After an attempt to recruit her as an Arbonne rep, Holly Bagge delves into the dark art of direct selling and what it takes to earn a white Mercedes.
“What would you do with an extra $5,000 per month?” she asks us, scrolling through slides of beaming women and infographics on her iPad.
My friend and I look at each other in surprise, internally raising our eyebrows. “Uhhh travel, give to charity, buy a llama farm…,” we mumble.
I never expected to be pitched a business venture – which sounded a lot like a pyramid scheme – while sitting in a Wellington café with a woman I had only just met.
“So, what exactly is it that you do?” I ask, sipping my Americano.
With a wide smile, she answers my question as if reading from a script.
“Toothpaste, shampoo and conditioner are things we buy all the time and will continue to spend money on for the rest of our lives, right?”
“But we don’t get any money back from our purchases, right?”
“No, I guess not”.
“We give money to brands that spend huge amounts of money on marketing and we don’t get anything back,” she says.
She tells us she runs her own business through Arbonne, a long-standing, vegan-certified cosmetics and healthcare brand with a Swiss heritage.
We ended up in this Newtown café because my friend, a masseuse, had told me that her client Cheryl worked great hours, earned a decent income, and could tell her (and whoever else might be interested) how to do the same.
Cheryl tells us she’s an independent consultant for Arbonne, and rather than buying products in the supermarket, she purchases all of her products online from Arbonne at a reduced rate, receiving a commission.
Then, she tells others to do the same: Sign up as consultants, purchase all cosmetic/healthcare products from Arbonne henceforth, and share the concept.
The great thing about it, she says, is that she receives a commission from the sales of all those she’s recruited and from those they recruit in turn. And all she had to do is catch up for coffee with people for 6-10 hours per week, telling them how it works.
There are five different levels you can reach within the company depending on sales and the number of people you recruit, she informs us.
And when you make it to Regional Vice President, you get a Mercedes-Benz (we later find out you get money towards renting one, which can only be white and you have to keep your sales high to hold onto it).
She’s already doing amazingly after eight months, she says, and her sister has also decided to join Arbonne instead of studying, as she could easily earn the cost of her student loan in the time it took to get a qualification.
Cheryl finishes up by inviting us to an information evening which will be run by two successful consultants who’ve flown over from Australia.
We thank Cheryl and walk home feeling perplexed. My friend is particularly confused by the fact Cheryl has tried to get massages from her at a reduced price, despite her already low rate.
Thinking it all sounds far too good to be true, I look up Arbonne online when I get home.
Its website is teeming with dead-eyed stock image smiles and success stories of the few who’ve reached the top levels in the business.
I have to scroll past all of this to get to the disclaimer at the bottom of the page saying the testimonials are for “illustrative purposes” and that Arbonne makes no guarantees regarding income.
What concerns me more is discovering a lawsuit accusing Arbonne of being a pyramid scheme.
It turns out that Arbonne ,which launched in New Zealand in 2016, is an international multi-level marketing (MLM) company.
If you’re not sure what MLMs are, chances are you’ve probably come across one before. Think Mary Kay Cosmetics, Avon, Amway, Tupperware NZ, Isagenix. The list is seemingly endless.
Victoria University associate professor and head of school of marketing and international business Val Hooper says multi-level marketing is a version of direct selling, where someone takes ownership of products and sells directly to the public.
“They buy the product at a reduced rate. But often the products available though schemes are expensive anyway compared to what’s on the supermarket shelf. And then – if you are one person – you recruit further marketers and you get a commission on what your recruits sell.”
Cheryl sends me Arbonne New Zealand’s business folder, a dense 31-page document breaking down the process of joining and containing an endless list of Arbonne’s business jargon and buzz words. It costs $121 to sign up as a consultant, it says. Consultants need to buy about $250 worth of product each month to earn commission and they need to pay a small fee to renew their membership each year.
As Hooper has pointed out, the products aren’t cheap either. A bottle of Arbonne shampoo at the consultants’ discounted rate is $24.70. There are also recommended start orders in the business folder, beginning at $1,559.15.
If you’re lucky to get into the business early, your chances of getting a substantial network, and therefore more money, are much higher, Hooper says.
The 2017 average earnings for Arbonne consultants in Australia (the New Zealand figures aren’t available) show only a small percentage of Arbonne reps are at the top, while over 60 percent are at the first level as Independent Consultants.
And this doesn’t paint the full picture. The figures only include the earnings of consultants who were active. So, if a consultant didn’t earn that month, they weren’t counted – meaning the average earnings for the total number of consultants is likely to be lower. It also doesn’t include the amount the consultants personally invested in products and fees.
Despite trumpeting the success of its consultants, Arbonne filed for Chapter 11 bankruptcy in 2009. The company has now been turned around, and reported nearly $600 million in revenue last year.
The MLM industry is huge, and according to the Direct Selling Association, 18.6 million people were involved in direct selling (MLMs) in the United States alone in 2017.
MLMs are legal in New Zealand, but have been banned in some places, including mainland China.
There has been plenty of coverage of the problems with MLMs. A report looking at the business models of 350 MLMs (including Arbonne), published on the Federal Trade Commission’s website shows 99 percent of people who join MLMs lose money.
In 2016 Netflix released the documentary Betting on Zero which investigated the allegation that MLM company Herbalife was a pyramid scheme.
John Oliver also slammed MLMs on his talk show calling them “fucking awful” and describing them as exhibiting cult-like behaviour and preying on lower socio-economic groups.
There’s even a dedicated podcast called The Dream critiquing multi-level marketing.
And Arbonne itself has been the subject of spoof videos.
In comparison, pyramid schemes are banned in New Zealand (and many other countries) and are defined by commercial law bible Gault on Commercial Law as “primarily a chance to buy or sell an investment opportunity… It is one likely to be unfair to many participants, because earning a reasonable reward involves recruiting others and new participants are unlikely to be able to recruit enough people.”
Hooper says pyramid schemes tend to be less about selling products and more about giving money, with the promise of receiving a huge return on your investment.
“In other words, you recruit two people who then recruit two people, et cetera, and then they send money to the top person in the pyramid. If you break it down and you have eight people, they will all send, say, $5,000 to the top person who then gets $40,000.”
But the model normally fails before most people receive payment and it only serves those at the top.
Arbonne has been accused of being an illegal pyramid scheme and was sued last year along with five of its top representatives by Texas couple Cynthia and Michael Dagnall. The couple ended up reaching a settlement with Arbonne, however.
The Dagnalls claimed they had collectively spent $2,840 yet only received $30.00 from the company, and that the only people who had made money were a very few at the top of the alleged pyramid.
Armed with this background research, I gather my masseuse mate and another friend and go to the information evening to find out more about Arbonne’s intentions in New Zealand.
We are greeted by Cheryl and a coterie of other high-heeled women. A meagre spread of Supreme Cheese Doritos, hummus and cheap sugary wine (containing traces of animal products, which doesn’t seem to align with Arbonne’s vegan standpoint) is laid out on a table.
The Arbonne consultants have paid a $5 fee to attend the event, presumably because it offers the opportunity to recruit. A show of hands confirms the crowd is about 90 percent consultants.
The speakers are Sandra, a Regional Vice President, and Janet, an Executive Area Manager, both wearing tapered, drop-crotch pleather pants (presumably more in line with the organisation’s vegan principles than the real thing).
Sandra, according to Cheryl, has received her white Mercedes and is doing exceptionally well.
Throughout the talk Sandra asks us: “Who could do with more time? More money? Who wants to travel more?” and tells us we can achieve these things by simply putting away “pockets of time” to work on our Arbonne business.
She continues with a script that could have been plucked right out of Cheryl’s mouth, then tells us what we can expect to earn at each level in the business.
We can achieve each level in a matter of months, she claims, despite a table on the slides she refers to saying it could take years. She also claims she is earning significantly more at each level than the table shows. At the first level, her highest monthly pay cheque was $1,850, she says.
At the third level (Regional Vice President) the average income is $6,000 per month and it takes about two years but you can get there in three months, based on time and effort, according to Sandra. “There are plenty of people in New Zealand that are already at that level. It’s completely up to you.”
The average income at the top level is around $17,500 per month, normally taking four years, but it’s possible in six months, she says. “Not many people have but if you want to go out there and do that, that’s up to you.”
There’s an air of being let in on some huge secret that will change our lives forever. This strange presentation to the mostly converted is emotive and confidently argued, and we can see how tempting it could be to join.
The thing is, Sandra probably is on big money. She seems to genuinely care for Arbonne and even tears up a little towards the end of her talk.
The consultants I meet all seem like nice people. Cheryl wants to give to charity when she makes it big. And considering that Arbonne has only been in New Zealand for about two years, perhaps these are the consultants lucky enough to be making a decent buck.
But even if Sandra’s income claims are genuine, often people in MLMs won’t be making what they say they are, Hooper says.
“There will be some who do and these are the people used as poster boys, but for every one of them there are a hundred who have bombed out.”
MLMs are dangerous, Hooper believes. “They tend to target people who might not know better. For instance, I have never seen recruitment at a university. It’s not to say that students don’t get pulled in but if it were such a meritorious type of initiative you’d think they’d go to universities and get more relevantly informed employees, like business students.”
It’s also common for MLM members to become alienated from friends and family, Hooper says. “They’ll all be willing and kind in the beginning, then they start to avoid you.”
I get in touch with Arbonne and inquire about some of Sandra and Cheryl’s claims.
According to an Arbonne spokesperson there are currently just 12 people at the third level of Regional Vice President in New Zealand, out of around 3,500 consultants.
Sandra has also claimed that Arbonne is an asset, and if she dies her family will “be sorted for the rest of their lives”.
“It’s no different than if you owned 10 properties down the front of Oriental Bay, and they’re bringing you residual income month after month in rent, that’ll go in your will,” she says.
When asked about this, the spokesperson says that as per the Arbonne Independent Consultant Policies and Procedures, upon death a consultant at the rank of Area Manager or above can pass on their business interests and “Successline” to an heir or beneficiary. “As with any Independent Consultant, the amount of success that heir could realize would be directly correlated to the amount of time and effort they put into the business.”
So, not exactly money piling up in your account forever.
I also ask how Arbonne’s operating model is different from a pyramid scheme.
Arbonne’s business folder states: “Participants in legitimate network marketing or direct selling companies earn money through the sale of products to end-consumers, not by signing up people.”
Yet, Arbonne reps push the recruiting part of the job heavily, and the consultants I spoke to urge prospective recruits to purchase the products themselves and then recruit others to do the same, saying you can earn far more this way.
On this same page of its business folder, Arbonne suggests getting together a “100-person list” to build your network and create a “Successline”.
However this is simply a “getting started” activity, it says. “Arbonne does not pay commissions solely for recruiting other distributors… Conversely, a pyramid scheme is illegal and is not based on product sales to consumers; Arbonne does not operate such a scheme.”
Arbonne is a member of the Direct Selling Association and meets its requirements, which offer some protection to consultants such as a low starting fee and a buyback policy to guard against inventory overloading.
Arbonne also says it has a Business Ethics Standards Team (BEST) which conducts regular training sessions with consultants.
Working for an MLM may well be a good side hustle for someone who wants to earn a bit of extra money, but anyone getting involved shouldn’t expect to soar to the top. In fact, Arbonne says the majority of reps only work part-time for the company.
MLMs are not illegal, provided they don’t sell harmful products, Hooper says. “(But) before becoming involved I would get someone to look at the feasibility of an ongoing business venture very carefully. Unless you’re at the top and at the start, your chances of benefiting from that multi-level structure are small.”
The Spinoff’s business section is enabled by our friends at Kiwibank. Kiwibank backs small to medium businesses, social enterprises and Kiwis who innovate to make good things happen.
This content was originally published here.