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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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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MLMs Break the Internet

Multi level marketing breaks the internet

If you heard about something that seemed like it might be too good to be true, your first reaction would probably be to Google it. Maybe if you’re really suspicious, you might add “reviews” or “does it work?” to your search. We trust the internet to make available to us all of the best information–and most of the time, it does.

Unfortunately, with products distributed by multi-level-marketing companies, such as Plexus and Lularoe, your go-to Google search gives you bad information. That’s due to a clever trick that these companies use to exploit a common weakness of algorithms used by companies like Google, Facebook, and Twitter.

How MLMs Break Google

The internet is made up of millions of pages of content. In order to answer your every question, your favorite search engine has to know about all of that content.

There’s so much content out there that when you ask a question, your search engine can’t show you every possible answer. Instead, it has to examine all of that content to decide what it thinks are the best answers. “Good” content rises to the top of the search results, and “bad” content gets demoted to the end of the list, where you likely never see it (most people only look at the first few results). To decide what’s good and what isn’t, your search engine scans everything for clues, including how frequently different kinds of content appear. The internet relies on wisdom in numbers, just like we do.

This ranking system is how multi-level-marketing companies control their online presence. These companies encourage a lot of people to create a lot of positive content (videos, tweets, reviews, blogs, websites, and more) all over the internet to promote their products. The huge volume of unique results tricks website search engines, feeds, and trends into thinking that this positive content is the best content about these companies and products. Critical and unbiased stuff gets drowned out.

MLM companies know that If you search for a bad review of something online and you can’t find one, you will probably conclude that the product is great, not that you just can’t find the bad reviews. If you search for a product online and you can’t find it, you probably will conclude the product doesn’t exist at all.

Searching

The implications of this are a little bit mind-blowing. The algorithms behind Google’s search results, Facebook’s feed, Twitter’s trends, and are so powerful that they can change how we think about what’s important or even what exists.

But isn’t that spam?

Really, this is a system where companies blanket the internet with a huge amount of biased information about their products. If they were blanketing your inbox, your mailbox, or your windshield with that information, we would call it spam. Does that mean that all of these chirpy blog posts and motivational tweets are spam, too? And if so, why don’t search engines notice and banish it all to the “bad” category, never to be heard from again?

This is where the MCMs’ plan get even more sophisticated. Breaking the internet isn’t just a numbers game. It’s the kind of content that really counts. Search engines are diligently trying not to show you spam and other undesirables, like your classmate’s old Geocities site from 1999. On the other hand, sites are also sniffing out good content that’s important to you.

As far as Google, Facebook, Twitter, and their ilk are concerned, MCM content isn’t spam. Spam is generated by computers, sent out to huge lists of unsuspecting people, and is really obviously scammy to humans. Spam is not created by a bunch of individuals creating unique blog posts and videos talking about their experiences, and sharing with their personal friends and family. But since MCMs encourage individuals to do the company’s promotion for them, it’s individuals who are generating all of the blog posts, tweets, videos, testimonials, and motivational updates. Those are your friends or your family members posting, so all of that content must be “good” content. At least, that’s what the time-tested logic of the internet would say.

The problem is that the internet’s ideas about good and bad content haven’t caught up to the age of social media. These posts may seem important, but in reality, they are a brand-new kind of spam. Like the chain letters of your childhood, this spam is made by social networks, not computers. Multi-level-marketing leaders actually even train their teams to avoid detection (read: seem less like a computer, more like a human) by teaching things like “don’t copy and paste posts” and “get creative, be unique.” Part of the reason these companies have flourished is because their model is strongest where the internet is the weakest: algorithms are not as creative as people are. And unlike clicking “report spam” on an email, you’re not nearly as likely to block your friend or loved one.

So, posts by the people who are selling the products or recruiting for the company seem important because to the algorithms — they look important. This means these posts show up at the top whenever you search YouTube, Google, and Twitter. If you look for reviews–even if you search for bad reviews– all you’ll find is content that the company, or its representatives, has personally crafted. The company has total control over what shows up online.

The problem just gets worse

The people creating this content are good people, doing their best to sell products and recruit new team members, caught up in something larger. The problem snowballs out of control as new people rely on the flawed information online for protection, only to get entangled themselves.

research
Regular tools for researching MLM products and companies just don’t work.

Suppose Jamie is thinking about joining a team selling an MLM vitamin product. Even if she is smart, she knows how to research, and she cares about doing her due diligence, she can’t. The tool Jamie trusts to do that research–the Internet–is effectively presenting the company’s advertising materials as the factual truth. Extensive research leads Jamie to the very biased conclusions presented by the masses of people already involved with the company. So Jamie joins the company, and creates even more content. If Jamie joins a particularly bad MLM she might end up losing a lot of her money and time, and involving family and friends along the way.

Learn more

Check out these links to learn more and leave questions in the comments!

How does Google search work, more

No. 1 Position in Google Gets 33% of Search Traffic

Info about Facebook’s feed algorithm, F8: How News Feed Works

NYTimes: Facebook’s Bias Is Built-In

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