Is Mary Kay a Ponzi Scheme? – The Truth Unvieled

Mary Kay’s business opportunity may sound like a good idea, but is it really? The truth is often not what it seems–and unfortunately this is true in this particular case.

There are often accusations that Mary Kay is a pyramid/ponzi scheme which we are going to take a look at in this article. But before we get into the nitty gritty of it, let’s first go over some definitions…

• Ponzi Scheme Definition: “a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.”
• Pyramid Scheme Definition: “a form of investment (illegal in the US and elsewhere) in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones.”

So in a Ponzi scheme people are lured in with the idea of being able to invest money in some opportunity (that seems legitimate) with the idea of profiting–but really there is no legitimate opportunity and they are paid from the incoming investments of other unsuspecting individuals.

In a pyramid scheme things are similar and early investors are paid off from the incoming investments of newer members–the difference is that pyramid schemes rely on individual members recruiting in new members. Often times these two terms are mixed and many schemes that exist are somewhat a little of both. But going by the definitions, it would actually make more sense to accuse Mary Kay or being a pyramid scheme–due to the recruitment focused structure that this business relies heavily on–but in any sense, let’s see if they are a scheme of any kind.

Mary Kay Sells Products, So This Means It Can’t Be a Ponzi/Pyramid Scheme Right? – NOT SO FAST!

Yes, Mary Kay does sell products and all, but this doesn’t mean they are not a scheme of some kind. The lines are a bit blurry and we’ll get into this all in more detail in a bit.

Most illegal pyramid schemes and such actually do sell products–as somewhat of a disguise so that they can operate legally.

Overview of the Mary Kay Business Opportunity

The Mary Kay business was started by Mary Kay Ash over 50 years ago out of Dallas Texas. It started out as a small operation but has grown to tremendous size, now having millions of consultants all over the world.

The business has a direct sales model, which means that products are not sold in stores–instead an independent sales force takes care of all the selling. Anyone can join the independent sales force as a consultant and get in on the opportunity.

You will first have to purchase a Starter Kit to join, which costs around $100. Then you will be able to earn up to 50% commissions selling over 300 beauty products, which include things like…

• Lotions
• Lip sticks
• Makeup
• Perfumes
• and more…

And of course you will also be able to earn money by recruiting in other consultants (is why people call it a pyramid scheme), which will be gone over in more detail in this next section…

Compensation Plan

Like all MLM business opportunities, the compensation plan for Mary Kay is much more confusing than it needs to be. It seems that businesses like this like to throw a bunch of glitter and sparkles on these opportunities to try to make them seem better than they really are.

All in all everything can be broken down into 2 categories for how consultants are able to profit: Direct Sales and Recruitment.

Direct Sales

Direct sales are the sales that consultants bring in directly. These can come from purchasing products from Mary Kay at wholesale prices and then selling them directly to consumers at retail prices, taking orders at home parties, earning recurring commissions from customers that purchase on a recurring basis, etc.

With sales that you personally make like this you can earn up to 50% commissions–which is very high compared to other similar opportunities.

Recruitment

Then all the rest of the compensation plan falls underneath the recruitment category–in which the goal is to recruit in other consultants beneath you onto your “team”, where you will make money from their efforts.

There are a number of different ranks within the compensation plan. You start out as an Independent Beauty Consultant and then as you make sales and recruit more people into the business you are able to move up the ranks and unlock more parts of the compensation plan–which is how MLM’s like this always work.

The ranks are as follows:

• Independent Beauty Consultant
• Star Consultant
• Senior Beauty Consultant
• Star Team Builder
• Team Leader
• Independent Sales Director
• Independent National Sales Director

…and there are a number of ‘sub-ranks’ (if you want to call them that) as well but I’m not going to get into every little detail here.

The point is that there are a number of ranks and it is everyones’ goal to move up the ranks, because this gives you the ability to earn more money–and each rank has requirements that must be met in order to move up–and the requirement to recruit more people into your downline is at the top of the list.

Take the rank of Independent National Sales Director for example. In order to climb your way up here you are going to need 24 “unit” members and 20 “offspring” Independent Sales Directors in your downline–all of whom are the product of recruitment.

Ponzi/Pyramid Scheme or Not?

There is no doubt that Mary Kay has a pyramid structure to it and that there is a lot of emphasis on recruitment of other consultants.

But does this make it a pyramid scheme or Ponzi scheme? There is a difference.

The big difference is that Mary Kay sells real products and is a real business. It is in no way a Ponzi scheme, but unfortunately the answer as to whether or not it is a pyramid scheme is a little more blurred.

You see–pyramid schemes usually sell some products just to pass off as being legal. Usually they force newcomers to purchase a bunch of products–so in reality they are making money from product sales–but the problem is that these sales are coming from newcomers being forced to buy things.

And with that said–we know that Mary Kay does require new consultants to purchase starter kits–and what I didn’t mention yet is that they also require new consultants to purchase a minimum of $200 of wholesale products every 3 months in order to remain “active”.

So the big question is: how much revenue comes from consultants being forced to purchase products and products actually being sold to the general public? Unfortunately this is not a question we can answer.

The best argument for Mary Kay not being a pyramid scheme is the fact that they are still operating legally and haven’t been shut down by the FTC (in the US)–although MLM’s are often under intense scrutiny by this government organization.

Thinking About Joining? This Might Make You Reconsider

Even if it is legal, don’t go out and sign up. These statistics are going to make you reconsider. This I can guarantee.

WARNING: VIEWER DISCRETION ADVISED!

Okay, so below we have the official earnings disclosure for consultants of Mary Kay from 2018 (in Canada–couldn’t find it for US consultants but this will do just fine and show you how things really are).

The Important Facts:

• There were 29,500 total consultants
  • Only 3,701 were active for at least 1 year and earned commissions
    • Only 47.1% (or 1,743) earned commissions of over $100 for the year
      • 447 people made it to the rank of Independent Sales Director
        • The top 50% (223 people) earned commissions of 20,378 to over $100k
          • Only 16 people made it to the Independent National Sales Director rank
            • 56.3% (or 9 people) earned over $100k

So let’s think about this–of the 29,500 consultants, only 3,701 had been around for a year and earned over $100. What this means is that the turnover rate (the rate of people quitting) is EXTREMELY HIGH, which is how it usually is with MLM’s.

And of the 3,701 consultants who had been around for a year, only 47.1% or 1,743 earned more than $100!–really?

Then at the Independent Sales Director level they state that 50% of 447 people (223 people) made from $20,378 to over $100k–but that is a big range and they don’t tell us how many people at this rank actually made over $100k. For all we know it could be just 1 person.

And lastly at the Independent National Sales Director rank there were 9 people who earned over $100k for the year.

So what these statistics tell us is that there might have only been 10 people out of the 29,500 who earned over $100k with Mary Kay– a measly 0.03%!

This is how it pretty much always is for all MLM’s. There is a good article on VOX that talks about the earnings from 7 MLM members–and claims that most participants probably make around $0.70 per hour!

Conclusion

While the lines are blurry between what is a legitimate MLM and what is an illegal pyramid scheme, more than likely Mary Kay is not one. They have been operating legally for years upon years and the FTC probably has more inside information than is available to the general public–and they have not shut them down, so what does that tell us?

That said, Mary Kay is sure as heck NOT a very good business opportunity when looking at the statistics, which don’t lie. With these stats it’s hard to make an argument for the statement that Mary Kay empowers women. It seems more like the opposite.

The problem all comes down to the pyramid structure that it has at its core, which pretty much guarantees failure to the majority of people involved–since the majority will be at the bottom having potential commissions sucked away from them and funneled up to those above them.

We aren’t going to tell you what decision to make if you are thinking about joining, but you can probably tell that we, us here at Legendary Wallet, aren’t the biggest fans of MLM’s.

If you are looking for a way to make money from home then what we can suggest is to take a look at our top picks here–or just go straight to our #1 recommended program for making an independent online income.

What do you think of Mary Kay? Should they be considered an illegal pyramid or Ponzi scheme and be shut down? We love to hear from our readers–just leave your comments or questions down below 🙂