|MonaVie Payout Data Show MLM's "Money Transfer" and Consumer Losses
This Update is dedicated primarily to one main issue: the extraordinary financial losses suffered by consumers in multi-level marketing companies. One large and fast growing MLM - MonaVie - is highlighted to illustrate this widespread consumer disaster.
For anyone who has not yet been solicited to join, MonaVie sells fruit juice in wine bottles, priced at $40, and its followers claim the juice produces wonderful health benefits. Like all other MLMs, MonaVie claims to offer a "powerfully rewarding" pay plan. Like all other MLMs, the plan is based on endless chain recruiting. The data referenced in this report are presented in a chart that is linked repeatedly in this essay.
As our 401Ks and real estate equity diminish, recognizing the predatory and destructive actions of MLM recruiters becomes all the more important. These schemes go after consumers' remaining savings or lure them into further debt with false "income" promises. The need for income has never been greater, while the viable income opportunities are shrinking. In this environment of hardship and desperation, MLM's false promises and the financial harm take on a sinister aspect.
Many people now know about frauds involving real estate pricing, mortgages and credit. Yet, they still do not know about how MLM schemes operate. Just as those other financial frauds were protected from regulation by lobbyist-financed politicians and misrepresented or ignored by the media, so too misinformation is spread about MLM and the schemes are protected by the lobbyist money .
By analyzing the payout data from MonaVie, this Update shows that it is mathematically impossible for any but a tiny few to ever earn a profit in a typical MLM. Other MLMs could just as easily be used to illustrate the losses. For example, another new MLM that was all the rage, Your Travel Biz.com, also a member of the Direct Selling Association, has just been prosecuted by the Attorney General of California, as a "gigantic pyramid scheme." The losses caused by YTB closely mirror MonaVie's.
MonaVie, the hottest new MLM, has recruited as many as one million consumers and gets as much as a billion in revenue from them annually. Some of Amway's top "tools" promoters have moved over to MonaVie. Amway has sued MonaVie to try to stop the migration.
Before looking at the numbers, it is also useful to briefly examine MonaVie's product, a blend of fruit juices that contains the "acai berry." The juice is packaged in wine bottles and sold for $40. Consumers are advised to drink at least one full bottle a week to receive health benefits. MonaVie's fruit juice is touted all over the Internet for miracle cures of arthritis, diabetes, cancer, asthma and other ailments. It is even said to boost "sexual energy."
Not so coincidentally, the founder of MonaVie, Dallin Larsen, was previously the Vice President of Sales of another MLM, Dynamic Essentials, that recently shut down when the Food and Drug Administration (FDA) charged it with making false claims about medical benefits of a juice product remarkably similar to MonaVie's. Not only was Dynamic Essentials shut down, but its remaining inventory of products were ordered to be destroyed. This is what the FDA said about Dallin Larsen's previous scheme:
Getting rid of these bogus products, from a company that was giving false information about health benefits to consumers, underscores the message from FDA to those who would mislead consumers about their health...
In its lawsuit against MonaVie, Amway noted the extraordinary similarity between MonaVie's and Dynamic Essentials' products. MonaVie's "fruit juice" contains the Acai berry grown in the "rain forests of Brazil". It is said to be consumed by the native people and to have amazing health benefits. The product of the fraudulent scheme, Dynamic Essentials, was called "Royal Tongan Limu". It was derived from a sea plant reportedly consumed by the people of the Pacific island of Tonga and contained amazing health value. The lawsuit states:
a. Just like MonaVie, Royal Tongan Limu was marketed as a health drink with anti-oxidant properties;
b. Just like MonaVie, Royal Tongan Limu used a "superfood" discovered in a remote location as it active ingredient;
c. Just like MonaVie, Royal Tongan Limu was marketed in what look like wine bottles at a similar price;
d. Just like MonaVie, Royal Tongan Limu was marketed with polished videos promoting nature;
e. Just like MonaVie, Royal Tongan Limu was marketed as a daily drink of 2-4 ounces per day;
f. Just like MonaVie, Royal Tongan Limu was marketed through a MLM; and
g. Just like MonaVie, Royal Tongan Limu was marketed with a variety of claimed health benefits for curing or preventing diseases and disorders such as cancer and diabetes.
Luring with Numbers
Beyond the questions of health, what about the economic benefits to consumers who sign up as distributors and join Monavie's "income plan." Here is what MonaVie says about the "income opportunity" on its website:
MonaVie offers the most innovative and dynamic compensation plan in the direct selling industry. With 8 ways to earn income and 50% of the sales volume paid out in distributor commissions, MonaVie is a powerfully rewarding opportunity!
Is it "powerfully rewarding"? For whom? For how many? At what costs? MonaVie offers income data on its website, though in a nearly incomprehensible format. Pyramid Scheme Alert organized the data in a format that is clearer, more complete, and puts all the figures into a new chart.
The results show a massive transfer of money and enormous consumer losses. The "opportunity" to make a profit for a new distributors coming in today at the bottom of MonaVie's pyramid is virtually zero.
One reason many people believe MonaVie is a good income opportunity is because MonaVie advertises that it pays out 50% in commission. The chart shows that this amounts to more than $300 million in one year, a truly impressive number.
However, MonaVie does not explain that 2/3rds of that many was paid only to the top 1% of the distributors! One out of a hundred got 65% of all the money! It may be "powerfully rewarding" but only if you are in the top 1%. Can a consumer get into that elite group? What about the other 99%?
MonaVie also does not explain, unless you read the fine print, that only 9% of all distributors were paid anything at all. Yes, 91% earned zero in commissions! MonaVie disclosed figures for a year ending June, 2008. At the very bottom of the report, it reveals that 91% of all MonaVie distributors - people who signed legally binding distributor agreements - did not gain any commission at all. See the chart.
But, what about that 9%? Was the plan "powerfully rewarding" for them? The data shows that of the 9% who did get some commission, the bottom 99% of them earned on average just $59 a week. This figure is not disclosed, but can be derived from the data. And this $59 average is before paying for taxes, purchasing products, marketing materials and all other business costs. Since to get a commission a consumer has to buy or sell a case of MonaVie juice a month, which costs more than $40 a week, the majority of these distributors are obviously experiencing net losses, and they are the 9% that made anything at all. See the chart.
When ALL distributors are included, the bottom 99% earned less than $4 a week, again before deducting all business costs and product purchases! This huge money transfer and the losses suffered by 99% of MonaVie distributors are carried out through the purchases of MonaVie fruit juice. To be "active" a distributor must buy a case of Monavie juice. But 50% of the price that the distributor pays goes to the "upline" and 2/3rds of all the money is transferred straight to the top 1%. The 1% getting all this money are not the top "sales" people. They are just at the top of the "recruiting" chain. See the chart.
MonaVie's figures correlate with those of 11 other large MLMs that PSA has studied, and from which we drew the conclusion that "income opportunity" in multi-level marketing does not exist. The loss rates make the term "income opportunity" false and misleading. All MLMs that PSA has studied show the same predatory pattern of gaining money from consumers through inventory purchases, siphoning the great majority of the money directly to the top 1%, and then offering the recruits the hopeless chance to make money if they can recruit others on the "endless chain" of "distributors."
Because so few people ever make a profit - or could make one - all claims about the MLM income opportunity are profoundly deceptive - an advertised lie. Because so many consumers lose money, luring people into the pay plan is grossly harmful and unfair.
On the theme of luring with numbers, MonaVie uses several classic MLM tricks. One trick reduces the shock of the disclosures. It offers income or loss data only on what it calls "active distributors." These are the people who got a check, recruited another distributor, and purchased a threshold of products during an eight-week time frame. Everyone else is relegated to a new category called "wholesale customers," which implies they did not want to earn money and made no sales or recruiting effort at all. Though they paid fees and signed sales contracts, they are reclassified as "customers."
The other tricks are to offer no data at all on dropout rates (Newsweek Magazine reported that as many as 70% of MonaVie distributors quit within one year) or average business costs and to limit the time frame for the disclosure to just one year. If the actual number of all consumers who joined over a two or three year period were disclosed, including the dropouts, the actual odds of success for the "last ones in" would be shown to be nearly zero. If the average costs were disclosed, consumers could see the inevitable losses. To avoid revealing the obvious bottom-to-top money transfer, the MonaVie "disclosure" chart puts the top recruiters at the bottom, and the bottom level distributors at the top!
Closed Market Scam vs. Open Market Sales
Why is MLM a scam, and not just a difficult or highly competitive or high risk business? After all, aren't the odds of success very low in many other fields of work too?
MonaVie distributors are not competing against one another, as, say, Joe the Plumber competes with other plumbers in his area. In MonaVie, the few distributors who make money get their money directly from all the other MonaVie distributors that lost. This is a closed system. Each of those that makes money requires a corresponding much larger group to lose money. They all buy and presumably drink the juice. But half the price of juice is the "transfer money." MonaVie sends 50% of the price paid by the downline directly to the upline. MonaVie distributors do not compete against one another or against any other company for that matter. They prey upon one another for the "transfer money". Without the promise of making money by recruiting other "distributors", the products would not sell, at least not at the price charged by the MLM. The false income promise drives the sales of the products.
How does this closed system work out in real numbers at MonaVie?
The 5,135 that make up the top 1% (actually 0.77%) of MonaVie get 65% of the money. That group earns on average about $44,000 year. They are profitable. The average income of all those below them does not show a net profit, when inventory purchases and all other business costs are factored. See the chart.
This 5,135 recruiters at the top had a collective "downline" of more than 660,000! That is, for one at the top to be profitable, more than 130 at the bottom are not! Since this is a closed system, the 130 cannot be profitable! It is like a lottery. For one to have the winning ticket, all the others have to have losing tickets. The money paid for the losing tickets provides the winner's prize money. There is no other money involved.
If just the group that actually earns some money, 60,000 people or 9% of the total - is considered, the impossibility of the required expansion for those at the bottom to become profitable can be clearly seen. At the bottom of the group of MonaVie "active" distributors who actually gained some commission are 55,000 consumers buying product, recruiting other distributors and getting some commission.
For this bottom group of 55,000 "actives" to move into the profitable upper level, they must also each have 130 below each of them, or 7 million new MonaVie distributors! If the growth would continue, the whole earth's population would soon have to be enrolled. This impossibility of expansion shows that the market is already saturated with "distributors" and reveals the hopeless position of those joining now at the bottom.
No matter how large MonaVie's sales force grows, there will always be more than 130 in the net loss positions, on average, for just one, on average, to be profitable.
Since there is no such thing as an "endless" chain of new investors, and the market has saturation limits, the bottom levels of recruits must lose. And they do. Hundreds of thousands will quit the scheme within a year.
But, churning through "losers" cannot continue indefinitely. The MLM scheme must find new countries to plow though their populations, causing 99% losses, while claming to offer an "unlimited" income.
Some related articles on MonaVie:
-- From Dr. Johnny Bowden in Huffinton Post
-- Newsweek Article