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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