Check out this great video from John Oliver about Multi Level Marketing
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 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. 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.
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:
See Also: Is LuLaRoe a Pyramid Scheme?
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.
“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.
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. Comment or contact us with corrections or updated information.