If you are in real estate, you may know already that you can experience plenty of different sales situations.
It comes with the many different business models and professions this field has.
In this context, some might ask themselves the question if real estate is actually direct sales.
Generally speaking, you can’t say that real estate is direct sales because of the many different sales scenarios that can happen. So, both direct sales and retail sales situations can occur.
If you read the whole article, you will learn how I came to this conclusion.
It discusses what direct sales are, the different types of direct sales, and what role real estate plays in the different types of sales.
What Are Direct Sales?
When you sell products directly to consumers in a situation or environment that is not retail, you can call it direct sales.
So, these sales happen at work, online, at home and/or in other locations.
By doing direct selling, distributors can bypass intermediaries acting within the supply chain and sell products directly to the consumers.
In contrast to traditional retail selling, direct selling needs and counts significantly on sales representatives to sell products directly to the customers.
So, products move directly from the manufacturer to the direct sales business. From there, they go to the distributor or sales representative who, in turn, sells them directly to the consumer.
Different from the traditional retail selling process, during this process, no further distribution centers and wholesalers are involved.
That’s why you can’t usually find in retail stores products and services that are sold that way. You can only buy them by searching and finding a sales rep or a distribution company.
Is Direct Sales Just an MLM Scheme?
When you think of direct sales, party-plan and network marketing companies may come to mind.
It is true that these companies make use of direct sales, but businesses in the B2B field (business to business) also use it to sell to their end consumers.
It is to expect that the association with party-plan and network marketing companies happens, because these companies are usually quite visible marketing and brand awareness wise.
But you don’t want to equal direct sales with network marketing and all the MLM schemes (some ethical, some not quite so much) out there.
This would do a disservice to the direct sales approach as a whole.
Because direct sales also happen when you, as a real estate investor do a cold calling campaign to motivated sellers.
The seller wants to sell his property directly to you and you want to sell him your solution to his problem (a cash deal, a creative deal, etc.) and, in doing so, making a profit.
How different real estate business models and professions fit into direct sales or not, I will come to in the second part of this article.
Confusing Direct Sales with Direct Marketing
There are also chances that you might confuse direct sales with direct marketing. And I must admit the lines are fine.
Whereas in direct sales, people directly engage with consumers and reach out to them, direct marketing just means that a company markets directly to consumers.
Basically, all the strategies and methods I am writing about on my website are direct marketing methods.
It relies on direct communication to individual consumers or potential customers, different from using third parties such as the mass media.
So, all the different marketing channels I often mention such as pay per click advertising (search and social), push text campaigns, content marketing, direct mail and email marketing belong to direct marketing.
But since the lines between sales and marketing are quite blurry overall, it is more than understandable that these two can be confused with each other from time to time.
It’s the overall question where marketing ends and sales start.
Here is yet another way to put it, so you can see the contrast better.
When you work for a direct sales company such as the below-mentioned Herbalife or others, it is usually frowned upon or even stipulated in the company’s policies that as a sales rep, you are limited in using certain or even all direct marketing channels.
You usually need to follow certain guidelines or a certain sales approach of the company that often relies more on network marketing methods (organizing small or larger gatherings, cold calling, etc.) rather than involving unlimited direct marketing methods.
Let’s give you some examples of direct sales vs. direct marketing.
Direct Sales Examples:
- Herbalife Nutrition: an MLM-corporation that sells dietary supplements
- Amway: home care, beauty and health products
- Vorwerk (from Germany): clothing and accessories, appliances, home decor, cosmetics, personal care, and kitchenware
- Avon Products, Inc.: personal care, beauty, and household products
- Natura (from Brazil): Personal care and cosmetics
Direct Marketing Examples:
There are Two Types of Direct Sales
1) Single-Level Sales
When you do single level sales, you as a sales representative earn a commission for trading or selling products.
That’s the insurance agent that sells a certain number of insurance policies in a particular time frame.
The key here is that it is done one-on-one through online meetings, door-to-door, and more.
2) Multi-Level Sales
Here, two things get combined: the selling part and the recruiting part.
A sales representative sells certain products and services and recruits more salespeople at the same time.
In this model, a pre-defined commission structure exists to pay the sales rep by making sales, but also by the sales the newly recruited agents or reps will do.
That’s the typical model of the controversially discussed MLM (multi-level-marketing) companies.
The key here is the recruitment element that is non-existing in single-level sales.
Unfortunately, this recruitment element can be exploited in a way that leads to a pyramid scheme in the end.
In a pyramid scheme, it becomes prevalent and almost the main activity so that a member’s compensation depends mainly on recruiting efforts and results, and the distributors’ money keeps within the company.
The money basically flows from the last members recruited (the base of the pyramid) to the first members recruited and ultimately to the founders of the scheme.
So, the biggest piece of sales is actually made with members of the company and not with outside consumers that have not been already recruited.
So, Is Real Estate Actually Direct Sales?
I hate when I have to use this phrase you might often hear in the real estate industry, but it depends.
Now, you should know what direct sales are and to find out if real estate fits the definition, we need to check on the characteristics of the different real estate situations there are and compare them to the characteristics of direct sales.
Remember two phrases from the beginning of this article:
“By doing direct selling, distributors can bypass intermediaries acting within the supply chain and sell products directly to consumers.”
“Different from the traditional retail selling process, during this process, no further distribution centers and wholesalers are involved.”
The two questions we need to answer are these:
1) Which are the real estate sales situations where distributors can bypass intermediaries within the supply chain?
2) Which are the real estate situations where a supply chain and/or a traditional retail selling process exists?
Let’s get to the answer to the first question.
We could call real estate developers building a house or a building distributors.
Who would be the intermediaries in this scenario to the end consumer (the potential buyer)?
I would say they would be the real estate brokerages and agents.
So, if these real estate developers happen to do their own marketing and sell directly to the potential buyers, you could call it direct sales.
The same is kind of true if we take a look at direct property sellers that can be found on for sale by owner property sites.
I say “kind of true” because the seller is already one step further down the supply chain.
He already bought the house from a developer (if it was a new construction) or from another seller. But he is still kind of the closest to the “manufacturer”.
So, when she or he sells directly to a buyer, it can still be called direct sales.
Now comes the answer to the second question.
The typical retail selling process normally uses a supply chain.
It happens when you first have manufacturers who produce products or services, secondly distributors or wholesalers who buy from the first, thirdly retailers who buy from the distributors or wholesalers, and fourthly end-consumers who buy from the retailers.
So, in which real estate situations does something similar to the above happen?
Here are three examples:
- A (wholesale) investor that buys a new construction apartment building and sells individual apartment units to retail buyers at a profit.
- A real estate brokerage firm that helps the real estate investor in the first example to sell to retail buyers (here you have one additional element in the supply chain).
- A bank that “manufactures” or creates a new mortgage financial product, and sells this via a mortgage broker to retail buyers that need a loan.
- A daisy chain happening between several realtors selling a particular property, so you have a seller’s agent, co-seller’s agent, a buyer’s agent, and a co-buyer’s agent and all of them selling to one retail buyer.
These were just a few examples that come close to the typical retail sales process. But they are not exactly the same.
You can’t categorically say that real estate is direct sales.
The real estate industry has so many different niches, players and types of professionals that a large variety of different sales scenarios can occur.
So, you can find both direct sales and retail sales scenarios depending on the sales scenario.