Understanding Direct Selling Risks: A Guide for Network Marketers 
                     Navigating the Risks of Direct 
Selling: Strategies for Success
Epixel MLM Software
www.epixelmlmsoftware.com 
Introduction
• Direct sales business is one such business which faced a lot of criticisms. It 
has so many risks.
• Risk management in direct selling is the identifying, assessing, controlling, 
and eliminating threats that these businesses face.
• There are commonly 8 risks faced by the direct sales companies and with 
proper management these risks can be eliminated. 
• Legal and regulatory compliance
• Compensation plan
• Distributor and customer attrition
Risk in direct • Security threats
selling business • Competition
• Operational risk
• Brand identity
• Financial risk
#1: Legal and regulatory 
compliance
• Legal risks are the most common risk faced by the direct sales company. 
Companies who does not follow legal and regulatory compliance was imposed 
with penalties. 
• To avoid this, direct sales companies should incorporate compliance 
automation for detecting policy violations and identify associated risks.
• Also, the companies should publish income disclosure statements every year.
• Distributors must be properly trained about the rules and regulations and 
companies must make sure that these are incorporated in their training 
modules. 
#2: Compensation plan
• Compensation plan is the most important part of a direct sales business. 
Companies should constantly monitor and evaluate its performance for 
smooth running of the company.
• Direct sales companies should provide commissions and rewards based on the 
sales and not purchases. Also distributors should be motivated to make sales 
not solely purchases.
• By using an MLM calculator, companies can calculate accurate commissions 
and payouts. 
#3: Distributor and customer 
attrition
• Distributors who are the important part of the direct sales business must be 
constantly motivated and increase their engagement. 
• Direct sales companies must introduce interactive and engaging rewards and 
loyalty programs to encourage competition. 
• Also, distributor and customer sentiments can be analyzed by the use of 
advanced technologies such as NLP, ML, and AI.
• By the use of CRM, companies can track their distributors and customers 
effectively. 
#4: Security threats
• Security is the most important threat any business face nowadays. 
Cyberthreats are increasing day by day. It creates major impacts such 
as interrupted business processes, insecurity for customers, damage to brand 
credibility etc. 
• Direct sales companies should identify and mitigate potential cyber threats, 
also have an incident response and recovery plan, establish a zero-trust 
framework etc.
#5: Competition
• Competition is in every business and saying the truth it is essential for a 
business to grow out of their potential.
• Competitors always adopt latest market trends and technologies to withstand 
in the market. Direct sales companies should make sure that they follow and 
adopt all the latest market trends for success.
• This risk management strategy includes set fair yet competitive 
pricing, identify and address your customer pain points, reward distributors 
with competitive benefits, build your unique selling proposition etc.
#6:Operational risk
• The risks we discussed are internal risks. There is external risks affecting the 
business such as Natural disasters, vandalism, and technology failures etc. 
• Direct sales companies should measure and mitigate the possibilities of a 
particular risk.
• Also train your distributors to handle such unexpected risks and continuously 
monitor your Key Performance Indicators (KPIs).
#7 :Brand identity
• It is very much difficult to bring a brand on the top and create a brand name 
among the customers in this era because of increasing threats and hacking.
• Companies should make sure that they provide incredible customer service, 
communicate your brand values clearly over to your customers with a 
consistent brand strategy.
• Also to attract and retain customers and distributors, rewarding them with 
incentives and offers will retain them more.
#8 :Financial risk
• Financial risk is the risk that affects your business from the bottom line.
• For a direct selling business, compliance risk often brings financial risk 
because by not following rules and regulations, the companies may face 
penalties and legal problems.
• The direct selling company should run a thorough market research before 
investing into their customers. Also, ensure that the payout system is 
accurate and reliable. Constantly monitor the system to avoid overpayments.
Read more:
www.epixelmlmsoftware.com/blog/risk-
management-direct-selling
Thank Epixel MLM Software
you www.epixelmlmsoftware.com