In early April, we were among the first to call out the renaissance coming in the direct selling industry. In the three months ending June 30, companies across the industry validated that prediction. The second quarter of 2020 was among the best quarters the industry has seen in the last 40 years. The combination of factors we call out the first week of April (https://hepferassociates.wordpress.com/2020/04/19/a-renaissance-is-underway-in-the-direct-selling-industry/) drove strong growth for almost all direct sellers. Recruiting raced – one of our larger clients brought on more new distributors in May than they did in all of 2019. Preferred customer ranks swelled – and autoship subscriptions grew dramatically. Even June, one of the traditionally slow “J” months saw many of our clients post growth of more than 50% over the prior year. We just saw a great quarter – but now comes the challenge.
Companies in the direct selling channel need to double down on their focus in three areas if they are going to put up a strong second half of 2020.
Focus area 1: Contribution Margin after Commissions (CMAC), This is always the most important measure of success. Growth without profitability is hollow – and we have helped several clients increase their CMAC percentage as they managed the rapid growth of the last quarter. There is great opportunity in this renaissance period, and now is the time to realign selling prices, preferred customer fees and benefits, product mix and cost, and base and supplemental commission payouts to make sure you deliver strong CMAC in the second half of 2020 and in 2021.
Focus area 2: Operational Agility. The only thing certain about the coming 18 months is that things will change regularly. You need to look strategically at your operations and make decisions now that will accommodate the range of outside factors that will likely impact your ability to serve your distributors and their customers. As the world adapts to living with COVID-19, supply chains will be disrupted. In many cases, raw material availability has already become an issue. Some suppliers will not survive the current challenges and will close. Delivery services will impose volume limits and additional COVID-19 surcharges as we approach the holidays. Employees will work from a variety of locations. Online meetings will continue to be important, but in-person meetings and incentive trips will come back onto the calendar – with a variety of precautions and restrictions. Customers have been forgiving of service issues in the early months of the coronavirus pandemic, but their patience is already coming to an end. We have helped clients examine their operational processes and cost structure to identify risks and opportunities. Our experience with organizing for growth includes work with almost every size company, from small, single location organizations to the largest of direct sellers.
Focus area 3: Technology. Technology has been one of the real areas that differentiated direct selling companies over the last three months. Some companies were just better prepared to register, train, develop, and support their distributors and their customers online. Now is the time to deal with your tech debt and implement systems that will allow you to lead as we continue through this renaissance period. We have helped clients develop online recruiting tools which doubled the number of interested people who registered as distributors after visiting the company’s “Join Us” site. We have helped clients deploy highly personalized email and text interaction with preferred customers that increased order size, increased order frequency, and added months to average customer lifetime.
Almost every direct seller has had a great second quarter – but now comes the real challenge. Recruiting cannot remain this strong for the balance of the year. The forces which drove growth in the most recent quarter will shift, and a company’s ability to develop and retain both distributors and customers will now be critical. Retail will not recover before the holidays, and the eCommerce channel will present increasing opportunities to companies with a strong direct selling base. Focus now on strengthening your CMAC percentage, adapt your operational processes to allow for greater agility, and accelerate systems work that will support increased growth this fall and into 2021.
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