We live in a consumer-centric world. And there are two ways through which products and services get to consumers: the traditional channels and direct selling (also known as multi-level marketing, MLM).
In direct selling, the manufacturer distributes his products or services directly to the end users/consumers. Directly selling model is falsely perceived as a Ponzi scheme or a pyramid or chit fund. In this article, we shall be looking at ways for new companies to be registered in India and all you need to know about the direct selling model.
What Is Direct Selling And Multilevel Marketing?
A direct selling company is one that distributes its product or services directly to the consumers without going through intermediaries. Since direct sales eliminate intermediaries, the manufacturer can give a certain amount as commission to the freelance agents (they are also referred to as distributors or agents) depending on their volume of sales. Direct sales company do not use traditional advertising methods relying instead on word of mouth publicity by its agents or users. This helps to cut cost and helps it to pay commissions.
There are two types of direct selling:
Single Level Marketing [SLM]
Multi-Level Marketing [MLM]
Basic Approach To Direct Selling And Multilevel Marketing
Here, the manufacturers sell their products and services to their members at a reduced price (lower than the MRP of the product). This price at which the manufacturers sell to their members is referred to as the member price or distributor price. The margin or retail profit from member and MRP would vary from 10-20% on the average.
The direct selling company has its own set of formula for calculating the sales volume. For instance, the company may choose to say that for every Rs 100 worth of product sold, the volume generated would be 7 points. That means Rs 100 = 7 points. Direct selling companies would usually offer cash back on these sales points or sales volumes made per month. The amount paid out to the member would depend on the sales volume or sales point.
Highlights Of Model Guidelines On Direct Selling
Conditions For Setting Up Of A Direct Selling Business – The following are conditions and model guidelines for setting up a direct selling company:
- It should have an identified office within its jurisdiction of operation so that consumers and direct sellers can get acquainted with it.
- None of its promoters or major management personnel should have been convicted of any crime or sentenced to imprisonment in the last five years.
- The company must provide for and notify each direct seller a cooling off period during which a direct seller can return any products /services bought during that period.
- The company must have a full refund or buy-back policy and notify direct sellers of same. This policy can be exercised within a 30 days period, from the date of distribution of the products or services to the direct seller.
- The company must provide exact and full information to all new and existing direct sellers as it relates to a fair remuneration opportunity, and related rights and obligations.
- The company must carry out mandatory orientation sessions for all its new members to offer them precise and correct information on all the aspects of the direct selling business including remuneration system and the expected remuneration for its new direct sellers.
- It must be a registered legally registered business entity under the laws of India.
Conditions For Conduct of Direct Selling Business
Each direct selling company would comply with the following requirements:
- It must possess a current and well-maintained website that must have following information: goods, services, terms of a contract, price, income plan etc.
- A register called “Register of Direct Sellers” would be, maintained which would contain relevant info about each registered direct seller. Such info includes verified proof of address, proof of identity and PAN. This register must be regularly updated.
- The Licensee of a trademark, service mark or any other identification mark that is related to the goods to be sold or supplied must be owned and held by it.
Direct Sellers must be issued company ID cards.
- A detailed record (manual or electronic) of all business transactions containing the following must be maintained: all relevant details of the business entity, contact information of its management, its products and product information, product quality certificate, full income plan, terms of contract with each direct seller.
- Complaints must be addressed within 45 days of lodging such complaints.
- Each direct selling company should monitor the value of purchases of all its direct sellers on a monthly basis. Once the value of purchase crosses the VAT threshold, such direct sellers should be notified to pay VAT.
Don’ts For Direct Selling
- Use of deceptive, unfair or misleading recruitment practices which includes misrepresentation of real or potential sales or earnings
- Making unverifiable representation to a non-member or making promises it won’t fulfil.
- Presenting any benefits of direct selling to a non-member falsely or deceptively.
- Making any direct selling business representation in a way that is false or misleading.
- Demanding entry fees, or asking direct sellers to buy their sales demonstration equipment or materials to participate in its direct selling activities.
- Giving benefits to anyone for introducing or recruiting a new direct seller.
- Asking direct sellers to pay for monthly subscription or renewal charges.
- Direct selling and MLM is the future of consumerism. The model guideline that was launched in September is only the beginning. Soon enough, an Act would be passed to give it legal backing.
Those of you considering a new company registration in India, this is a good time that would engage in direct selling.