Tag: Debt

Full Frontal: Multi-Level Marketing Schemes

Full Frontal: Multi-Level Marketing Schemes

Samantha B. digs into multi-level marketing and what they mean for women.

Debt and Multi-level Marketing

Debt and Multi-level Marketing

Stories about participants in MLMs getting into debt are pretty common. We took a look and found lots of information. We learned how common debt is for MLM participants, why people turn to borrowing, and that it’s not a good idea. In a survey of […]

Is “It Works!” A Pyramid Scheme?

Is “It Works!” 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

Last Week Tonight: Multi Level Marketing

Last Week Tonight: Multi Level Marketing

Check out this great video from John Oliver about Multi Level Marketing

Who’s Making Money With LuLaRoe?

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 […]

LuLaRoe: Cost to Get Started

LuLaRoe: Cost to Get Started

Lularoe is a multi level marketing company which sells clothes. They are known for their leggings which come in limited edition patterns. Consultants sell clothing at parties.

What does it cost to get started?

By looking at training documents created by independent consultants it appears start up costs range between $4.5K – $7K for initial inventory alone. There are also other things to buy to be able to sell the initial inventory (hangers, storage, etc). Consultants are also encouraged to buy business cards, hangers, etc to support their business.

“The expenses a Consultant incurs in the operation of the Consultant’s LuLaRoe business can vary widely and can be several hundred dollars or thousands of dollars annually. Such operating expenses include the amount that you pay to become a LuLaRoe Consultant and inventory purchases, and could include advertising and promotional expenses, training, travel, telephone and internet costs, business equipment, and miscellaneous expenses. You should factor in estimated expenses when projecting potential profits.”  – lularoe.com 

 

Pressure to Buy Inventory

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

These incentives mean new consultants are encouraged to buy more wholesale inventory even when the inventory they have is not selling or is unlikely to sell.

The path to profit is unclear. Check out this breakdown of cost/revenue on initial inventory at BottleSoup.com: LuLaRoe or LuLaNoe: Will Your Investment Pay Off?

Be Careful With Debt

Many of the training documents mention calling ahead to your credit card company to get approval for the large charge. Encouraging to buy on credit coupled with encouraging to buy wholesale inventory even when there is no demand means borrowers may not be able to repay their debt. This can lead to a cycle of debt where one feels like they can’t afford not to continue with the company, leading to further purchases and more debt.  

Other Concerns

“The product sells itself”

It sounds too good to be true, because it is. The product does not sell itself, the consultants need to sell the product and when it doesn’t sell, the consultants lose money they risked buying the wholesale inventory.

Some trainings indicate you can return merchandise for a 15% restocking fee.

Check out some skeptics:
http://www.bbb.org/central-california-inland-empire/business-reviews/boutiques/lularoe-in-corona-ca-89069765
https://www.glassdoor.com/Reviews/Lularoe-Reviews-E865260.htm

 

Note:
Most of this following information is not on the corporate website and instead must be obtained through other consultants. Consultants are also not very transparent about this information and generally provide it only after new recruits express interest (through submitting email addresses, responding to posts, etc). The best information we’ve found is from training materials created by consultants building teams.[1][2] Comment or contact us with corrections or updated information.

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