USANA distributors' number
one selling product is not a vitamin supplement or skin care product.
It is actually the business opportunity membership. That's right, a $19.95 startup fee
someone pays when they are recruited into USANA's business
opportunity and placed in the distributor's downline. This might
sound unbelievable but I believe it is true. USANA product cannot be
retailed for a profit because 1) “preferred customers” get the
product at the same cost as distributors and 2) the product is
absurdly overpriced because of the percentage of “distributor
incentives” paid out, so there is zero demand for the product above
the distributor's cost. So the only thing reasonably priced is the
actual membership fee to join as a USANA distributor. All the
distributor has to do now is convince others that they too can become
rich by signing up in USANA's business opportunity.
USANA claims distributors
aren't paid commission from this signup fee and claims that doing so
would make them an illegal pyramid scheme. USANA claims that if commissions are paid based on product sales, then it is not a pyramid. However, this $19.95 fee
alone doesn't let the newly recruited distributor even start their
USANA business. Their business venture does not begin until they
“activate” a business center. To do this, the new distributor
must “personally purchase” over $220 worth of product, which is
200 “personal sales volume” (PSV) as USANA calls it. Once
activated, the new distributor can take part in USANA's compensation
plan.
USANA considers this
required personal purchase to activate the new distributor's status
as a “sale”. Did the distributor who recruited this new member
sell the product to the new distributor? Absolutely not. Did the new
distributor purchase the product from the person who recruited them?
Not at all. The only product that was sold by the distributor was a
membership (recruitment). So USANA gives Group Sales Volume (GSV)
points to every upstream member above the newly recruited distributor
based on the $220 worth of product purchased. These GSV will travel
all the way up to the very first USANA distributor if it needs to.
Once enough GSV points are accumulated, they are converted into
commission dollars.
After the newly recruited
distributor has activated their business center, they must now
personally purchase 100 points worth of product ($110) every 4 weeks
to remain active. If the associate fails to make this personal
purchase, that distributor is no longer considered active, is no
longer able to make any commission, and loses all their accumulated
GSV points (if they had 10,000 GSV, they now have 0).
Now imagine over 220,000
USANA active distributors all making their required personal
purchases in order to stay active. Many are required to personally
purchase 200 PSV since they have multiple business centers. That's a
lot of product purchased from USANA but none actually sold by USANA
distributors. Again, the primary product sold by USANA distributors
is the membership. So why should any of these distributors make any
commission whatsoever from these “required” product purchases
made by every active distributor?
The only real customers
are the USANA “preferred customers”. There are around 64,000 of
them. In 2011, preferred customers only account for 10% of USANA's
net revenue, which is virtually insignificant. 10% of $589 million is
only $58.9 million. The amount of commission paid out is 45% of net
revenue. So preferred customers only account for around $26 million
in commission paid out. However, USANA paid a total of $265 million
total. Where did the remaining $239 million in commission funds come
from? USANA distributor's required personal purchases.
The FTC wrote a letter tothe Direct Selling Association back in 2004 the states the following:
(my emphasis in bold)
QUOTE
...a multi-level
compensation system funded primarily by payments made for the
right to participate in the venture is an illegal pyramid
scheme.
…
Modern pyramid schemes
generally do not blatantly base commissions on the outright payment
of fees, but instead try to disguise these payments to appear
as if they are based on the sale of goods or services. The most
common means employed to achieve this goal is to require a certain
level of monthly purchases to qualify for commissions.
UNQUOTE
There is no question about
it, USANA is operating as a pyramid scheme. Federal regulators have
completely ignored complaints from thousands of MLM distributors and
critics and have instead made it easier for these kinds of scams to
exist (FTC's business opportunity rule exempts multilevel marketing
business opportunities). Hopefully the recent attention Herbalife has
been receiving from pyramid scheme allegations of their own draws
enough attention to the MLM industry that federal regulators are
forced to investigate frauds like USANA. Hundreds of thousands of
USANA distributors are losing money and never even had a chance to
make a profit. A 99% failure rate cannot and should not be ignored.
And don't forget, USANA's #1 product sold by its distributors are
memberships into the business opportunity.
