A friend recently asked me to look at USANA. He told me that he has just joined and asked if I'd be interested in joining too. After reading the USANA Compensation Plan, I told him that I didn't think the opportunity was for me. He asked me to explain, so I thought I'd share my explanation as a streetonomic review of USANA. These are my opinions based solely on the information I could find about USANA online.
Firstly I want to say that I do not think that USANA is a scam. It is a legitimate business opportunity, and I'm sure that some people have made serious money in it. I believe that being successful in USANA is extremely difficult. To turn a profit, you'd need to either work very hard at it, or get very lucky.
I will go through the USANA Compensation plan and other information on USANA I could find online, to explain why I think most new associates will never turn a profit.
Like most multi-level marketing opportunities, it is a system in which anyone can join, but very few will be successful. In his comprehensive free e-book 'multi-level marketing unmasked', John Taylor found that 99.7% of people will lose money in network marketing.
The Six Ways to Earn Income
The first page of the compensation plan gets straight into the six ways you can earn income from USANA. While my friend and the person who recruited him were trying to convince me that making money was easy, I was not convinced, let's go over the potential sources of income and I'll share my opinion on each
You can earn a profit if you buy USANA products at the associate preferred price, and sell them at retail price. Based on the prices in Australia, we estimate that this is a profit margin of approximately 12%. (we only looked at the essentials health pack. Margins on other products may vary). This is described as 'the surest method of earning immediate income' , yet only this small paragraph is dedicated to retail sales.
This raised some red flags in my mind. If retail sales is the 'surest' way to earn, then why have I never seen USANA products offered for retail sale? Why did my friend and his sponsor, try to recruit me rather than sell me some products? Why is it called a 'preferred price' instead of a wholesale price?
The sponsor explained that I have never seen the products for sale before because this is not how the multi-level marketing model works. Rather than spend money on traditional marketing , and distributions, they sell directly through their network of associates. allegedly this reduces the costs and enables USANA to produce superior quality supplements.
The story sounded illogical. Sending product out in small quantities to millions of individuals can't be cheaper than sending bulk orders to retail outlets. Furthermore if USANA is going to pay royalties to my friend for everyone he recruits, then there must be some middle level mark up built into their 'preferred prices'. To find answers, I decided to read through the 2014 USANA annual report. My calculations found a middle layer mark up of over 40%, as shown below:
My calculations may not be 100% accurate, but there certainly appears to be a significant middle layer mark up built into the 'preferred price'. Furthermore it appears that on average active associates are making a financial loss in USANA, but more on that later.
I asked both my friend and his sponsor to tell me more about their retail sales strategies. I was less than surprised to learn that neither of them made significant retail sales. The sponsor explained that ' adding an new preferred customer or associate is the best way to run your business, don't worry about the retail margin, building your team is more important. In other words, the surest method of earning income is unimportant?
This is why I was invited to join the team! USANA uses a 'Binary Compensation Plan', which enables associates to earn commission from the activity of others they have recruited into the system. To put it simply, you can recruit new members to either the left side or the right side of your business. All the product they purchase contribute to your 'group sales volume', which can potentially earn you a weekly commission check.
The system becomes more attractive when your friends start recruiting their friends, because anyone they recruit falls under your team and also earns you group sales volume. Theoretically you could build a successful USANA business if you only recruit two new members. Hey that reminds me of a scene from Wayne's World 2!
Finding two new recruits sounds easy enough, it seems strange that my calculations found that the average associate is losing money! The USANA Binary Compensaion plan, is all about finding balance. You need to make sure that the sales on one side of your business match the sales on the other side of your business. Does this make sense to you? We will look at the binary compensation plan in more detail later on.
Lifetime Matching Bonus
This income is generated if you sponsor new recruits who go on to qualify for one of the USANA pacesetter programs. My friend has been in USANA for less than 6 weeks, so if he sponsors me and one other friend, and we both order enough product to remain active for 8 weeks, then he will be a pacesetter. If he is super keen and manages to recruit 4 new members in the first 6 weeks and all of them buy enough product to remain active for 8 weeks, then he will be a 'platinum pacesetter'.
As far as I can understand, if my friend becomes a pacesetter, then it means that his sponsor will get a matching bonus on any commission my friend earns. The bonus may range from 2.5% to 15% depending on whether or not his sponsor is also a pacesetter. Basically you should try and become a platinum pacesetter, so that you can maximize your 'lifetime matching bonus' from other pacesetters you sponsor.
This all seemed a bit vague so I looked for more information about the USANA pacesetter programs. This document provided more confusion than clarity. Firstly it appears that when you become a pacesetter, you are only a member for 14 months, after which you must qualify again. Each year, you are given a 6 week qualifying period in which to sponsor either 2 or 4 new recruits and keep them active for the pursuant 8 weeks.
So when they say 'lifetime matching bonus', they are referring to the lifetime of the pacesetter membership, which is 14 months. There is also confusion about how the matching works. One document suggests your sponsor will get up to 15% matching on commission volume. The other suggests that there may be up to 100% matching. This system is too convoluted for me to even attempt to estimate what matching bonuses are paid. The only thing I can see is that this bonus, is inflating the price of all USANA products
The sales pitch is designed to encourage people to recruit as hard as possible as early as possible. They want you to recruit people while you are new an enthusiastic. It is a good idea to get people to take action while they are new, before they've had time to become tainted.
Personally I used the pacesetter aspect as a way to tone down the heavy sales pitch the sponsor was putting pressure on me to sign up right away. I said, I'd rather wait until I had 6 prospects, that way I could improve my chances of signing at least 2 of them in my first 6 weeks.
If you perform well, you might qualify for added extras such as travel, and prizes. This kind of sounds like a nice extra but I don't understand why it's included as a way to 'earn income'. I'd rather have the cash and then decide myself if I want to buy the prize, or take the trip.
Apart from mentioning that these things might happen, there is no other mention of the incentives. How you qualify, and what exactly they are is a mystery to me.
Every week, 3% of all commissionable sales volume is redistributed to associates. There are some rules to qualify for the leadership bonus. The ones we found interesting are:
- You must be ranked Gold Director or higher - Based on our calculations this represents less than 1% of all USANA associates
- Maximize at least one Business Centre During the Week - This occurs when your business centre has more than 5,000 Sales Volume Points on both sides. According to the USANA Binary Compensation Plan disclaimer, during the year, less than 1% of all associates maxed out a business centre
- Every four weeks, one associate you sponsored must earn their first commission - This seems like a noble idea, helping new members earn a commission. However once there is no incentive to provide ongoing support. I see it as an negative incentive to do just enough to help a new comer get one payment before moving on to the next recruit. After all you need to achieve this every four weeks, so you can't spend too much time nurturing those who have already earned their first comission.
I didn't find the precise numbers, but it's safe to assume that only a very small percentage of USANA associates qualify for this leadership bonus. The fact that it is only available to the top 1% of all associates is not encouraging, as it does not seem realistically obtainable to new comers.My opinion is that the leadership bonus is a 3% price loading, which only benefits those at the top.
Every three months, 1% of all commissionable sales is paid to the top 40 income earners as an 'elite bonus'. Like the leadership bonus, this is something which I don't see as relevant to new associates. All it tells me is that the another 1% of all proceeds are going to the people at the top of the network.
The sponsor, is trying to tell me that direct marketing helps reduce costs. I'm finding this hard to reconcile when I can see a 4% price mark up to help make the rich richer, by giving them special bonuses. Then there is additional price mark ups to fund the prizes, matching bonuses and other incentives.
As a new associate I think it is unlikely that my friend will qualify for anything other than a retail margin (if he sells product) and maybe a few weekly commission payments (if he builds a downline). To me the other ways to earn income, look like a system which takes money from new members to pay the established memebers.
USANA's Binary Compensation Plan
Now that we've looked over the ways to earn income, let's look at the USANA Binary Compensation Plan in more detail. This system determines how much USANA associates will get paid, and what they need to do in order to earn their income. If you want to be successful in USANA, then you need to know how the compensation plan works.
For a new USANA associate, to earn commission, they'll need to activate their business and then remain active. This is achieved through 'Personal Sales Volume'. This is something I personally have an issue with. They are essentially telling you that in order to get paid, you need to buy a minimum quota of new product every month. In my opinion this creates synthetic demand, as associates buy product to remain active.
My friend's sponsor told me that remaining active is easy because you can sign up for 'auto order'. You can make sure that every month you buy enough to remain active, and you'll even get a 10% discount on the price. A 10% discount sounds good, but I thought the prices were already at rock bottom! I guess there is a mark up of 10% charged to all associates who choose not to use auto order.
The biggest objection I had with auto ordrer, is that it makes associates commit to future purchases. They are buying product with the goal of remaining active, not because they've run out of product or think they can sell more of it. There is a note that if you don't use or sell 70% of the products you buy, then you must cancel your auto order, but I don't see how they can monitor or enforce this. It's just for USANA's own protection so they can avoid accusations that their system encourages associates to stockpile USANA product.
Naturally your USANA sponsor will tell you not to worry about this and keep ordering product. It might be because any product you buy earns them Group Sales Volume, which goes towards their own commission. This creates what economists would call a negative incentive. Like all mulit-level marketing systems, your sponsor is directly benefiting from the product you buy. It is in their best interest to encourage you to buy as much as possible in order to maximize their own earnings.
How Much Does it Cost to Be a USANA Associate?
The cost of being an active USANA associate depends on whether you are running your business around one business center or several. It is possible to open your USANA business with either one or three business centers. We will look at the costs involved of joining and remaining active in USANA. For simplicity, we will run our calculations in US Dollars using the prices and point values found on the USANA Associate price list
Running One Business Center
To activate a single business center, you will need to order 200 points worth of products. There is a business starter pack which will give you 250 sales value points for a price of US $305. It comes full of USANA products for you try! If you are looking for a cheaper way to activate your business center, then consider buying two Essential health packs. This will give you precisely 200 personal sales value points, at a cost of US $235. Alternatively you could take your time and order products at your own choosing until you reach 200 personal sales volume points. Until you have reached 200 personal sales volume points, your business center will not be active, so you won't be able to build your business.
Once your business center is activated, you can start recruiting friends, and building your team. To be eligible for commission, you will need to remain active. For a single business center this involves accumulating 100 personal sales volume points ever four weeks. We estimate this would cost US $117.50 every four weeks, which equates to $1,527.50 per year.
There are 13 four week cycles in a year, which made me think that USANA chose this system rather than a monthly cycle because they get one extra order every year from every active USANA associate.
Your USANA network with one business center is shown below:
Running Three Business Centers
When you join USANA as a new associate, you will have the opportunity to double your potential future earnings! Who wouldn't want to double their income? All you have to do, is double your commitment to USANA. If you want to activate three USANA business centers, then you will need to accumulate 400 personal sales volume points within the first six Fridays of joining USANA. Purchasing an entrepreneur pack will give you 500 personal sales volume points, and will cost you US $624.95. Or you can buy four essential health packs for exactly 400 points, which would cost US $470.00
Keeping your three business centers active requires you to accumulate 200 personal sales volume points every four Fridays. This can be done simply by ordering two Essentials health packs every four weeks. This would cost you US $235 per cycle, or $3,055 per year.
Opening three business centers in the binary compensation plan, enables you essentially sponsor yourself. You become your own first recruit on each leg of your USANA business. This also means that you now have to manage four legs rather than two, but more about that later. What I found particularly interesting about the 3BC model, is that when you activate with 400 points, your first 200 points are used to activate your first business center. The next 200 are placed as 100 points activity each in business center 2 (BC2) and business center 3 (BC3). This means that just by activating, you get 100 points 'group sales volume' on each leg of business center one (BC1). Confused? Maybe this diagram will help:
When you open three business centers, you double your exposure to the USANA business. You can now work with four legs rather than two, and you can can potentially double your commission, because your BC1 gets group sales volume from BC2 and BC3. That's right, simply by doubling how much you spend on USANA product, you can double your potential commission. Naturally you'll also have to sponsor more people because you now have to manage four legs instead of two. Is anyone else seeing a system designed to entice you buy product and recruit new mambers?
How Much Can You Earn With USANA?
As we noted above, there are 6 ways to earn with USANA. In this section we are focusing on the binary compensation system. This is the system USANA uses to calculate the weekly commissions earned by active associates. The key to earning commission with USANA, is finding balance. When you sponsor a new associate, you can elect where in your USANA team, team the new associate is placed. For example you may choose to add a new recruit to be place on the left leg of BC2.
Where you place new recruits is important because any product they and their own team go on to purchase, will add group sales volume to this leg of your network. To earn commission from USANA, you must have at least 125 points of group sales volume on each leg of your business center. You will earn Commission Volume Points equal to 20% of your balanced sales volume. This is explained in the diagram below:
As you can see from the diagram above, Unbal Associate has a team which generated 625 points in Group Sales Volume, but he has only earned 25 Commission Volume Points. Bal Assosciate has a team which generated 400 points in Group Sales Volume, but he has earned 40 Commission Volume Points. When we compare the figures, we see that the associate with a balanced team, has generated 60% more commission points with only 64% as much group sales volume.
This example shows the importance of keeping your USANA legs balanced. USANA will let you roll over your unused group sales volume points as long as you remain active. To get paid a commission on them, you will need to match the points on each leg. This prevents associates from earning commission from doing nothing more than being placed on a strong leg. If the person who sponsored you, places a lot of new people beneath you, who go on to recruit more member, this effectively builds half your team. You will accumulate group sales volume, but you will not earn any commission until you start building what the associates call you 'inside leg'. This information is described in more detail by USANA
When calculating commission, USANA does not limit the levels in your team. You can keep earning group sales volume from all the people below you in the network, until you 'max out a business center'. When you earn commission on 5,000 group sales points on each leg, you will max out your business center and will not accumulate further volume points. This would require at 10,000 points in total group sales volume (to give each leg 5,000 points). At this level, your business center will earn a weekly commission of 1,000 commission value points, which are converted from US Dollars into your local currency.
If you manage to maximize a business center, then you will be rewarded with a certificate to open a new business center. This means you can start an additional two legs anywhere you choose within your team. This rewards successful associates by enabling them to increase their exposure and earnings from the USANA Binary Compensation Plan.
Maximizing a business center would require a lot of sales. Your USANA network would need to order at least US $11,750.00 worth of product in a single week, for you to earn the maximum commission. This can also be achieved through a combination of rolled over volume points from previous weeks, but only unmatched volume would roll.
I am assuming that very few USANA associates ever manage to maximize a business center, and USANA has confirmed this. In their description of the binary compensation plan, USANA warns that 'less than 1% of full time associates maximized a business center during the year' This has been worded cleverly, we looked at the USANA income disclosure statement, and calculated that only 0.9% of all USANA associates are classified as 'full time'. If less than 1% of these associates maximized a business center, then this means that less than 0.009% or 1 in 11,000, of all USANA associates maximized a business center.
My Final Thoughts
I personally would not join USANA, because I believe that very few associates make a profit. My own calculations found that the average USANA associate is losing money. They cost of remaining active in USANA exceeds the average commission paid to associates. When I look at the binary compensation I do not see a business opportunity. I see a system designed to generate synthetic demand for USANA products.
I believe that most USANA associates order products for the sake of remaining active, not because they actually use or sell it at a retail margin. The presentation I attended glossed over the products and why they were great, but the emphasis was on building a team and recruiting new associates. I was being asked to join a 'business' which involves me buying a bunch of products I don't currently use, then asking others to do the same thing. It didn't make sense to me, and I don't think it will make any dollars for my friend.
I'd love to hear your thoughts, on USANA. Let me know what you think in the comments section below.