USANA Distributors Overcharged For Product In Order To Fund Pyramid Scheme

UNITED STATES 

USANA ASSOCIATE PRICE LIST

VS

NBTY EQUIVALENT PRICE LIST

See what USANA products could cost if manufactured by a non-MultiLevel Marketing company.

View the PDF version of this article: 

USANA Distributors Overcharged For Product In Order To Fund Pyramid Scheme

By using USANA’s cost to manufacture each product and applying that same figure to NBTY’s costs, you can see how much more USANA charges it’s distributors for their products, which is primarily due to USANA’s very high distributor incentive expense (distributor commissions and bonuses). This also eliminates quality, potency, and pharmaceutical GMP differences the two companies might have by using the same manufacturing cost. See full detailed explanation at the bottom of this article.


USANA DISTRIBUTOR PRICE represents the discounted price USANA gives their distributors. (10% below preferred pricing)

NBTY DISTRIBUTOR PRICE represents the equivalent price if NBTY manufactured the same product instead.

USANA 2014 10K SEC Filing – Average Cost of Sales: 17.81%
NBTY 2014 10K SEC Filing – Average Cost of Sales: 54.29%
 
Approximated NBTY DISTRIBUTOR PRICE = (USANA DISTRIBUTOR PRICE * 17.81%) / 54.29%

	ITEM #	PRODUCT	USANA DISTRIBUTOR PRICE	NBTY DISTRIBUTOR PRICE Approximated
ESSENTIALS	107	MyHealthPak	Custom	Custom * 0.328%
	100	HealthPak	$108.00	$35.43
	101	Essentials	$44.06	$14.45
	101	Essentials Kosher	$44.06	$14.45
	101	Essentials Green	$44.06	$14.45
	102	Chelated Mineral	$14.81	$4.86
	103	Mega Antioxidant	$34.16	$11.21
	106	Mega Antioxidant without Vitamin K	$34.16	$11.21
OPTIMIZERS	109	Vitamin D	$17.96	$5.89
	110	Proflavanol C100	$35.96	$11.80
	120	Active Calcium	$17.06	$5.60
	121	Active Calcium Chewable	$22.46	$7.37
	122	BiOmega	$20.21	$6.63
	123	CoQuinone 30	$35.06	$11.50
	126	Ginkgo-PS	$29.65	$9.73
	128	Palmetto Plus	$22.01	$7.22
	129	PhytoEstrin	$18.86	$6.19
	131	Procosa	$27.90	$9.15
	134	Visionex	$28.31	$9.29
	141	Pure Rest	$14.36	$4.71
	143	Booster C 600	$28.31	$9.29
DIGESTION/DETOX	108	Probiotic	$23.36	$7.66
	111	Digestive Enzyme	$26.96	$8.84
	135	Hepasil DTX	$30.56	$10.02
	226	Fibergy Plus	$26.96	$8.84
MOTHER/CHILD	104	Body Rox	$20.25	$6.64
	105	Usanimals	$12.56	$4.12
	144	BiOmega Jr.	$15.26	$5.00
	151	BabyCare Prenatal Essentials	$44.06	$14.45
	165	Children’s Complete Duo	$22.46	$7.37
NUTRIMEAL	209	Nutrimeal Free, Protein Drink Mix	$26.96	$8.84
	202	Nutrimeal Chocolate Whey, Protein Drink Mix	$26.96	$8.84
	210	Nutrimeal Dutch Chocolate, Protein Drink Mix	$26.96	$8.84
	211	Nutrimeal French Vanilla, Protein Drink Mix	$26.96	$8.84
	212	Nutrimeal Wild Strawberry, Protein Drink Mix	$26.96	$8.84
SNACKS & BARS	236	Peanutty Bliss, Protein Snack	$27.86	$9.14
	235	Choco Chip, Protein Snack	$27.86	$9.14
	237	Fudge Delite, Protein Snack	$27.86	$9.14
	238	Berry Nutty™ Nutrition Bar	$35.96	$11.80
RESET	251	5-Day RESET Kit	$99.86	$32.76
	251	RESET Kit 4-Pack	$346.50	$113.68
ACCESSORIES	752	BlenderBottle	$5.36	$1.76
	754	Pedometer	$13.46	$4.41
	291	Pedometer / BlenderBottle Duo	$16.16	$5.30
REV3	138	Rev3 Energy	$28.76	$9.43
	139	Rev3 Energy Surge Pack	$28.76	$9.43
	139	Rev3 Energy Surge Pack	$47.70	$15.65
SKIN CARE	300	Gentle Daily Cleanser	$15.26	$5.00
	301	Hydrating Toner	$12.56	$4.12
	302	Daytime Protective Emulsion w/ SPF 15	$31.73	$10.41
	303	Night Renewal Crème	$30.15	$9.89
	304	Serum Intensive	$35.33	$11.59
	305	Perfecting Essence	$41.63	$13.66
	306	Eye Nourisher	$20.66	$6.78
	307	Rice Bran Polisher	$13.46	$4.41
	308	Nutritious Crème Masque	$15.26	$5.00
BODY & HAIR CARE	311	Energizing Shower Gel	$14.36	$4.71
	753	Shower Gel Pump	$0.23	$0.07
	312	Revitalizing Shampoo	$14.36	$4.71
	313	Nourishing Conditioner	$15.08	$4.95
	314	Firming Body Nourisher	$19.94	$6.54
	315	Intensive Hand Therapy	$12.15	$3.99
	391	Natural Loofah Glove	$4.05	$1.33
	391	Body Polishing Glove	$3.56	$1.17
	399	Natural Whitening Toothpaste	$7.47	$2.45
	760	Mirror	$4.95	$1.62
COMBINATION PACKS	350	Deluxe Pack w/ Perfecting Essence	$145.67	$47.79
	350	Deluxe Pack w/ Serum Intensive	$145.67	$47.79
	350	Deluxe Pack 4-Pack w/ Perfecting Essence	$382.50	$125.49
	350	Deluxe Pack 4-Pack w/ Serum Intensive	$382.50	$125.49
	351	Sensé Basic Pack	$72.90	$23.92
	351	Sensé Basic 4-Pack	$190.80	$62.60
	354	Sensé Hair & Body Pack	$67.95	$22.29
	360	Sensé Shower Pack	$37.80	$12.40

 

By calculating USANA's estimated cost to manufacture each of their products, we can have NBTY manufacture the same exact product at USANA's estimated cost and determine what a distributor could pay if purchased from NBTY rather than USANA. This reveals how USANA distributors are paying way too much for USANA product so USANA can fund their pyramid scheme (see associate incentive expense below).

Example:
USANA HealthPak sold to their distributors for $108
It costs USANA approximately $19.24 to manufacture the HealthPak ($108 * 17.81%)
Now have NBTY manufacture the same exact product and have it cost them $19.24 to manufacture
NBTY could sell the HealthPak to their distributors for only an estimated $35.43 ($19.24 / 54.29%)

Why should USANA distributors be overcharged and left holding the bag?

USANA	10-K 2014 SEC Filings
Dollar value in thousands	Value	% of Net Sales
Net Sales	$790,471	100.00%
Cost of Sales	$140,794	17.81%
Associate Incentives (Commissions & Bonuses)	$349,044	44.16%
Selling, General and Administrative (SG&A)	$184,531	23.34%
Advertising (part of SG&A)	$4,942	0.63%
Research and Development (part of SG&A)	$5,128	0.65%
Earnings from Operation	$116,102	14.69%
http://www.sec.gov/Archives/edgar/data/896264/000104746915002349/a2223703z10-k.htm
NBTY	10-K 2014 SEC Filings
Dollar value in thousands	Value	% of Net Sales
Net Sales	$3,205,778	100.00%
Cost of Sales	$1,740,417	54.29%
Advertising, Promotion and Catalog	$202,754	6.32%
Selling, General and Administrative (SG&A)	$952,533	29.71%
Goodwill & Intangible Asset Impairment Charges	$207,334	6.47%
Earnings from Operation	$102,740	3.20%
http://www.sec.gov/Archives/edgar/data/70793/000104746915008748/a2226563z10-k.htm

Detailed Explanation:

As a distributor, your job is to retail product to customers and the reward is a decent profit margin on the sale. However, USANA has chosen to make commissions and bonuses (distributor incentives) the primary reward. USANA pays commission to distributors who have generated "Group Sales Volume" points from product purchases made by either preferred customers or downline distributors. As a result of USANA's compensation plan, USANA pays out 43.5% of their sales as distributor incentives, which is reported in USANA 2014 10-K SEC filings. To put in perspective, the HealthPak sells to USANA distributors for $108. From that, $46.98 is used to pay commissions, which does not go toward the distributor who retails product, but rather primarily to those with the largest downlines.

This enormous expense forces USANA to drastically raise the price their products are sold to their distributors to the point distributors cannot realistically retail the product, not to mention preferred customers get the product at the same price distributors get it. This causes distributors to focus on selling a business opportunity and recruit new distributors rather than selling product. In order for distributors to participate in USANA’s compensation plan or contests, you must personally purchase over $100 worth of product every four weeks. Unfortunately, even though USANA pays out almost half of their net sales as distributor incentives, the vast majority of distributors never earn a profit and only a few at the top of the distributor network hierarchy make enough to recognize a profit. The result is a pyramid scheme. The more distributors in one's downline, the more commission one is likely to receive. Because distributors are required to personally purchase product, commissions are almost guaranteed to those who joined earlier and are higher up the chain.

Now that you have a basic understanding of the distributor incentives as a percentage of USANA's net sales, we must now look at USANA's average cost to manufacture the product. This is known as the "cost of sales" and is reported in USANA's 2014 10-K SEC filings as 17.81%, which consists of expenses related to raw materials, labor, quality assurance, and overhead costs directly associated with the production and distribution of the product. So a $108 HealthPak is estimated to cost USANA $19.24 to produce. In other words, USANA sells the HealthPak to their distributors at 5.6 times their cost to manufacture and produce that HealthPak.

In contrast, dietary supplement manufacturer NBTY is not a multilevel marketing company. According to their 2014 10-K SEC filings, NBTY’s cost of sales represents 54.29% of the net sales. As a result, NBTY sells product to their distributors at only 1.8 times their cost to manufacture. One glaring difference is that they do not have a very large distributor incentive like USANA does. If the same HealthPak product was manufactured at NBTY at the same cost of $19.24 as it did with USANA, then NBTY would be able to sell it to their distributors for an estimated $35.43 instead of USANA's $108 price tag.

By removing the focus of recruiting an endless chain of distributors (in what I believe is a massive pyramid scheme) by greatly reducing or eliminating altogether the distributor incentives, product sold to USANA distributors could be much more affordable and allow distributors to retail the product for a substantial profit margin. In fact, if USANA distributors purchased the HealthPak for $35.43, they could resell it for a 100% profit margin and it would still be much cheaper than the $108 USANA distributors currently pay.

This document shows all USANA products sold in the United States, the price USANA distributors pay for each product from USANA (MultiLevel Marketing company), and the estimated price distributors could pay if the same product was instead manufactured and distributed by NBTY (non-MultiLevel Marketing company).

USANA First Quarter Earnings for 2013 - What About Those Undisclosed Statistics? What Should USANA Disclose?

USANA Health Sciences, Inc. (NYSE:USNA) releases their first quarter 2013 financial earnings after the market closes today. Through my research over the years I have found the following statistics about USANA which I believe are pretty accurate and should be considered while reviewing USANA's quarterly result:

Over the last 21 years of USANA's existance, they have recruited about 1.5 million associates.

Over 99% of USANA's associates never made a profit, and instead lost money.

At the beginning of the quarter, USANA had about 247,000 associates who have purchased product during the previous three months. This means 83% of USANA's associates have stopped doing business with USANA when considering the total ever recruited.

Roughly one third of USANA associates, or 82,000 are “active associates” as defined by their policies and procedures (having personally purchased over $100 worth of product during a four week period in order to qualify for commissions). This contradicts their 247,000 active associates as defined and reported in their SEC filings (having simply purchased a USANA product).

USANA recruited about 60,000 new associates during the first quarter of 2013. In order for new associates to begin, they must activate atleast one business center which requires over $200 worth of products to be personally purchased by the associate on top of a $29.95 startup fee. This amounts to about $13.8 million just for these 60,000 new associates to get started.

The majority of USANA associates are not permitted to resell product to retail customers because they are classified as "non-distributing" associate. These same associates are still required to personally purchase product over $100 worth of product every four weeks as part of their obligation toward USANA if they want to be eligible to collect a commission as well as grow and keep their downline and/or preferred customer purchase volume points. This is a blatant case of inventory loading as these associates are stuck with product they are not allowed to sell.

USANA classifies a “full-time” associate as one who has reached the leadership rank of “Gold Director” and up. After 21 years in business, USANA has about 2900 full-time associates which is only 0.8% of their active associates as defined by their SEC filings.

The majority of distributor incentives paid to their distributors goes to this top 0.8% which are Gold Directors and up. Two thirds of USANA associates never received a single penny in commissions.

There aren't enough preferred customers to cover the 5 customer rule (anti-pyramiding rule) to justify paying commissions to the majority of those associates who collected a commission. Most associates who collected a commission are still losing money.

I believe there are more Chinese Nationals who are USANA associates (illegally participating in Multi-Level Marketing) than there are Chinese Nationals who are Babycare Associates (legally participating in Single-Level Marketing). I believe Chinese Nationals joining USANA account for the majority of USANA's growth in both sales and distributorships as the recruiting in mainland China into USANA's MLM has been in overdrive. I believe these Chinese Nationals are counted toward growth in many of USANA's MLM territories.

USANA should disclose during their first quarter earnings conference call:

1. the number of associates that received a commission during the quarter and of those how many are non-distributing associates. Dividing the number of reported Preferred Customers by 5 will give you the maximum number of non-distributing associates USANA can pay a commission to.
2. Number of newly recruited associates during the quarter.
3. Number of full-time associates currently active with USANA.
4. The percentage of distributor incentives paid to these full-time associates.
5. The number of active associates as defined by their policies and procedures.
6. The actual associate turnover rate (instead of simply stating that it is high).
7. The percentage of net sales that was the direct result of associates activating or keeping active their business centers.
8. The amount of sales USANA received as a result of new associates purchasing a $1250 professional enrollment package.
9. Number of associates that cancelled their distributorship.
10. Number of USANA distributors (not Babycare) living in mainland China.
11. Number of associates who share the same home address as two or more other associates (possible Chinese Nationals using an address from Hong Kong or other USANA territories).

USANA May Be Operating an Illegal Pyramid Scheme By Primarily Paying Associates To Recruit Rather Than Selling Product To Customers.

USANA Health Sciences, Inc. (NYSE: USNA) is a multi-level marketing company that pays out commission to their associates who are suppose to have at least 5 customers. USANA admits that paying associates who do not have customers would technically be paying associates to recruit and acknowledge that doing so is illegal.

I have written a report that shows how USANA is paying associates to recruit and have asked USANA to disclose the number of active associates that received a commission check and of those how many are non-distributing associates.

Read The Report: USANA Watchdog Report on USANA - Paying To Recruit