Founded in 2012 by a Mormon mother, Deanne Stidham, LuLaRoe is named after her three grandchildren, Lucy, Lola, and Munroe. As the company lore goes, she designed clothing for her daughter and had so much success selling copies to the parents of her daughter’s friends that she hired consultants to sell for her. In just four years, her company’s range of leggings, dresses, shirts, and other wares generated $1 billion in sales, making it one of the largest MLMs in the US; between October 2016 and June 2017, it claims it sold nearly 40 million pairs of leggings. Mary Kay, one of the oldest and most successful MLMs, had $4 billion in sales in 2015.
At issue in determining the legitimacy of a multi-level marketing company is whether its products are sold primarily to consumers or to its members who must recruit new members to buy their products. If it is the former, the company is deemed a legitimate multi-level marketer. If it is the latter, it could be operating a pyramid scheme, which is illegal. The Federal Trade Commission (FTC) has been investigating multi-level companies for several decades and has found many that blur the lines between the two. According to industry data, there are 90 million members worldwide, but relatively few earn meaningful income from their efforts. To some observers, that reflects the characteristics of a pyramid scheme.
Traci Costa, Chief Executive Officer, President and Director of Peekaboo Beans Inc., can speak to that disparity. Not long after Costa founded her company, a kids’ clothing retailer, in 2005, she realized she needed to rethink her sales strategy. She’d tried the boutique route, but found the experience impersonal, and she didn’t feel like she could compete in the online space. That left only one viable option: direct sales.
There’s no minimum amount, It’s an investment that you do for yourself and to help other people. You shouldn’t make a decision based on the amount or what it costs, but rather on what it can bring to you as a result.
Business Students Focus on Ethics: “In the USA, the average annual income from MLM for 90% MLM members is no more than US $5,000, which is far from being a sufficient means of making a living (San Lian Life Weekly 1998)”
MLM culture feels unmistakeably totalitarian. The organization is tightly controlled by the top 0.1% of the pyramid, and absolute loyalty to one’s upline is strictly enforced. Open criticism of the company or its leadership is discouraged. Members denigrate non-MLM employment and belittle non-MLM jobs. MLM gatherings, often referred to as “seminars” or “conventions” or “business retreats,” look nothing like any of these things – instead they feature chanting, ecstatic speeches, testimonials, and highly produced audiovisuals, often for hours on end.
Recruitment into these companies created billions of dollars of losses to consumers each year. The losses of these 99% of distributors were passed up the sales chain to the less than 1% of the people at the top as commissions.
The combined number of recruits from these cycles are the sales force which is referred to as the salesperson’s “downline”. This “downline” is the pyramid in MLM’s multiple level structure of compensation.
Choose the right mentor. In most MLM models, the person who recruited you becomes your mentor. That mentor will coach you through the early stages of your work. Typically, the more successful you are, the more money your mentor makes, so it is in his best interest to be there for you. In a mentor, you’d want:
“One of the unique facets of this business is that the victims are also perpetrators,” Brooks says, speaking generally of MLMs. “You’re trained to recruit your friends and family and neighbors.” He points out that when you onboard someone underneath you, especially if they live in your town or are in your friendship group, you are essentially creating a competitor. It’s as if you open a Subway sandwich shop and then encourage your neighbor to open a Subway right next door—and everyone is already sick of sandwiches.
“People need to be warned about this company now,” one anonymous woman said in a Facebook message to me in April. When I followed up a few days later, she had changed her mind. “I actually onboarded Monday with Agnes & Dora, another direct-sales clothing company. And as part of their policy and procedures, I cannot speak badly of another company.”
“Most people aren’t in it to replace income. Most people are in it to make additional income,” says Hassay. “If you could give me $1,000 that I don’t have right now, my life would be a heck of a lot better. And that’s what most people are doing. There’s a wonderful group of women who join in September or October, buy Christmas presents for their family, quit in January and join again the next year.”
Network marketing is considered by many to be a form of direct selling (the person-to-person sale of goods or services). It utilizes a few different strategies to generate commission payments, such as recruiting, lead generation and management. Network marketing may be referred to by a variety of names, including “multilevel marketing,” “cellular marketing,” “affiliate marketing,” “consumer direct marketing (CDM),” “referral marketing,” “pyramid selling,” or “home-based business franchising.”
All products and services have partial market penetration. For example, only so many people wish to use a discount broker, as evidenced by the very successful but only partial market penetration of Charles Schwab. Not everyone wishes to join a particular discount club, or buy gold, or drink filtered water, or wear a particular style of shoe, or use any product or service. No one in the real world of business would seriously consider the thin arguments of the MLMers when they flippantly mention the infinite market need for their product or services.
Study your products and know them well. It’s your job to sell these products, so you should dedicate yourself to knowing everything about them. You’ll need to plan how you will pitch the product to potential customers, how to answer any questions or doubts they may have, and any relevant research or studies that support your product.
On July 1, LuLaRoe instituted a much fairer Leadership Bonus Plan (pdf) that awards compensation based on sales to consumers rather than wholesale purchases. But there are still thickets of obscure rules: Leggings only count as half a piece; your bonus is based on your downline’s wholesale value of sales, not their retail value; and your team’s per-piece average needs to be at least $30, meaning that if you want to get your bonus, you can never sell your wares for discounted prices.
If it turns out that there is a “run” on ReVo products, and they sell out in mid-June, then they have miscalculated demand and will miss out on profits they could have made. The more serious problem, however, is overestimating the saturation point for the product. If they make 10M units, and sell only 2M units, this may be the end of ReVo as a company.
Where is the “switch” that can be flipped in an MLM when enough sales people are hired? In a normal company a manager says, “We have enough, let’s stop hiring people at this point.” But in an MLM, there is no way to do this. An MLM is a human “churning” machine with no “off button.” Out of control by design, its gears will grind up the money, time, credibility, and entrepreneurial energy of well-meaning people who joined merely to supplement their income. Better to just steer clear of this monster to begin with.
Much has been made of the personal, or internal, consumption issue in recent years. In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme. The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture.
And MLMs look so legitimate to the public, so decent. So many nice people are involved. Surely, it can’t be illegal! The people lower down may even defend the very organization that is robbing them, hoping that they might get their chance to make “the big money” later.
Question your recruiter. When you’ve found a company you’re interested in, you’ll likely meet with a recruiter or another representative. Be skeptical during the recruitment process. Remember that your sponsor makes more money if you sign on, so he may not be as open with you as he could be. Don’t get distracted by promises of how much money you’ll make and really think about what you’re about to do.
Health insurance premiums never seem to stop going up. The 2015 Employer Health Benefits Survey conducted by the Kaiser Family Foundation found that annual premiums for employer-sponsored family health insurance increased by 4% over the last year, … Read more
But wait, did you know the average MLM associate quits after just 4 months? That means that you will need to recruit 5 new people (another 125 prospects) every 4 months just to keep from going backwards. And guess what, this applies to your entire organization!”
MLMs aren’t a new business model—they’ve just done a little rebranding. A lot of the old guard such as Avon and Mary Kay are still around, but nowadays, some of the most popular MLMs include Herbalife and Plexus (nutrition and weight loss), Young Living and DoTerra (essential oils), Pampered Chef (kitchen tools), Rodan + Fields (skincare), and Jamberry (nail stickers).
Jump up ↑ Ohlheiser, Abby (24 September 2014). “FDA warns three companies against marketing their products as Ebola treatments or cures”. Washington Post. https://www.washingtonpost.com/news/to-your-health/wp/2014/09/24/fda-warns-three-companies-against-marketing-their-products-as-ebola-treatments-or-cures/. Retrieved 26 September 2014.
But one woman’s trash may be another woman’s treasure. New consultants are reporting getting boxes full of old merchandise that appears to be from merchants who went out of business—the ugly stuff others couldn’t sell. “While LuLaRoe may resell some inventory returned in original packaging and in new condition to its employees in its company store,” LuLaRoe CMO Lyon says, “LuLaRoe prefers that product that is returned in original packaging and in new condition be used for donations or giveaways only.” Consultants dispute that claim, posting pictures of “new” merchandise with old patterns and tags that have been marked up by other consultants.
Read your contract carefully. Don’t sign anything right away. Take some time to read over and understand the entire contract. You may even want to consult a lawyer or accountant to make sure you’re getting a fair deal and that the company is legitimate.
The percentage of an MLM company’s total profit that is ultimately distributed to its participants (the sales force), away from the MLM owners or shareholders, differs from one MLM company to the next. However, the percentage earmarked to be paid to participants is usually a quite smaller share of overall company profits. The earmarked figure is then distributed in complex compensation plans which, ultimately, funnel most of it to a few individual participants in the upper-most levels of the MLM participant pyramid. The remaining majority of participants (often over 99.5% or more) receive no returns, or negligible return which are more often than not at a net loss after they deduct expenses which were incurred in the promotion of their “independent businesses”.
“Network marketing” and “multi-level marketing” (MLM) have been described by author Dominique Xardel as being synonymous, with it being a type of direct selling. Some sources emphasize that multi-level marketing is merely one form of direct selling, rather than being direct selling. Other terms that are sometimes used to describe multi-level marketing include “word-of-mouth marketing”, “interactive distribution”, and “relationship marketing”. Critics have argued that the use of these and other different terms and “buzzwords” is an effort to distinguish multi-level marketing from illegal Ponzi schemes, chain letters, and consumer fraud scams.
Multi-level marketing is a strategy that some direct sales companies use to encourage their existing distributors to recruit new distributors by paying the existing distributors a percentage of their recruits’ sales; the recruits are known as a distributor’s “downline.” All distributors also make money through direct sales of products to customers. Amway is an example of a well-known direct-sales company that uses multi-level marketing.
What if I recruit more distributors – then can I stop selling? Assume each new guy manages to expand the business by 10% – again, EXTREMELY generous. With two sellers, total sales are $12,000 so I make $600 doing nothing, and each distributor in my downline makes $600 in direct profit. Even if each distributor increases sales by 10%, I’d still have to recruit at least 10 people and DOUBLE my total sales in order to profit least as much as before while doing nothing. With ten distributors and me at the top, total sales are $20,000. I make my $1,000, and they each make $200 (10% profit).
* Why 10 years? Because that amount of time really seems to matter. For example, according to research, since 1956 thousands of different MLM, Multi Level, or Network Marketing companies have opened their doors; and to date only +/- 50 MLM companies have found a way to celebrate their 10th anniversary and still remain in business today. Now, to be completely fair, we should also point out that each and every company on our list was at one time a start-up company too.
On the flip-side of the issue of being stuck with the recruitment “pitch” is the fact that the MLM organization is otherwise loose, to say the least. This is part of the appeal to many, to “be your own boss.”
Who has an eye on “X,” the point of market saturation at a given price, in an MLM? Well, the funny thing, or perhaps the tragic thing, is that “X” will be reached and exceeded without anyone noticing or caring.
And Donald, who has cut back on hosting Arbonne parties since her mat leave ended, says she still makes about $200 a month thanks to her e-commerce site and regular customers. “It’s not a lot, but that’s just from people going online and buying products themselves. So it’s extra money I’m not doing a lot to make,” she explains.
MLM businesses operate in all 50 U.S. states. Businesses may use terms such as “affiliate marketing” or “home-based business franchising”. Many pyramid schemes attempt to present themselves as legitimate MLM businesses. Some sources say that all MLMs are essentially pyramid schemes, even if they are legal.
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Network Marketing distributes goods and services through distributors, which may include hundreds, thousands and even hundreds of thousands of distributions networks. Distributors may buy products from the company for pennies on the dollar, and then sell the products, or they may simply sell the goods and/or services for the company and receive a commission on the sales.
Although each MLM company dictates its own specific “compensation plan” for the payout of any earnings to their respective participants, the common feature which is found across all MLMs is that the compensation plans theoretically pay out to participants only from the two potential revenue streams. The first stream of compensation can be paid out from commissions of sales made by the participants directly to their own retail customers. The second stream of compensation can be paid out from commissions based on the sales made by other distributors below the participant who had recruited those other participants into the MLM; in the organizational hierarchy of MLMs, these participants are referred to as one’s “down line” distributors.
This is the story of rural disenfranchisement and the MLMs that offer desperate American women a chance at clawing their way out. This isn’t a story about leggings, however. It’s not even a story about LuLaRoe. This is the story of rural and suburban disenfranchisement and the MLMs that offer desperate American women a chance at clawing their way out. They’ve become part of the fabric of suburban America, as cherished and inevitable as barbecues and the county fair. Regional newspapers are rife with announcements for fundraisers for children with cancer and elementary-school fetes that promote LuLaRoe pop-up shops. Not buying a pair of leggings can be read as being unsupportive of your friends—or not chipping in for a local kid’s chemotherapy. It’s a genius manipulation of rural and suburban American societal norms.
Sarah Stern, a stay-at-home mom in southern Florida, signed up with LuLaRoe in March 2016 after receiving a glowing review from a friend. “She told me that they have a cult following, the clothes sell themselves, and it’s under 10,000 people now, so you want to get in while it’s on the ground floor,” she says. Stern joined her friend’s LuLaRoe Facebook page and saw women fighting in the comments to buy beautiful leggings and dresses. She showed her husband, a VP of sales for a consumer-products company, the profit margins, and he told her to go for it.
Imagine a neat new product called a Widget that will sell for $100 (a fixed price, to keep it simple). Now, while everyone could use a Widget, not everyone will. Some will be afraid of anything new. Some will be loyal to existing brands. Some will want to buy an inferior product for less money. Some will want a more expensive product for prestige, regardless of quality. The reasons go on and on, and the fact is that only “X” Widgets will sell at $100.
Here’s what we know for sure: Popularity is definitely one of the best ways to determine what’s going on in the marketplace. It plays a part in the movies we see, the music we download, and sometimes even where we invest our money.
Of course, there’s an even better indicator that these companies might have been unfairly maligned: the women who have actually joined them. Despite the dismal stats, many women say they’re making money and actively contributing to their household’s bottom line — and they don’t feel exploited. Like, at all.
“I can’t believe you call yourself a Christian,” one retailer wrote to someone trying to sound the alarm. “Where is the Jesus in you?” Even when consultants wake up to the fact they’ve been hoodwinked, many don’t warn their friends to stay away. That’s because if you speak out against any of LuLaRoe’s rules or mishaps, the community could publicly shame and harass you for being negative. “I can’t believe you call yourself a Christian,” one retailer wrote to someone trying to sound the alarm. “Where is the Jesus in you? I have to block you due to your constant-gross-delusional-uneducated opinions of LLR.” If you reveal you are struggling to make sales, you might be told to stop playing the victim, that you’re not putting in enough effort, to be more enthusiastic, and, of course, to buy more inventory.
For any company selling a product the concepts of marketing and sales are very important as they can mean the difference between success and failure. While they are often used interchangeably or grouped together they are two different concepts … Read more
But advocates of the industry, including Derek Hassay, a marketing expert and professor at the University of Calgary’s Haskayne School of Business, say MLM’s bad rap is unfair — especially in the Canadian marketplace, which is light on U.S.-style MLM horror stories.
After earning $3,000 to $5,000 a month for a few consecutive months, Kayla quit her job in late 2016 to sell LuLaRoe full time. “The next month my profits took a dip. And the next month my profits took a dip,” she says. “I’ve not been able to recoup anything since I quit my job.” After trying to sell off as much inventory as she could, she resigned from the company last month and is awaiting her refund check—which, at the time of writing, still hasn’t arrived.
^ Jump up to: a b c d e f Carroll, Robert Todd (2003). The Skeptic’s Dictionary: A Collection of Strange Beliefs, Amusing Deceptions, and Dangerous Delusions. John Wiley & Sons. pp. 235–36. ISBN 0-471-27242-6. Archived from the original on June 26, 2009. Retrieved June 29, 2009.
Telling lies about people or groups is slander. Systemic and malicious slander is illegal in most civilized countries. Slander is a sin listed next to murder and adultery in Biblical texts. But how will you know when you become the slanderer by repeating what you heard in an MLM meeting?
Thus, a parallel or “shadow” pyramid of motivational tapes, seminars, and videos emerges. These are a “must for success,” and recruits are strong-armed into attending, buying, buying, and buying all the more. This motivational “shadow pyramid” further exploits the flagging recruits as they spiral inexorably into oversaturation and failure. The more they fail, the more “help” they need from those who are “successful” above them.