Is Usana Running an Illegal Pyramid Scheme?

usana-health-sciences-chinaAll good multi-level marketing companies have one thing in common: They fail to disclose enough information to allow consumers and regulators to determine if they are in the business of recruiting or selling products. They disclose just enough facts and figures to make it appear that they are being transparent. But they hide enough information that no one could ever determine definitively if they are running pyramid schemes.

MLMs cleverly avoid the pyramid scheme issue by making it impossible to determine the level of retail sales of products to consumers.  The companies effectively use the technique of plausible deniability: They purposely do not track retail sales, so when the business model is challenged with the assertion that few retail sales occur (and therefore they are recruiting schemes), executives can claim that they know no such thing!

Usana Watchdog has released a report on Usana Health Sciences, challenging the company’s failure to reveal meaningful facts and figures that would allow consumers and law enforcement to determine whether the company is running an illegal pyramid scheme.

The crux of his analysis goes like this:

  • Usana has a 5 customer rule which requires distributors to sell products to 5 or more customers before becoming eligible to receive a commission check.
  • This theoretically ensures that Usana is not paying distributors to recruit, but is instead paying distributors for the sale of retail products.
  • Non-distributing associates of Usana are forbidden to retail products, and must have at least 5 preferred customers in their downline before being eligible to receive a commission check.
  • Distributing associates of Usana can retail products, and must sell to at least 5 retail customers and/or preferred customers before being eligible to receive a commission check.
  • Usana does not verify whether or not associates actually have 5 customers.
  • Usana reports that 1/3 of associates receive commission checks. Applied to the 247,000 active associates reported by Usana as of the fourth quarter of 2012, 82,300 associates received a commission check in that quarter.
  • 64,000 preferred customers were reported in the fourth quarter of 2012. If we divide that by 5 (the number of customers required to be eligible for a commission check), we can assume that 12,800 of the associates receiving commission checks have met the requirement.
  • This leaves 69,500 associates receiving commission checks in the fourth quarter of 2012 for which we know nothing about their customers.

Do these 69,500 associates actually have 5 retail customers each? Or are they receiving commission checks in spite of not having the required number of retail customers?

Of course, Usana doesn’t really track this, so they can’t disclose any useful information. The only check and balance in place is an acknowledgement from distributors that they must have 5 retail customers in order to receive a commission check. No one verifies the retail customers of any associate, so it is possible that associates are purchasing inventory that is never sold (all for the purpose of qualifying for compensation).

If this is the case, Usana could be deemed an illegal pyramid scheme which is paying distributors for recruiting, rather than selling products. Fortune Hi Tech Marketing  was shut down by regulators on this very basis. In fact, many multi-level marketing companies have characteristics in common with FHTM, which lends credibility to the allegation that they pyramid schemes.

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Comments (3)

  • USANA Watchdog

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    Thanks for writing about this Tracy.

    USANA has made it difficult to hide from authorities as Herbalife has. USANA made three distinct categories. 1) Distributing associates, 2) Non-distributing Associates, and 3) Preferred Customers.

    Unlike Herbalife, USANA can’t hide their associates behind the curtains by calling them customers. In fact, only distributing associates are allowed to retail product. Both categories of associates require 5 customers to get a commission from USANA. Just as USANA stated, paying associates who do not have any customers is technically paying them to recruit, which they even admit is a pyramid scheme.

    Non-distributing associates MUST meet the 5 customer rule with preferred customers only. USANA discloses they have 64,000 preferred customers. So divide that by 5 and the maximum number on “non-distributing associates” USANA can legitimately pay a commission to is only 12,800. USANA pays commission to about 82,300 associates. And only USANA and a handful of associates at the very top know the actual ratio of nondistributing versus distributing associates.

    USANA could be put out of business tomorrow if they are forced to disclose the number of non-distributing associates that received a commission last quarter because if it is substantially more than 12,800 then USANA is a pyramid scheme because the associates have no customers, yet are getting paid a commission because they have large downlines. In other words (or USANA’s own words) they are paid to recruit.

    Reply

  • Cari

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    I just got roped into It Works! We must have an auto shipment of a min of 80 BV, which means I must have to buy at least $90-100 worth of product ~OR~ have a min of 400 BV from my loyal customers and or retail customers, which i find extremely frustrating. While I see people making a ton of money here, I find that even more money is being spent by the Distributors, in order to keep their businesses active and out there. The products we have to buy, (blitz cards, business cards, banners et al) are extremely over priced, and take eons to arrive. So While I wait for my stupid blitz cards, which I paid $19 for plus another $15 in shipping and taxes, I can sell some body wraps (which do work well ) for tax free cash! Thats great I like turning $59 into $120 cash. The catch? I have very minimal retail and loyal customers so I make very little commissions AND I canto promote and make more unless I recruit, which is annoying. Its becoming annoying to me, and annoying to my friends and family.
    I do like the products, I rather make a little kick back from buying my own supplements, rather than paying GNC or Bodybuilding.com, If find these statements from the upper lines bold and out of this world. Some of these DTs were around since the launch of the products 10 years ago, so yes, they are the originals and yes they make like $100,000 a month. That is only because EVERY distributor in the USA, CANADA, UK and so on, are working under them, in one way or another.
    Im happy to have my discounted price with It Works! and selling wraps for CASH, but I am so done trying to recruit so I can make my upper line more money than I will ever make, yet I do all of the foot work!

    UGH!

    Reply

  • anonymous

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    i was invited a friend and i think they get around the “non-distributing associate” requirement by obligating everyone to make a monthly purchase of the products. thus equating a consistent sales figure.

    Reply

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