Direct selling and network marketing

Direct selling means the selling of products (consumer goods and services) directly to consumers at homes, at workplaces or elsewhere outside fixed business premises so that the product presentation and sales are the responsibility of the direct seller. The company must have official representation in Finland. Continuity of the operations is based on product or service sales. Most of the sellers are resellers or sales agents not employed by the company. A direct selling company operates in a transparent manner providing all the necessary contact details. 

A direct seller is a person working for a company’s distribution and sales system that sells or promotes the company’s products or assists in their sales outside fixed business premises (usually at consumers’ homes or workplaces). A direct seller may operate as an independent commercial agent, independent contract partner, independent reseller or distributor, a person in direct employment relationship, independent entrepreneur, franchisee or similar.

Network marketing is a form of direct selling. A network marketing company markets products and services to end consumers by means of direct selling through a multi-level sales organisation. 

Products sold in this manner include cosmetics, household cleaning products, gift items, interior decorating and cooking products, food supplements, organic products, weight control products, phone connections, books, toys and clothing. 

The provisions on door-to-door and distance selling contained in the Consumer Protection Act also apply to direct selling and network marketing. 

You are responsible for the costs and losses arising from your own business operations. Under the Consumer Protection Act, you (and not the company that you represent) must provide the buyer with a refund for faulty products.

Network marketing is an easy way of testing your business skills. You are provided with a complete package, which means that you do not need to invent a business idea or develop a profitable business from scratch.

In network marketing, you can get off to an easy start. Qualifications for the sector are usually not required and you do not need personnel, premises or large stocks. In most cases, you only have to pay a fee, which covers the initial arrangements and training. In other words, the risks of setting up the business are usually quite low.

You can run your network marketing business on a part-time or full-time basis almost anywhere according to your own timetable. In many cases, you can also choose whether to work face to face with other people, by telephone or online.

Network marketing gives you a chance to earn extra income. If you work hard and expand the network, your earnings may become quite substantial.

In network marketing, you can establish contacts with like-minded people. You learn a lot through the work itself and the training provided by the company that you represent.

Network marketing has a bad reputation in the eyes of some people. Some people think that network marketing is a pyramid scheme even though there are clear differences between the two. There are also all types of network marketing companies, some of which operate in the grey area. Read more about the differences between network marketing and pyramid schemes from a pdf file on the website of the Data & Marketing Association of FinlandOpens in a new window. (the document is in Finnish). 

You must work hard to earn sufficient income, especially at the start of your business operations. The lower your status in the network, the harder you must work.

If the company that you represent has too many sellers in relation to the demand for its products, selling the products may be difficult. The fact that the products are more expensive than in retail outlets may also be a problem. Furthermore, higher prices do not necessarily mean high quality.

Network marketing may also impact your relations with other people. If you sell products too actively to you family members and friends and try to recruit them as sales reps, they may feel that they are exploited and distance themselves from you.

As a network marketing operator, you are not in an employment relationship with the company that you represent. You run a direct selling business as a private person or through your own company.

If you have a small-scale network marketing business on a part-time basis, you do not need to set up a company. You can sell products as a private person in addition to your main job.

If, however, your network marketing operations are a full-time business, it might be a good idea to set up a company for the purpose. Private trader is usually the best option, because it is lightweight and well-suited for entrepreneurs operating on their own. However, you can also select another company form, such as limited liability company.

If you are a private person with a network marketing business, you must give the required information on your personal tax return. If you have a company, the taxation depends on the type of your business. In that case, make sure that you make all the necessary payments, such VAT and tax prepayments.

Even if you only have a part-time business, you must take out a YEL insurance policy if you meet its conditions for annual work income and the duration of the business operations. In practice, a full-time entrepreneur must always take out a YEL insurance policy. You should take out a pension insurance policy if you run a network marketing business as a private person and the network does not pay your pension contributions.

If you run a network marketing business on a part-time basis and lose your main job, TE Services will determine whether you are an entrepreneur under the Unemployment Security Act.

If the TE Services determine that you are an entrepreneur, your unemployment security depends on whether the TE Services consider you as a part-time or full-time entrepreneur. 

If your network marketing company is closed down or there is a substantial reduction in your business, you may be eligible for entrepreneur’s unemployment benefits. 

Make thorough background checks before starting a network marketing business. Select a company whose products you trust and that you want to work for. Familiarise yourself with all aspects of the company. Check that the company is a member of the Data & Marketing Association of Finland Opens in a new window.and has pledged to observe the rules of door-to-door, distance and direct selling.

Make sure to calculate how much you need to sell so that you can have the monthly earnings that you want. Remember that selling may not be easy and that it requires hard work and a great deal of effort. If the company that you represent delivers the products in advance, check whether you can return the unsold items.

Calculate how much money you need to start the business and how much is required for running the operations. You should overestimate rather than underestimate the costs.

Check the commitments that you are making and how long you will be bound by them. Read the agreement very carefully and make sure that there is no room for interpretation in it.