While most of the direct selling channel battled decline, a majority of the industry’s service companies enjoyed a pattern of steady, stable growth. DSN takes a deep dive into what’s behind this sector’s success story.
Over the last five years, the direct selling industry has experienced some startling revelations. Chief among them was how quickly the world would adapt to a virtual lifestyle. Party plans and in-person product demonstrations became relics. Online shopping—already extremely common—became native for consumers living in a socially distanced world where making purchasing decisions from the comfort of their home followed by two-day shipping became an engrained habit. As the post-pandemic upheaval continued and then subsided, a new economic normal began to set in for the direct selling industry.
Despite these obstacles, the direct selling industry remains a powerful revenue engine. In 2023, the Direct Selling Association (DSA) reported that the direct selling channel represented $40.5 billion in 2022 US sales. Direct Selling News (DSN) believes this number is significantly lower than reality, given that three-quarters of services companies are not reflected in these figures. Even so, as analysts viewed the DSA revenue numbers, some believed they were a sign that—while challenges persisted—market demand was generally intact.
A deeper analysis of this data, however, illustrates that not all categories within the direct selling space were equally successful. Almost all product verticals, including personal care, clothing and accessories, home durables and health and wellness, experienced a decrease in sales—some by as much as 17 percent.
In stark contrast to that decline, however, was the ten percent increase the service sector enjoyed during that same time frame.
It’s also important to note that the increase was felt across the board, both by companies offering must-have services everyone needs like energy and cell phone as well as companies offering services that are highly desired but less essential to daily life including insurance and financial planning.
In this time of upheaval and uncertainty in the industry, it’s important to take a deeper dive into services to determine what the catalyst behind this purchasing pattern could be. And to perhaps also determine if service offerings could be the stopgap that helps companies stay ahead of a possible continued decline in direct selling.
The Many Branches of Service
Services is a huge growth sector, but it’s not a monolithic one. In the simplest terms, service companies typically fall within one of four categories: direct selling utilizing licensed agents, traditional network marketing, enhanced affiliate models and door-to-door sales. Throughout this article, we will examine each in greater detail (see sidebar for door-to-door sales coverage).
1 / Direct Selling Utilizing Licensed Agents
This category encompasses two distinct subcategories: real estate agents and financial services. While a significant portion of representatives within this grouping derives their income from direct sales, they also have the opportunity and option to build teams, recruit and receive residual income for doing so.
Approximately 90 percent of the revenue in the service sector comes from these two categories‚ an astonishing number representing billions in annual revenue.
Real Estate Agents / While real estate has been sold for centuries, profit sharing on a tiered basis is a relatively new development for the industry. It was a concept first pioneered by Keller Williams. That company implemented a profit-sharing model to support agents and paid on a tiered scale.
eXp World Holdings, helmed by Founder, Chairman and CEO Glenn Sanford, further improved and refined the concept which led to massive growth and the introduction of more companies launching with similar models. eXp debuted an entirely virtual environment with no brick-and-mortar locations, something unheard of in real estate. They also paid tiered revenue commissions, rather than a profit share—both of these factors were huge innovations and key differentiators from Keller Williams.
Since then, strong competition has mounted in the form of REAL Brokerage—which saw 2023 revenue of $750 million and is on track to crack the billion- dollar mark this year. REAL offers similar benefits plus passive revenue share income, profit sharing, equity stakes and rewards.
Other power players include LPT Realty and Epique Realty, both startup real estate service companies that currently represent hundreds of millions in annual revenue. LPT Realty wields a hybrid model that allows agents to select their own compensation plans and provides the marketing support of a large organization while still allowing agents to customize their own business. Epique charges no franchise, desk or annual fees as well as offers the opportunity to join teams.
Although some real estate companies seem reluctant to take their seat at the direct selling table, the model squarely fits under the channel’s widening umbrella. More importantly, the market share of these models continues to expand—real estate companies with tiered compensation models represent approximately $15 billion in annual revenue.
Financial Services Agents / This category had its origins in the founding of A.L. Williams & Associates in 1977. That company ultimately became known as Primerica beginning in 1991. Primerica currently sits at number nine on the DSN Global 100 list with 2023 revenue of $2.8 billion dollars. A public company trading on the New York Stock Exchange as PRI, Primerica is a financial services company offering term life insurance, investment advice, mortgage, auto and home insurance.
Another huge company in this sector is World Financial Group with an estimated 2023 revenue of $1.3 billion. Founded in 2001 and owned by Transamerica, World Financial Group provides financial services via life insurance, retirement and wealth-building strategies.
There are several other equally impressive companies in this category. Interestingly, five of them are owned by the same parent company, Integrity Marketing Group. Family First Life ($503 M) works with independent contractor insurance agents to serve its customers. The other four companies owned by Intergrity Marketing Group are PHP Agency ($300 M est.), North American Senior Benefits, The Alliance and Equis Financial. Together, these five represent well over a billion dollars in annual revenue.
Premier Financial is a highly successful independent company in this space. Premier provides back-office support and mentorship for their associates, many of whom aspire to be entrepreneurs but are looking for mentorship and a predictable system to support them as they build.
Each of these companies generates hundreds of millions of dollars in annual revenue.
2 / Traditional Network Marketing
Much like companies that focus on offering a physical product, traditional direct selling service companies offer vital daily services. The differentiator, of course, is that representatives don’t have to explain to customers why they would benefit from purchasing a service.
Whereas buyers need to be educated and persuaded on the advantages and necessity of tangible goods like nutritional supplements, personal care items and housewares, virtually everyone already relies on services like power and cellular—they know these services are a necessity and are looking for an experienced, helpful representative who can guide them through the decision-making process as they find the right price and package for their individual needs.
Service companies in this category don’t require licensing. They include travel companies like inGroup; energy companies such as ACN, Ambit and Think Energy; and companies like PPLSI, whose brands include LegalShield and IdentityShield, providing prepaid legal and identity protection services respectively.
This category represents approximately ten percent of service sector revenue.
3 / Enhanced Affiliate Programs
Affiliate links and referrals allow representatives from companies to function as influencers who make money by selling a product to someone else or bringing consumers to their platform. The key difference within this category is that sellers within the enhanced affiliate model can earn on more than one level, while referral affiliates simply earn commissions on individual sales. There are already plenty of companies leveraging this type of enhanced affiliate model, like Grammarly, ClickFunnels and Fiverr, but multi-tiered plans are typically a very small percentage of their overall business.
An example of a successful multi-tiered enhanced affiliate model is FASTer Way to Fat Loss, launched in 2016 by Founder and CEO Amanda Tress. FASTer Way stands out in the crowded health and wellness space. While the company offers a handful of protein powders, supplements and fitness gear, its monthly fitness membership plan is the primary focus, offered directly to consumers online and through its field team. There are multiple ways to earn income and build a business, through Ambassador and Coach Certification programs—each providing a unique entry point and entrepreneurial path.
Shrinking the Competition
Each company and category has its share of competition, and the services sector is no different. Energy, which includes solar, gas and electric, is one of the most competitive categories within the market. The real estate business, with its inherent ups and downs, continues to be extremely competitive.
This dynamic environment of competition is derived internally more than externally, however. Real estate franchises compete directly with each other, as do utility companies and energy distribution networks. Where this differs from companies selling tangible products is the absence of Amazon, Walmart, eBay and other big box sellers.
For companies selling skincare products, for example, they not only have to compete with their peers, but they must also contend with unauthorized sellers on Amazon; copycat companies who undercut their sales with lower quality products; and retailers outside of the direct selling industry who are utilizing the same ingredients.
Companies who are focused on selling tangible products are also faced with “brand hopping” by independent distributors. This occurs when a seller isn’t experiencing success quickly or consistently enough or is recruited by a company with a similar product offering. Distributors who are extremely loyal to the product will stay, but for some of the sales force, the opportunity to increase their paycheck is enough enticement to leave.
What’s more, many experienced distributors have learned how to harness the tailwinds of companies that are in the earlier phase of their lifecycle. Jumping into a company just after it exits its “startup” phase but before it loses its new-on-the-market appeal, offers distributors momentum.
This kind of brand hopping is less common within services companies because switching from one organization to the next creates more friction. The bottom line is that it’s easier to jump between skincare companies than it is to leave one real estate or financial services company for another.
This consistency also extends to customers, who tend to remain loyal longer to services. Signing up for an energy plan or buying insurance requires monthly payments, but those costs are as much a part of life as filling up with gas or paying the mortgage—there’s nothing discretionary about the electric bill and insurance premiums. And once they’ve signed up, they don’t think of leaving or switching unless they have an unsatisfactory experience. For distributors, this means the likelihood of more stable income and less incentive to leave.
Blurring the Lines Between Products and Services
At a glance, it can seem that direct selling companies have been restricted to one path: products or services. Today, those two unique paths have begun to merge in response to the momentum and growth opportunities within the services category.
As inflation, skyrocketing supply chain costs and an uncertain economy weigh heavily on the shoulders of executives, many companies are considering how they can restructure their fixed costs while boosting revenue. For some, the answer has been attempting to strategically combine product portfolios and services.
One company with a successful approach is BODi (formerly known as Beachbody). Roughly half the company’s revenue comes from consumable products, the other half from digital fitness classes. Historically, BODi has done well adjusting to market shifts and consumer preferences. They started out selling fitness DVDs then made the timely pivot to streaming services—a prime example of evolving a physical product into a digital one.
There are innovative ways for existing product companies to apply this strategy. Beauty and skincare companies might entertain the idea of marketing a digital makeup tutorial program or monthly digital self-care subscription content as part of a holistic approach to beauty as just one example.
Should You Add Services to Your Company Lineup?
Consumer purchasing habits have shifted seismically. As a result, companies in almost every industry are experiencing upheaval to their strategies and expectations. Within the direct selling industry, this shift has created painful, downward trends for a large selection of companies. The majority of the companies that DSN spoke to within the product category reported little or no growth since 2019. For services companies, the report was quite the opposite: A majority of services companies reported steady growth since 2019.
Services are not the right fit for every brand or company culture. They are also not a cure-all for the industry’s sluggish growth or a Band-Aid that can rescue direct selling from heightened regulatory pressures or an overtly negative public bias. Considering this data, however, it seems logical that the prospect of including services as a part of a product offering could—at the very least—be worthy of a conversation.
From the September 2024 issue of Direct Selling News magazine.
