– Multiple options to pay distributors (checks, internal wallet, direct deposit).
– Backoffice translated into 2-5 languages.
And the list keeps growing.
– Compensation plan with all the bells and whistles
A compensation plan has to be created by an expert and tested in every possible scenario for all the different ranks available in the compensation plan.
A traditional approach to launch a direct selling company is to create a compensation plan as if the plan were already mature.
This type of plan offers multiple ways to get paid commissions, 8-20 different ways if I’m trying to be specific. Because of the complexity, it requires arduous testing and a heavy investment to make it come to life.
– Time to launch 8-24 months
We haven’t even discussed the marketing strategy, all the marketing literature that needs to be created and translated.
If you’ve read up to here, you know why it’s possible to invest hundreds of thousands and 1-2 years just to get launched.
Even though some billion dollar companies have launched with this approach, we find it’s better in the current environment to reduce the time to market and the investment required to do it. We created a lean approach and we’ve executed it successfully multiple times. Here’s how it works.
The Lean Approach
Only the essential, only the necessary to launch in 3-6 months with a minimal investment of $150,000 to a maximum of $250,000
-Moderate investment $150,000 to $250,000
We remove unnecessary steps or resources from product development, to the corporate and support team.
Our investment dollars go into resources we can track.
-A compressed line of products
Our focus is to pick products that complement each other and can be used as a regime.
If a direct selling company wants to launch with 12 SKU’s with the traditional approach, we focus on removing the products that don’t fit. For example, instead of launching with a shake with three different flavors, strawberry, chocolate, vanilla, pick one, the one we believe to be the most popular.
In this case, we’ll choose vanilla. Now we only have to purchase 2,500 units of the shake.
We chose vanilla, not because we liked it best, but because it’s a neutral flavor. The customer can add strawberries or chocolate and get the flavor they desired.
For a second product, we select the capsules for burning fat. Instead of launching with three SKU’s, 30, 60 and 90 capsules, we picked one SKU, the one with 30 capsules. Here’s why.
– You can build a kit with two bottles of 30 and you have 60 capsules or 3 bottles and you have 90 capsules. One product gives you the same results.
– It’s an accessible product for getting new customers. Let’s say 30 capsules cost $30 dollars and 90 capsules cost $80 dollars. Even though 90 capsules makes the most sense, often times a new customer wants to try before they commit for an autoship, $30 dollars to try is an easier sell than $80 dollars.
This could be enough to launch in the testing phase.
So if we have two SKU’s and the manufacturer requires 2,500 of each, our total units will be 5,000 units compared to 25,000 units in the traditional approach. Because 5,000 units are just a few boxes, we don’t need a warehouse, we can just make space in one office and that’s money saved.
– Essential corporate team
Who will be your key leaders?
Here’s the approach we follow, CEO, COO, VP of Marketing and Sales Director.
Normally, at the launch of a direct selling company, there’s minimal movement, a few sign ups here and there, so there’s no need to have a full accounting staff or assistants to the corporate leaders.
When we help companies launch with the lean approach, they usually hire us because we have all the resources in house to make this happen, from Director of Operations, Marketing and Branding Team, saving them serious money. When they start growing, some companies choose to start filling those spots for in-house roles, while others decide to continue working with the same model of the launch.
– Support team
We follow the lean approach. Why would we let a company who has zero customers hire 10 customer service representatives?
Here’s what we do in most cases. We hire 1-2 people in customer support who can wear multiple hats from customer support to shipping.
Within some companies, we completely removed the phone support and handled all support via email and chat. The customers and distributors embraced this approach saving the company money.
– Compensation plan engine with elemental features
Basic basic basic, but never boring.
When you’re new, you don’t know how distributors will react to your compensation plan. If you launch with a complex plan, it will be costly for the consultant who will write it and costly because the developer team has to implement it, but hear this…
New companies almost ALWAYS change their compensation plan once they start getting real feedback from their distributors. Almost ALWAYS.
When you change the compensation plan, you have to change it in the marketing literature and the programming software. For this reason, if you choose an easy and rewarding payout for new distributors, it will be easy for your comp plan to evolve as you grow.
When choosing a software vendor, you don’t need 4 ways to pay distributors. Adding more options to cash out their funds can be done in later development.
– Time to launch 3-6 months
We’ve done it before. We’ve successfully launched full direct selling companies in less than 6 months.
Obviously, there’s much more than what I just shared, but the main idea is you don’t need 2 years and a million dollars to launch a direct selling company.