Is “It Works!” A Pyramid Scheme?

Is that crazy wrap thing a pyramid scheme?

It Works! sells the weight loss and cosmetic wrap products (“crazy wrap thing”). It Works! claims to be a ‘Multi Level Marketing’ company. MLMs share many qualities with Pyramid Schemes. Because they share so many qualities it can be incredibly difficult to tell if the company is a good company to join.

The US Government’s Federal Trade Commission 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.
  • Recruits 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 occurring 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).

How does It Works! stack up?

  • If you look carefully at the compensation plan for It Works! much of the big profits come both directly and indirectly, from recruiting others to sell the wrap products.
  • Recruits are encouraged to order inventory for auto-shipment; which could lead to extra wraps that maybe difficult to sell.
  • Returns and refusals of merchandise delivery have penalties.
  • 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 It Works!  body wraps (“starter kit”) are rolled up and you cannot become a consultant without purchasing a starter kit.
  • The wraps offer unbelievable results, explaining all of the benefits on their site. However, their site also states: These statements have not been evaluated by the Food and Drug Administration.

It Works! seems like a Pyramid Scheme

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

What do you think?

More Resources

Investopedia: What Is A Pyramid Scheme

How Pyramid Schemes Work

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Who’s Making Money With LuLaRoe?

Who is getting paid and how? Details!

Consultants (bottom level) pay up front costs to sell products and get initial inventory. They then try to sell that inventory (and more) to get back the initial money they spent, and make more. They make less money if the products sell for less money.

Sponsors (next level) are eligible to make up to 5% of the orders by the consultants they sponsor (the consultants they recruited to sell Lularoe), BUT in order to receive the bonus sponsors must purchase 175 pieces during the month for which that bonus is calculated.

Most people are at these two levels

LuLaRoe provides an income disclosure statement[1] which shows the percentage of consultants at the different levels in the company (see pie chart). Using this we can start to get a handle on the number of people rising to higher ranks. Reportedly LuLaRoe added around 33,000 consultants in a year[2]. This would mean we could estimate around 6 would be mentors, and less than 200 would be trainers.

And many more complicated levels At each level higher the compensation gets more complicated. Each higher level is even more difficult to reach, requires even more inventory purchase by consultants in the downlines, and as we know from the disclosures very few consultants reach those levels. However, it’s at these highest levels where the biggest bonuses are paid.

trainer pyramid

Digging into the Income Disclosure Statement

The income disclosure statement from LuLaRoe’s website tells us a bit more about bonuses. However it only tells part of the story. This statement does not include any information about earnings or losses based on selling the products. It also doesn’t account for any expenses. Therefore, while these are called bonuses, really consultants could earn a bonus but still end up losing money in the end because of expenses or unsold inventory.

Most people earn no bonuses

This means they most rely on the sale of the product to earn back the money they have spent to purchase inventory, cover expenses, etc. This can be difficult because of a variety of factors and can result in consultants ultimately losing money.

Bonus structure encourages buying and stockpiling

In order for everyone involved at the various levels to make more money, everyone — consultants, trainers, and coaches need to buy more wholesale inventory and encourage others to buy more inventory even when the inventory they already have is not selling

Consultants (bottom level) are required to purchase a substantial amount of inventory to get started. Sponsors (next level) must purchase additional inventory to get their bonuses. In order for trainers (higher levels) to earn bonuses on their downline — both trainers AND their downline must buy more wholesale inventory. 

This can lead to people feeling like they should buy more one month in order to get their bonus, thinking they will be able to sell it later. This can lead to a really bad cycle. Too much inventory and a lack of sales leads to debt, a feeling that you must buy to get bonuses and maintain status with the company to get out of debt, only to have it start again next month.

LuLaRoe doesn’t publish it’s compensation plan on it’s website, but it is available from LuLaRoe consultants who will share it as part of recruitment. Here are two examples:
lulashoppe.com/lularoe-compensation-plan
llrteamuplift.com/lularoe-compensation-plan

See Also: Is LuLaRoe a Pyramid Scheme? 

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Joining Jamberry

Jamberry is a multi level marketing company which sells a nail ‘wrap’ product (kind of like a polish replacement).

It’s relatively easy to find information about Jamberry, their company, products, and compensation plan. You can sign up on their site to become a consultant and they will assign you a sponsor if you don’t already have one.

Products are sold on their website, directly through their consultants via inventory on hand, through orders, or through the consultant’s website. Also, Jamberry consultants are known for hosting parties to sell the nail wraps and give workshops.

What does it cost to get started?

To begin selling Jamberry nail wraps as a consultant you purchase a starter kit. A starter kit costs $99 and includes application tools, business materials, samples, etc.

Additional Expenses [1]

It’s against Jamberry’s policies to create marketing and business materials, they must be purchased directly from Jamberry. Catalogs cost $6.50 for 10 and must be purchased with each new release (every 6 months), another site reports the cost as 25 catalogs for $14.50 with free shipping. In addition to catalogs there are also host join pamphlets, sample cards, postcards, order forms, and more.

To sell Jamberry online you’ll pay $10 every month for a website.

There are also additional costs associated with collecting money and running a business: credit card fees, tax preparation, etc.

costs add up
For purchases, marketing materials, and direct sales you’ll also likely need to pay shipping and handling (including for your starter kit).

Do you need inventory? Can you just sell online and take orders?

You can just sell online. However, there is a lot of pressure to carry inventory. Most of this pressure comes from sponsors who benefit from consultants purchasing additional product. Additionally, much of the trainings and success stories revolve around parties where customers learn to apply the nail wraps and buy products at the parties.

Inventory held on hand may also go out of style as new nail wrap styles are released. Returns by consultants have limitations outlined here. Mostly, consultants may return only $1000 in any 1 year period, and may only return marketing materials upon resignation.

Encourages personally purchasing to meet quotas and get bonuses

Because commission structure requires consultants sell a certain amount each month ($200+, host a party with a certain amount of sales, etc), consultants may be encouraged to purchase a significant amount each month regardless of whether customers have actually made purchases.

This seems like a good idea because otherwise the consultant will lose access to higher commissions or bonuses. Additionally, they may be pressured for letting down their team or sponsor who may miss out on opportunities well.

This cycle of personal purchases to meet quotas can lead to debt, stress, and problems. Personally purchasing to meet qualified volume requirements is never a solution, ask sponsors for other solutions — introduce you to new leads, co-host an online party, etc.

Who is getting paid and how? Details!

Unlike some of the other programs Jamberry’s compensation plan is right on their site here.

They also publish the number of active consultants at each rank in 2015 here.

Jamberry Compensation

More here: Full Jamberry Compensation Plan

Commissions

Consultants make commissions based on their personal retail sales volumes (30%)

Once they maintain $200+ in PRV (personal retail sales volumes) they can get additional sales bonuses (up to 10% more).

Consultants recruit other consultants to add “legs” and “downlines.

Managers and executives make additional “generational overrides” or commissions based on the PRV of the generations in their downlines. The number of generations they can collect commissions on depends on their own rank and team’s total retail volume, personal retail volume ($700), number of active legs, and more. The overwhelming majority of consultants never reach these ranks.

Jamberry consultants can make additional bonuses for moving through ranks quickly (“Fast Start Rewards”), advancing to each level (“Rank Advancement Bonus”), and more.

Resources

[1]  This blogger does a good job breaking down the additional costs of becoming a Jamberry consultant and has some other posts skeptical of Jamberry.

Compensation plan

Consultants at each rank and earning ranges (2015)

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Becoming a Stella & Dot Stylist

becoming a stylist

Stella and Dot is a multi level marketing company which sells jewelry. They are known for their trunk shows and stylists who help customers with creating overall looks to go with the jewelry.
You can find vague information about Stella and Dot’s compensation and initial costs on their website. You can sign up on their site to become a stylist and they will assign you a sponsor if you don’t already have one. Anyone can also buy jewelry from the site directly.

It’s a lot harder to find details about exactly how everyone makes money and gets promoted, details about training, and a good idea about the costs of being a Stella and Dot stylist. Most of this information is given to new stylists after they purchase their starter pack. [1] [2]

What does it cost to get started?

To begin selling Stella & Dot as a stylist you purchase a starter pack. Starter packs sell from between $199 and $699.

$199-$699 starter pack

Other expenses
Personal sales website is free for 60 but after that is $129 for a year or $39 per quarter.
Additional samples may be purchased at 50% off and are suggested to improve trunk shows
You can also purchase things like lookbooks and emarketing

Do you need inventory? Can you just sell online?

The Stella & Dot FAQ don’t really give a straight answer here, but in order to become a stylist you must at least purchase an initial starter pack with samples. Most of their training materials appear to encourage selling at trunk shows (with samples and ordering) and supplementing with online trunk shows and ordering.

Stella & Dot does offer an online affiliate program which is not available to stylists and does not require inventory.

Encourages personally purchasing to meet quotas and get bonuses

Because commission structure requires stylists sell a certain amount each month, stylists may be encouraged to purchase that amount for month regardless of whether customers want to buy jewelry. It seems like a good idea because otherwise the stylist is letting down their sponsor and missing out on the opportunity to get commissions or other incentives (free stuff, etc).

This cycle of personal purchases to meet quotas can lead to debt, stress, and problems. Personally purchasing to meet qualified volume requirements is never a solution, ask sponsors for other solutions — introduce you to new leads, co-host an online trunk show, etc.

Who is getting paid and how? Details!

Stella & Dot is pretty clear with their compensation, however detailed information is generally shared after stylists join the company and receive their training materials.

Digging into this a bit more, it gets pretty complicated there are levels based on the number of stylists you’ve recruited onto your team, and quotas for personal sales in order to continue receiving the bonuses from building a team.

commisions

Commissions
Stylists make commissions based on their personal qualified volumes (25-35% depending on how much they are selling. Once they’ve recruited leaders can make commissions on the sales of the stylists they’ve recruited.

4-9% on the first line’s or first level’s commissionable volume
   During a new stylist’s Jump Start period (first 60 days) you can get an additional 3%
0-5% on the “second line’s” or second level’s commissionable volume

Where you fall in these ranges depend on your rank (higher ranks get higher percentages)

Other requirements and bonuses
Group Qualifying Volumes – that is the first three levels must sell a certain amount of qualified volume in order for everyone to maintain their levels.
There are promotion bonuses for reaching new pay rank. These range from $100 to many thousands of dollars.
‘Generations’ also affect compensation by allowing you to extend commisions beyond the first two levels.
Discounts and product credit awards are also awarded at various ranks

Stella & Dot LevelsStylists
A qualified stylist is a stylist who has sold $500 PQV (PQV is personal qualified volume or personal retail sales). Weekly commissions of 25%-35% (higher amounts if more PQV during that month). A lead stylist has one qualified leg – a leg means that the stylist has started a tree of stylists or the stylist has sponsored one other stylist (who can then go on to sponsor sylists).

Team Leaders
At this rank, there is the introduction of the Group Qualified Volume required to be promoted and hit the monthly pay rank. This is the amount of qualified volume sold by the stylists in the first three levels. For associate stylists the GQV is $3,000 but this goes up to $12,500 for Star Stylists. Personal qualified volumes go up at this level as well. Associate stylists are required to have $1,000 in personal qualified volume sales. Team leaders have to have multiple qualified legs.

Team Directors
Directors are required to have Star stylists in their legs. The number of stars and star legs determine what level of director. The total qualifying volume (whole organization not just the first three levels) must be balanced across legs, so no one leg can account for 50% of the TQV. $12,500 of the group qualifying volume must come from your non-star group.

Executive Directors
Executive directors require everything that team directors do but they must have a newly promoted star stylist from their first level every rolling 12 month period.

compensation plan
It’s really really complicated

Return policy has important exceptions

Samples and display jewelry are treated differently when it comes to returns. Given that you must purchase starter packs to become a stylist, be careful with the amount and kind of jewelry purchased at these prices because it may not be possible to return them.

“Returns or exchanges are accepted on unworn items in resalable condition (excludes sale items, Display Items and Business Supplies, which are Final Sale).”

[1] [2]

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