Thursday, January 10, 2013

The Number One Product USANA Distributors Sell is the Business Opportunity Membership. Is This Worse Than Herbalife and Amway?

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.

33 comments:

  1. A pyramid or pyramid scheme refers to an illegal network operation where participants are rewarded substantially for the recruitment or enrollment of other participants rather than for selling products or services.

    Source: http://obs.usana.com/UPLOADS/usana/2009/89/89-1_KBA.html

    What a vague statement. How about if the participants are rewarded substantially for meeting their purchase, I mean, "sales" requirements AND their recruited participants' purchase, errr, "sales", and down to the last level of recruits?

    USANA sure loves circumventing stuff.

    ReplyDelete
  2. The USANA annual report says that an active distributor is a distributor that purchases any amount of their products in a 3 month period, would this indicate that not all of the 220k distributors are commission eligible? The definition of active distributor in their filing is different than the description in your blog are you sure that your math is correct? If so then how are you arriving at the conclusion that all 220k distributors are buying every month?

    ReplyDelete
    Replies
    1. 2011-Q1 USANA reported 213,000 active associates during the 3 month period
      2011-Q2 USANA reported 222,000 active associates during the 3 month period
      2011-Q3 USANA reported 214,000 active associates during the 3 month period
      2011-Q4 USANA reported 222,000 active associates during the 3 month period

      I can only use the number of “active” associates USANA discloses to the public. USANA chooses to only disclose the last 3 months worth of distributor numbers, even on their annual 10-K SEC filing. Nobody except USANA insiders really knows how many active associates they have at any given moment in time. They also know how many active associates they had for the year, how many dropped out, and how many were recruited. But again, USANA chooses not to disclose this to their shareholders. I can only go by the numbers USANA provides. I think it is fair of me to assume that about 222,000 active associates are buying each month until USANA provides more useful disclosures.

      In USANA's SEC filings, they make the following statement
      QUOTE
      For purposes of this report, we only count as active customers those Associates and Preferred Customers who have purchased product from us at any time during the most recent three-month period, either for personal use or for resale.
      UNQUOTE

      This is extremely vague as it could mean USANA counts someone as “active” if they only purchased a 4.5 oz tube of toothpaste for $7.50 (boy what a price, and that's the distributor's cost!).

      However, in USANA's Policies and Procedures, the following is written:
      QUOTE
      Section 13 – Definitions
      Definition of Terms
      Active Associate — An Associate who satisfies the minimum Personal Sales Volume requirements as set forth in the USANA Binary Compensation Plan.
      UNQUOTE

      Okay, now it's off to USANA's compensation plan, which states:
      QUOTE
      To receive commissions in the USANA Binary Compensation Plan, you must keep your Business Center(s) active by achieving a minimum PSV requirement. To keep one Business Center active, you must achieve a PSV of at least 100 points during each four-week rolling period. To keep two or more Business Centers active, you must achieve at least 200 points in PSV during each four-week rolling period.
      UNQUOTE

      Oh, and for the record, USANA does NOT count preferred customers as “Retail Customers”. If they ever do so on a SEC filing or analyst conference call, then one only need to remind them what they've defined already: Preferred Customer vs Retail Customer
      QUOTE
      A Preferred Customer is someone who purchases USANA products for their personal use only, directly from USANA. A Retail Customer is someone who purchases USANA products directly from a USANA Distributor or directly from an Independent Distributor's web page. Neither customer type is allowed to participate in the compensation plan.
      UNQUOTE

      Just wanted to throw that out there since it was on my list of notes for this topic.

      Now while USANA only disclosed a 222,000 active associate number, what they don't disclose is the 1,000,000+ USANA distributors they have who at least pay a $19.95 renew fee each year if anything. That's another important disclosure USANA could give shareholders. The total number of distributor renewal fees they receive for the year.

      Delete
    2. They disclose this in their 10-k as "Subject to payment of of a minimal annual account renewal fee"-page 10 under Associates.
      In fact all fees and plans are available on their website. I have a few associates and all pay the $19.95 fee but I dont get any commission or a dollar from this can you help me obtain this as part of my plan. The company will will not include it for me.

      Delete
    3. I'm not sure what you are asking. USANA does not disclose the number of associates that pay the annual renewal fee or the total amount collected.

      Delete
    4. You are implying the $19.95 goes to the downline and then is paid to a distributor and therefore a recruiting fee. That is simply not true. You on one hand are saying they are not disclosing the amount but infer it is a recruiting fee paid to dstributors. It is an admin fee collected by the company and do the math of the number of associates and it can not be a material number as a percent of sales.

      Delete
    5. No, I have never implied that the $19.95 renewal fee goes toward paying commissions. I'm asking USANA to disclose the amount collected by renewal fees so they can disclose the number of distributors in the company. USANA has never disclosed the number of distributors it has in the company. All they disclose is the number of active associates during the last three months.

      I have datamined the company's distributors have as of September 2012, USANA had issued over 1.3 million distributor ID numbers. I'm simply asking USANA to disclose the number of distributors who are still paying their membership fees.

      If USANA has about 500,000 existing distributors paying a yearly renewal fee of $19.95, that's about $10 million.
      If USANA has about 300,000 new USANA distributors join who purchase a Starter Kit for $29.95, that's about an additional $9 million.

      So in one year USANA might be making $19 million just from membership fees. My point is to ask USANA a question about how much they make from products or fees they charge their distributors as a way to get them to reveal just how many current distributors they truly have.

      I don't know why you are getting the idea that I'm associating renewal fees or start up fees with commissions paid out.

      Delete
    6. I am trying to understand the relevance of your point. Even if it is $19 million. That would only be 2.93% of their annual sales. Their is a cost associated with starting a new distributor as well as maintaining one. I seriously doubt that there are 300,000 new a year pay the $29.95. Also it is not clear where you are getting 500,000. When they reported this week they have 247,000 associates 64.000 preferred customers. Not sure how that adds up to 500,000. As i indicated above even if it is that number it is not material.

      Delete
    7. My point is not about the actual amount USANA makes from renewal fees or starter kit fees. My point of asking such questions would be so USANA reveals the actual number of sales reps still associated with the company. Simply asking USANA how many total distributors they have would yield no answer. They would simply restate the active associate figure based on the last 3 months. You know USANA used to disclose the number of active associates for the last 12 months. They changed that in the early 2000s because they didn't think it was relevant.

      For all we know, there could be 1,000,000 USANA associates continuing to pay the renewal fee. This does not necessarily imply "active" associates.

      You think 300,000 associates is too high of a number for the amount USANA recruits during a year like 2012? Why do you think that is high? Also, why do you assume when a associate signs up, they are automatically going to purchase $200 worth of product to activate their business center?

      As I have stated once before, USANA does not clearly define what they mean by "Active Associate" on their SEC filings. In every single piece of literature USANA creates, an Active associate is one who personally purchases at least 100 PSV points ($110+) worth of product during a 4 week cycle. However, in the SEC filings, they simply claim an active associate is one who purchases product any time within the last 3 months. Does that imply the associate who just buy a $7.50 tube of toothpaste and be counted as active? I doubt it. But USANA will not clear this up.

      How Stock analysts allow USANA to remain so ambiguous, vague, and secretive about their actual distributor numbers is beyond me. Do you know how many active associates are in Australia? How about New Zealand? USANA will not disclose this willingly. They used to give each market's statistics. But they pulled an Enron and changed the way they report their numbers by grouping the markets together into one, making it much easier to deceive shareholders and investors.

      If I go back to 2002 and 2001 when USANA changed from a 12 month associate count to a 3 month associate count, the ratio at the time of 3 month figures to 12 month figures for associates was 65% while preferred customers was 55%.

      If I use they same percentages (which they could be much different now, but...) I would be able to say that during the last 12 months, USANA had 380,000 active associates and 116,000 active preferred customers. This doesn't include the INACTIVE ones, which are still paying membership renewal fees.

      I'm just looking for USANA to be honest and disclose information I believe is important for shareholders and even more important for auditors and federal regulators to see.

      Delete
  3. Interesting, I didn't realize that USANA was using the term active associate differently in their policies and procedures.

    I still don't think its reasonable to assume that the set of all "active associates" referenced in SEC filings is necessarily the same set of "active associates" referenced in policies and procedures. I think its more likely that the policies and procedures are prepared by one group while the filings are prepared by another with poor intragroup communication and an inconsistent use of definitions.

    USANA may well be a pyramid scheme but it seems like it would require additional investigation from the FTC to know for sure. You've posted a great deal of good and useful information but it seems like you have made unreasonable assumptions with your math. Ultimately I don't think sufficient information has been disclosed to confidently make the claims that you are making. I say that with a great deal of respect for the other information you have provided.

    Also, where are you getting the 1 million + annual renewals from? I haven't seen this referenced anywhere in their revenue disclosures.

    Thanks!

    ReplyDelete
  4. I'm down 55lbs and I've made money while helping others. Life changing.

    ReplyDelete
    Replies
    1. Maybe you are down 55lbs because you spend too much and cannot afford to pay your credit card. Lots of new USANA associates thought they are making money but in reality the time and effort, and other expenses from all the meetings and after meeting dinners cost more than they really make.

      Delete
    2. Lots of new USANA associates thought they are making money but in reality the time and effort, and other expenses from all the meetings and after meeting dinners cost more than they really make.

      Delete
  5. I'm curious. Why only talk about USANA? What about Amway and Herbalife, and many others?? And how is USANA worst than other MLM companies?

    I have not seen complaints/bad reviews anywhere about USANA products - apart being overpriced (which I understand because not everyone can afford it - just like any other product categories in the world i.e. cars where some people can only afford to buy Toyota vs. some who can buy BMW); but I've seen so many negative reviews and media reports on Amway and Herbalife.

    Just wondering. Thanks!

    ReplyDelete
  6. In my opinion, any and all mlm companies that force their distributors they have to purchase their product/service to remain commission eligible are pyramid schemes. Red flags should go off immediately when someone sees a company with this type of requirement. It means there really isnt high enough demand for the products/services outside of distributor buying the product/service to pay the commissions to the top level distributors.

    In Usana's case, now factor in a very expensive product line, and now the company is making a nice profit margin on the products too.

    In my opinion, they are all bad companies. Usana has been getting so much scrutiny here and in other media outlets because of all the shady things that have been going on in the past year and Usana's unwillingness to be truthful when investigated.


    ReplyDelete
  7. Good day! im from the philippines, and asking to join USANA. i really dont know if i should join or what?

    please help and let me see your comments. thankyou!
    this will really mean to me.

    ReplyDelete
    Replies
    1. Goodmorning anonymous! Joining UsaNa is actually a make or break opportunity to anybody. Its logically a business opportunity like tradional businesses around but given a chance for a low capital that could give you better compensation depending on how you work on it. Instead of you trying to get into employment which only gives you an hourly pay but sometimes requires you to finish your 3 hour work in an hour. I think it's good if you talk to the person who's inviting you and better yet, try to attend their free seminars for you to determine if you can do it. Besides, everything still depends on your decision.

      Delete
    2. contact me, i'll show you something better. not a binary.

      Delete
    3. yes the decision is always yours..if you really believe that usana is a great company..but for you to be so sure try to research on usana.. but most importantly, try to look if usana can either help you and your family. Godbless...

      Delete
  8. I do believe Usana is on the down slide, but I think it's because of this new Visalus mlm. I know a lot of Usana distributors have quit to join Visalus. I really think Visalus is the new hot mlm that everyone is joining because it's for weight loss. Have you done any research on Visalus watchdog?

    ReplyDelete
  9. I was recently approached to "join". Right from the very beginning I realized this was a modified pyramid scheme. The drawings and explanations confirmed my suspicions. I did purchase some product, as a consumer, not a distributor, just to see what the product is like. But this is something that people need to be very, very comfortable with, I was NOT.

    ReplyDelete
    Replies
    1. You made a very smart decision. USANA's business opportunity is deliberately designed to fail 99% of participating distributors. How is this possible some ask? Because participating distributors are required to purchase 100 or 200 points worth of product every 28 days ($100 to $440), USANA is able to collect enough revenue to pay off the distributors at the top of the pyramids. So while USANA has record breaking sales, 99% of distributors lose money because they have no customers. Only 1% of distributors make a profit and do so off the backs of everyone else who failed.

      This is an illegal product-based pyramid scheme almost identical to the MLM company "Fortune Hi Tech" that the FTC just shut down earlier this week.

      My next article will highlight all the similarities between USANA and Fortune Hi Tech.

      Delete
  10. Why is the USANA watchdog not putting his name on his profile?

    ReplyDelete
    Replies
    1. If you were uncovering illegal activities by the mafia that could potentially land the ring leaders in prison, would you want your name posted on your work?

      Delete
  11. So many holes. First, know your terminology. There are no levels in USANA's compensation plan, so lose the the MLM tag.

    Second, 99% fail? Please explain to me what you describe as "failing". Actually, you can put what you want, I won't be visiting this site again. Some people come in just to lose weight and gain an extra $200 a month that pays for their weight loss. No "failing" there. Such a great, unbiased website you're running. How many people "fail" to go to the gym and lose the weight they want or get as ripped as they wanted? They failed...maybe 99% did. We should start an unbiased website bashing gyms!!! What about those that never succeed at going to the NFL...OVER 99%...NO MORE HIGH SCHOOL FOOTBALL...IT'S a SCAM.

    ReplyDelete
  12. I've been a USANA distributor here in the Philippines for almost a year. I even became a so called "Director". But during those period, i realized that monthly psv is very hard to retail and even personally consume. This scheme is designed for the first enrolees or members to profit..not the late ones. And once you're in, all they will do is brainwash you and fire your enthusiasm with cult like activities so that you keep on recruiting and purchasing your monthly psv..mlm is not for everyone..such a waste of time bro..

    ReplyDelete
    Replies
    1. Good information here. USANA's Philippines market has primarily targeted young adults just out of high school and in college. I have several contacts in the area who have shown me pictures of long lines of people signing up during these gatherings. The loss rate in the Philippines is staggering and USANA provides ZERO statistical information about these loses on their recruiting material. If these kids over there knew the truth about what was going on instead of being duped into USANA, they never would join in the first place.

      That is why it is so important for people to understand that 99% of participating USANA associates never make a profit. These aren't individuals who signed up for product discounts (those are preferred customers). These are people who joined with the intent and dream of becoming rich.

      MLM is for no one. The reason you made Director was probably because you had several others join under you during recruitment meetings who were duped into purchasing USANA's professional pack, which gives you like 1250 points per package sold. So you didn't have much in your downline, but had a couple of these packs sold. While you made it to director that one week, you never again had enough volume to get any more commission checks. Is this about right?

      Good luck and hope you spread your experience around with others in your country

      Delete
  13. After reading all these comments, what is the real truth? My wife and I are regular users of the Usana Products. We think they are so great, that we are considering getting into the market to sell this great product. IS IT A RISK OR IS IT POSSIBLE TO SELL A GOOD PRODUCT AND MAKE A SMALL AMOUNT OF CASH ON THE SIDE?

    ReplyDelete
    Replies
    1. It's a waste of time. If you are preapred to lie about the business opportunity, you are still set up for failure with a probability of 99%.

      Do the maths.

      Delete
    2. if you are already regular users of the product and spend that money anyways, what do you have to lose? if you truly believe in it and can share that passion with others, you should try it out for yourself. it is not a get rich quick model and you will not see incredible results for a couple years of you do it right, but will definitely pay for the product and make some cash on the side. the most important thing in this business is to find a good mentor that has succeeded and can teach you how to do exactly what they did. good luck!

      Delete
  14. After Reading, this is the real truth, quote:

    " United States federal government mandates a nationwide minimum wage level of $7.25 per hour. USANA's average associate purchases $7.02 worth of product each day which could potentially be retailed for $10.80 for a whopping $3.78 profit.

    It would take the average USANA associate 15 DAYS to make the same amount of money that someone working minimum wage makes in only 1 DAY."
    Usana Watchdog's TIP OF THE WEEK

    Usana is not about selling the product. It is about selling a false dream. You are asking about a scam. Usana runs a product based pyramid scheme in which 99%
    loose money.

    Do you know who was put in your up-line today?

    ReplyDelete
    Replies
    1. I'm glad Usana is not selling gummy bears. The tip of they day would look like: Do you know that Usana need to sell 1000 gummy bears to make the minimun hourly wage? And further, if it was selling cars, do you know that selling 1 car a month you are not making any profit at all, considering the rent you need to pay on your location?
      The tip of the day is just flawed argumentation technique. Do you know that you need to sell roughly 14 products a month to break even on your monthly purchase? This would be more suited from a business perspective.

      Delete
  15. Life changing? Yes changes like losing your dignity and friends/familys trust just to make money. wolves in sheeps clothing

    ReplyDelete

Inappropriate language may cause comment not to be added. Please refrain from using bad language. If your posting does not show up after a day, please email me with your comment so I can search for it in the spam box. Thank you.
usanawatchdog@gmail.com