Is LuLaRoe a Pyramid Scheme?

Probably, it’s hard to tell. LuLaRoe claims to be a ‘Multi Level Marketing’ company. MLMs share many qualities with Pyramid Schemes but are a bit different. Because they share so many qualities it can be incredibly difficult to tell if the company is a legitimate marketing company or a pyramid scheme.

The US Government’s Federal Trade Commision has more information about pyramid schemes to help.

How to spot a Pyramid Scheme:

  • Large profits are based primarily on recruiting others not on the real sale of goods.
  • Recruites are forced to buy more products than they could sell often at inflated prices.
  • People at the bottom (new recruits) make excessive payments for inventory that accumulates in their basements.
  • Many schemes will claim product sells like crazy — but actually sales are only occuring between people inside the structure or to new recruits. Check to see if price is inflated.
  • Commissions for recruiting new distributors, no legitimate product or service, OR separate up-front membership fee (having a product/service doesn’t remove all danger).

    Pyra

How does LuLaRoe stack up?

  • If you look carefully at the compensation plan for LuLaRoe much of the big profits come both directly and indirectly, from recruiting others to sell LuLaRoe.
  • In order to join those recruits have to buy thousands upon thousands of dollars of merchandise. See: LuLaRoe: Cost to Get Started
  • The inventory is encouraged to be passed inside members of the structure because inventory purchased from LuLaRo is random (you cannot choose the patterns, sizes, etc). Or recruits are encouraged to purchase more in order to get more chances to get the more rare items.
  • The leggings, dresses, and more aren’t valued at what the company says they are (check out ebay.com for LuLaRoe for current market pricing by checking sold listings).
  • Though there are not direct commissions for new distributors, compensation is based on the number of distributors on your team, and bonuses are paid for reaching the next the next levels sooner, each require recruitment. In this way, there are indirect commissions for recruiting new distributors.
  • There are costs to join. Inventory, and materials for selling LuLaRoe (“starter kit”) are rolled up and you cannot become a consultant without purchasing a starter kit.

LuLaRoe probably is a Pyramid Scheme

Pyramid schemes will disguise themselves as MLM or direct sales companies, and it appears that LuLaRoe is doing that because of the red flags above. Whether it’s a pyramid scheme, a scam, or just an unhealthy business, LuLaRoe shares many bad qualities with Pyramid Schemes. These qualities make it a dangerous opportunity and everyone should probably avoid LuLaRoe.

What do you think?

More Resources

Investopedia: What Is A Pyramid Scheme

How Pyramid Schemes Work

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11 Comments

  1. I have to disagree. My wife does LLR, and there is very little incentive to recruit. You can get a small commission off of the people “below” you, but 90%+ of revenue is from sales, not recruiting. I would not consider it an MLM.

    1. It would be great to understand what you mean by 90%+ and revenue.

      Revenue only accounts for the money coming in and it can mean a lot of things. (https://en.wikipedia.org/wiki/Revenue) You can actually have lots of revenue and still end up losing a lot of money. Also, revenue for who: the consultant, company, upline, etc?
      So even with your claim that 90% of revenue comes from sales — that could mean that most (or even all) of a consultant’s profit would come from the recruits. This is especially true because of the other factors described in some of the other blog posts (saturated market and low sale prices, consultants buying/selling from each other, huge up front inventory costs).

      I can’t find anything to support the idea there is little incentive to recruit or that most of the profit comes from sales.

    2. I agree, my wife does it as well.. every month she doubles her revenue every month and has nobody under her selling yet. She is about to surpass my income by miles within a few months. I will be a stay at home dad doing jobs here and there to pay for some toys by the summer.

      1. my wifes works full time and is doing this on the side she spent over 15k within a 2year. what profit . did you guys forget running to the post office dropping off package. gas,package,tape,printing ink,paper,and time running back and forth.and if her items dont sell because that month pass and its old or out of season patterns. stupid and waste of time.she wears her own profit? really ! you invest in it sure some sell but your just making part of the money you invest it in. dont forget taxes rime. its a big mess. she keeps buying new leggings and dress every 2 to 4 months. what profit? she has old inventory clothes from last year not sold because its old and the people want new in season. what a huge mistake do your math and you will see. work,and side business and putting hours of your time selling it online and glued to your facebook and iphone is not good and we have 3 kids. she cant juggle everything at once.crazy. this will break us credit card maxed out !! i know i am not the only one.. make money and selling your still using your profit to buy more. insane and is a scam. soon i have to sit down talk to her this is not good and not a home base business you are paying half on wholesale and its not whole sale for members. i bet it cost them pennys to make and i know for a fact its not made in usa !

  2. My wife has been selling this stuff for over 6 months and has yet to see profit. She is obsessed with it and keeps adding inventor. We are nearly 20,000 in debt. It’s out of control and she won’t listen to me. Our marriage is in jeopardy.

    1. I’m really sad to hear this. We started this site hoping to help share information so everyone can avoid getting into debt and hurting their family. Please share with us if you find resources that help. However, it sounds like you feel like the situation has gotten overwhelming, it might be helpful to reach out to a therapist for professional help. Check with your health insurance, many plans offer coverage.

    2. My first marriage ended because of this same thing but it was Mary Kary, not Lularoe. $36k in credit card debt. She tried to get her attorney to “split” the debt with me. No way. She took all the debt with her and I’m pretty sure her daddy paid it off for her later. Me, I took my dignity and ran.

    3. I hope by now she’s gotten out from under this cult. I’ve seen the “training videos” and they are ABSOLUTELY brainwashing videos. If she is watching these it needs to stop now.
      Best wishes.

  3. If anyone can join and become a distributor as long as they’re able to pay whatever it takes to get started, it’s a pyramid scheme.

  4. Pyramid scheme, just like the rest of them. They all pray on the uneducated, get rich quick, false american dream.

  5. I was excited to join when I heard a friend was doing so well in the business…I visited her shop and saw how her inventory had tripled in 6 months time and wondered, how can you be doing so well when you have this much inventory sitting around? I then discovered in my visit that her husband had quit his job to help with Lularoe. During my visit he spoke to me about how much inventory they order per month thus that set off a red flag for me – why continue to buy inventory when you have thousands of dollars sitting around. To their credit they are making enough money to move into a new home, hire two part-time staff, and purchase a new car plus pay their old debt however I wondered how long could they continue to be on top with inventory piling up so quickly. Their sales are high, but so is what they put back into the business with gift incentives, supplies, staff and ordering 30 thousand dollars of new merchandise each time. Glad i visited and didn’t just go with their motivational recruiting video. By the way they have 10 people in their team. Pyramid Scheme? Yes!

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