If you are in real estate, you may already know that you can experience many different sales situations.
It comes with the many different business models and professions this field has.
In this context, some might ask whether 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. So, both direct sales and retail sales situations can occur.
You will learn how I came to this conclusion if you read the whole article.
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 other locations.
By doing direct selling, distributors can bypass intermediaries acting within the supply chain and sell products directly to 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.
Unlike the traditional retail selling process, no further distribution centers and wholesalers are involved during this process.
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 for 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.
These companies indeed 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 expected that the association with party-plan and network marketing companies happens because these companies are usually quite visible in 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, make 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, I am writing about all the strategies and methods on my website are direct marketing methods.
It relies on direct communication with 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 of 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 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 are in single-level sales, you earn a commission for trading or selling products as a sales representative.
For example, the insurance agent sells a certain number of insurance policies in a particular time frame.
The key 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.
To find out if real estate fits the definition, we need to check on the characteristics of the different real estate situations 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) What are the real estate sales situations where distributors can bypass intermediaries within the supply chain?
2) What real estate situations exist 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 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 do their own marketing and sell directly to 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 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 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 buys a new construction apartment building and sells individual apartment units to retail buyers at a profit.
- In the first example, a real estate brokerage firm helps the real estate investor 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 sells this via a mortgage broker to retail buyers needing a loan.
- A daisy chain happens 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 came 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 many different sales scenarios can occur.
So, you can find direct and retail sales scenarios depending on the sales scenario.
This article has been reviewed by our editorial team. It has been approved for publication in accordance with our editorial policy.