A Commentary on Usana Health Sciences

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This was written by TerminatedRamp, of Usana (NASDAQ:USNA) stock message board infamy:

Understanding USANA’s Pyramid Scheme is Key To Financial Freedom

If you want financial freedom, then understanding how USANA is a pyramid scheme can help you avoid losing thousands of dollars.

All MLM companies admit that in a pyramid scheme, distributors are paid commission for signing new distributors up. The commission would come from the $20-$40 fee that new distributor pays to become a distributor. USANA avoids this and claims they are a legitimate business opportunity and not a pyramid scheme. Ok, so that must mean USANA is not a pyramid, right? Wrong.
What USANA and many MLM companies do to get around this is pay commission to distributors on SALES VOLUME POINTS. Great! So distributors sell product and everyone benefits. Sounds legitimate, except for the following fact. USANA FORCES its distributors who want to be eligible to collect those commissions to purchase $107-$242 worth of product every 28 days! This forced purchase to participate “IS A FEE” to participate in the venture.

When you have 150,000 Commission Qualified distributors purchasing product because they have to, then those at or near the bottom make nothing while those distributors near the top (those who have hundreds of distributors underneath them) make over 70% of all the commissions paid out. This is how and why 99% of distributors lose money. It is a mathematical fact and a very disappointing outcome for those 99% of distributors.

This 28 day REQUIRED FEE goes toward paying all the distributors above you. So instead of getting paid a commission for signing someone up (which is admittedly illegal), USANA Substitutes this by paying out commissions every 28 days BASED ON THE FEES TO PARTICIPATE paid by the downline distributors. THIS is illegal and the FTC already wrote a letter stating so to the Direct Selling Association in 2004. Here is the letter and you can read it for yourself: http://www.marketwaveinc.com/FTC_Letter….

If you are a USANA distributor, you should really consider what is written here and discuss it with your lawyer or accountant if you do not wish to take my word for it. Only then can you achieve true financial freedom by avoiding this pyramid scheme.

4 thoughts on “A Commentary on Usana Health Sciences

  1. Hello,

    A few comments on this message, and a brief comparison with Agel, another MLM company which uses minimum monthly purchase requirements to “enable” distribuitors to get their commissions (aka (PAY TO PLAY):

    Agel uses a binary plan much similar to USANA’s, as distribuitors earn financial bonuses from a TEAM VOLUME COMMISSION cake, calculated from their lesser leg (which would be the right OR the left one – never the two).

    This TEAM VOLUME COMMISSION cake piles from all the purchases made by their downline. (so, no sales required wathsoever, even if the contract states otherwise)

    In order to get the money, they have to purchase a miminum of one box of products, which costs, here in Portugal, 72€ (about 115USD), the cheapest one.

    In order to make a profit (income higher then expenses) they have to have around 40 members in their downline, 19 at least in their lesser leg, ALL of them ACTIVE, ordering stuff.

    This leads to a 97% rate of losers (as the last 5 hierarquical levels don’t make enough to turn a profit), not counting quiters, not counting retail sales (or should I say: direct sales). The 3% earners get 80% of the rewards. 50% AT LEAST, earn nothing at all.

    Just like TerminatedRamp stated above, this pay-to-play requirement looks like a FEE (or a lot of FEEs actually, one per month), smething that would permit FTC to label USANA and AGEL (and many others) as pyramid schemes.

    But there is more. Unlike USANA, Agel does have a recruiting bonus, which they call FAST START COMMISSION. For every Basic-level Member you can recruit, you get 35USD, and for every Executive one you get 200USD. This means you can turn easily the system into a simple recruitment scam, even not considering the monthly fees. Recruit 5 or 6 Executives and you basically get your own initial payment payed for.

    The interesting part is how they try to say this is not a RECRUITMENT FEE. They say it is a commission based on the new member’s initial order (4 packs of products for a Basic plan, 16 for an Executive plan), and not a head-hunt one. Funny, huh?

    You can watch Agel’s compensation plan being fully explained, in youtube, by MLM “guru” Randy Gage ( the guy who makes more money from Agel ), and you can actually testify the NO RECRUITMENT FEE argument live (this can get very funny if you are aware of what’s going on).

    http://www.youtube.com/watch?v=fjcIXLU-Z7w
    http://www.youtube.com/watch?v=o-YIZMkO7GE
    http://www.youtube.com/watch?v=j4rzNkyF9Gk
    http://www.youtube.com/watch?v=ZIwhcA9BxbM

    I urge everyone to watch this. It ‘s simple to understand how people can get easily lured into schemes like this. Watch carefully for the numbers he uses to examplify the possible earnings…

    Here is anothe one worthwhile to watch:
    http://www.youtube.com/watch?v=Nb6i5IdBz-I

    ————————————-

    Now, about the FTC-to-DSA letter, 2004, there is a small “catch” in it – and it still puzzles me how FTC could have written a letter like that when there is no actual, objective means to enforce what it states).

    The letter states that a network is illegal (a pyramid) when distribuitors buy produtcs only in order to receive compensations. When they do it for consumption purposes, then it is legal.

    Somehow this makes full sense. If the purpose is simply to consume, then there is no pyramid.

    The problem is proving one thing or the other. HOW ON EARTH DOES FTC PROPOSE TO DO THAT, I WONDER? HOW THE HELL TO KNOW IF MEMBERS BUY PRODUCTS BECAUSE THEY SIMPLY LIKE THEN (of course every single one of them is going to say they do it for the great product!!!)? And how many distribuitors are required to “like” the product in order to make it a legit company? 50%? 70% What a about 71% plus one?

    Hell, I agree with terminatedramp. I know how business goes around. I’ve seen it happening close enough. But it cannot be proven.

    One approach could be to simply forbid the pay-to-play rule, and make companies pay commissions even if there are no purchases from the member who wants to get them. That should do it. Here in Portugal it works like that (even if the authorities don’t give a damn about it). If you gain a discount from purchsing products in order to get commissions, then you are participating in a pyramid scheme. That’s waht the law states.

    Rigth now, I don’t think that letter makes any difference. It is pointing to the right path, but we can’t walk on it…

    Best Regards,

    Pedro

  2. Pedro,

    I enjoyed reading your response. It was very well written.

    I’ll start with the FTC Letter issue regarding the Pay-to-play. It doesn’t matter what the distributors claim as their reason for purchasing the product. The fact is, the rule is written in USANA’s literature and policies that the 100/200 Personal Sales Volume every 28 days is a mandatory self purchase in order to be “Commissions Qualified”. If the distributor does not make that purchase for a given 28 days, then they are stripped of all their Group Sales Points and are moved into an “Inactive” status. So the reason a distributor may have for purchasing it doesn’t matter. The purchase is mandatory. Obviously, if USANA gets rid of this ridiculous rule, then nobody would HAVE to purchase the product. And believe me, the entire pyramid scheme would come crashing down and USANA’s Net Revenues would drop to virtually nothing.

    Now about Agel’s “Bonus” for recruiting. USANA actually is the same way. Just like you stated, they consider it a commission based off of product sales from the initial order. USANA has “Start-up Packages”. One of the packages is the “Professional Startup Package” which costs about $1250. It is worth 1250 Sales Points and the new distributor immediately gets a $100 commission check for their own purchase AND they immediately become a Ranked “Believer”. Oooo… Of course the one who sponsored that individual gets those 1250 sales points as does every single upline distributor.

    So actually, USANA does pay a commission for signing people up in the same sense Agel does. I’ve argued about this several times on the Yahoo Finance Message Board for USANA’s Stock. I used to use the name RampageSR up until a USANA distributor got Yahoo to delete my account for revealing that the distributor (who used their first and last name as their Yahoo screen name) that on their USANA business page, they had false information that was not allowed to be written. So now I used TerminatedRamp…

    Enjoy your weekend and spread the great work about the True Financial Freedom – Avoiding Pyramid Schemes.

  3. Terminatedramp,

    Thank you for your kind words.

    My comments on your comments:

    ” The fact is, the rule is written in USANA’s literature and policies that the 100/200 Personal Sales Volume every 28 days is a mandatory self purchase in order to be “Commissions Qualified”. If the distributor does not make that purchase for a given 28 days, then they are stripped of all their Group Sales Points and are moved into an “Inactive” status”.

    >>> Same with Agel (with the difference that it’s a month’s cicle). I understand this.

    —————-

    “(…) the FTC Letter issue regarding the Pay-to-play. It doesn’t matter what the distributors claim as their reason for purchasing the product. (…).So the reason a distributor may have for purchasing it doesn’t matter. The purchase is mandatory.”

    >>> I think the letter is dubious enough. It alludes to the mandatory issue here:

    “Modem 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.”

    My thoughst: “The most common means employed to achieve this goal is to require a certain level of monthly purchases to qualify for commissions.” DOES NOT EQUAL “A certain level of monthly purchases to qualify for commissions is enough to identify a system as a Pyramid.”

    That’s why I’m appalled with the letter: It’s like pointing out to the DSA where the problem is (between the lines: mandatory purchases) and, at the same time, ensuring them that nothing will be done to stop the companies who brake the rule. (because it aknowledges a certain level of uncertainty on wheter people are buying for consumption or buying to get paid).

    Don’t get me wrong here. I agree with you on the issue of mandatory purchases being IT. I agree that the letter identifies the main problem. I don’t agree that the letter states a clear path of action, as it is dubious enough (so, I do think it matters to know the reasons for purchases, although that is an impossible thing to do).

    ——————-

    ” Obviously, if USANA gets rid of this ridiculous rule, then nobody would HAVE to purchase the product. And believe me, the entire pyramid scheme would come crashing down and USANA’s Net Revenues would drop to virtually nothing.”

    >>> Of course. I understand this as well. The glue that holds the sticks is precisely the mandatory puchase issue. It’s a cause-and-effect machanism: we only pay you your comissions IF you have ordered somethig from us. If you don’t order, you don’t get paid, and we don´t lose money. If you do order, you get some money and we get even more. 😉

    —————–

    “Now about Agel’s “Bonus” for recruiting. USANA actually is the same way. Just like you stated, they consider it a commission based off of product sales from the initial order. USANA has “Start-up Packages”. One of the packages is the “Professional Startup Package” which costs about $1250. It is worth 1250 Sales Points and the new distributor immediately gets a $100 commission check for their own purchase AND they immediately become a Ranked “Believer”. Oooo… Of course the one who sponsored that individual gets those 1250 sales points as does every single upline distributor. So actually, USANA does pay a commission for signing people up in the same sense Agel does. I’ve argued about this several times on the Yahoo Finance Message Board for USANA’s Stock.”

    >>>> As you didn’t address the issue on you initial message I assumed (never assume anything, I know!) Usana didn’t have a Start-up bonus. Regarding the business model /compensation plan, Agel and USANA look like very similar companies.
    In Agel, an Executive-level membership (16 boxes of products) costs around 900€ -> 1.400USD. It’s worth 500 CV (the equivalent of USANA Sales Points, as it seems), and the recruiter immediately gets 200$. The new distributor gets nothing at all (besides the products). The 500CV go to everyone in the upline whose lesser legs happen to cross the new member’s “circle”.

    ———————-

    “Enjoy your weekend and spread the great work about the True Financial Freedom – Avoiding Pyramid Schemes.”

    >>>> I’m a “believer” of that!!!! Same to you.

    Best Regards.

  4. Hellbent

    I have posted the following links to several of the Usana discussion here as I think many of you might be interested in knowing that Barry Minkow’s complete report on Usana, including addenda 1-20, is still available on the Web courtesy of The Internet Archive:

    http://web.archive.org/web/20070325225014/www.frauddiscovery.net/usana.html

    Lots of additional Usana material Minkow was forced to remove from the FDI site can also be found by fishing around the archived pages from 2007 as well:

    http://web.archive.org/web/20070325225014/www.frauddiscovery.net/usana.html

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