Sometimes it’s our best friends who get us into the most trouble. Just in time for the holidays, gift scams are back! If you hear about a game or project that seems too good to be true it probably is. These chain letters and mail […]
Tag: Pyramid Scheme
Probably the most common question we hear: “Is this MLM actually a Pyramid Scheme?” Unfortunately, there usually isn’t a straight forward answer. What is a pyramid scheme? “A pyramid scheme is a business model that recruits members via a promise of payments or services for […]
Young Living sells essential oils and other health and lifestyle products. The company says that it is a ‘Multi Level Marketing’ plan. However, MLMs share lots of qualities with pyramid schemes so it can be difficult to tell the difference.
The US Government’s Federal Trade Commission has information about pyramid schemes to help. “Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure.”
Some tips to watch out for
- 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.
- People at lower ranks make excessive payments for inventory that accumulates in their basements. See: inventory loading, bonus buying
- Many schemes will claim product sells like crazy, but sales are only occurring between people inside the structure or to new recruits. Lack of retail sales.
- Prices for products are inflated. Outrageous product claims.
- Commissions for recruiting new distributors. Especially when there is no legitimate product or service, or separate up-front membership fee.
How does Young Living stack up?
Let’s look at the tips above and look carefully at the compensation plan and the income disclosures for Young Living. Also, we’ll look at what participants frequently say.
- Large profits are reached at the higher ranks. At these ranks, a member must be recruiting other members. The income disclosures do not show large profits from real sales alone. The compensation plan also mentions to “focus on helping others create their success.”
- New recruits must purchase expensive starter packs. The default pack is a “standard premium kit” for $160. Some are as much as $260. The basic kit is $45.
- Recruits are encouraged to order inventory monthly via auto-shipment in the essential rewards program. This can lead to extra inventory that can’t be sold.
- Returning merchandise has fees and limitations.
- You cannot become a consultant without purchasing a starter kit.
- There is not technically a direct commission for enrolling a new distributor. However, you do make a commission when a new distributor purchases a starter kit. In this way, there is a commission for enrolling new distributors.
- Distributors frequently make unbelievable product claims. Most commonly, the oils are a miracle cure. There are limitations on products being sold on various platforms and in the state of California.
Pyramid schemes will disguise themselves as MLM or direct sales companies. Even if Young Living is technically a legal multi-level marketing company it has many pyramid scheme red flags. These qualities make it a bad business opportunity.
Finally, we can see this isn’t a great opportunity because so many people are earning $0. This means, after expenses, most people lose money selling Young Living. Check out the income disclosure analysis for more.
WHAT DO YOU THINK?
Essential Oils can be dangerous. People selling the essential oils for companies create articles and guides in order to sell more oils. This can make it difficult to find good truthful information about safe ways to use oils. Additionally, members selling dōTERRA and Young Living […]
Pyramid Scheme Allegations CBS News story with detailed information around the $1 billion lawsuit filed in October alleging LuLaRoe is a pyramid scheme. Also references LuLaRoe’s own legal action against critics. https://www.cbsnews.com/news/lularoe-is-accused-of-being-pyramid-scheme/ Fortune.com article explaining LuLaRoe and referencing the lawsuit filed in October alleging LuLaRoe […]
It’s hard to tell if Du North is a pyramid scheme… and that’s not a great sign.
Du North Designs sells leggings directly and through distributors. Most of their business and their stated business model is “Multi Level Marketing.” MLMs share many qualities with Pyramid Schemes but are a bit different. Because MLMs and pyramid schemes are so similar it can be hard to tell them apart.
The US Government’s Federal Trade Commision has more information about pyramid schemes to help us track this down.
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 for inflated prices.
- 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 Du North stack up?
- If you look carefully at the policies for Du North distributors get bonuses, from recruiting others to purchase inventory.
- Recruits are encouraged to buy thousands upon thousands of dollars of merchandise to join Du North and stay active.
- It’s not possible to directly sell the merchandise without first purchasing an expensive ($99+) “starter pack.”
- Du North says the clothes are worth more than they are. Check out ebay.com for Du North for current market pricing by checking sold listings.
- There are direct commissions for new distributors. The amount of inventory purchased by recruited distributors determines the bonus. You can get more money if the new recruits buy more. None of the compensation bonuses listed depend on any sales only inventory purchases.
- There are costs to join. Du North packages and sells initial inventory, website access, and materials for selling in a “starter kit.” You cannot become a distributor (get a website, do direct sales, etc) without purchasing one of the starter kits.
- You cannot remain active to continue online sales or recruit without purchasing at least $300 in inventory each quarter (no matter how much is actually sold).
- Du North does have policies to avoid too many distributors in one area, but there are many exceptions (previous direct sales/MLM experience, request waiver, etc).
Yes, Du North probably is a Pyramid Scheme
Pyramid schemes will disguise themselves as MLM or direct sales companies. It appears that Du North Designs is doing that because of the red flags above. Whether it’s a pyramid scheme, a scam, or just an unhealthy business, Du North shares many bad qualities with Pyramid Schemes.
To recap, these qualities make it a dangerous opportunity and everyone should probably avoid Du North Designs.
What do you think?
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 […]
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?
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 […]