Monday, September 21, 2015

Mary Kay: Home Business Opportunity or Flopportunity?

Does the Mary Kay home business opportunity provide the typical consultant with enough income from product sales to replace an entry-level, minimum-wage job such as burger flipper, Wal-Mart greeter, or convenience store cashier?

Not only no, but hell no!   You'll be lucky to afford to buy a burger for your kids. 

Potential Income for Mary Kay IBCs





The Data and the Assumptions
To avoid accusations of unfairness, I used data that directors made available, and used their methods to estimate the income and expenses for the consultants.

Dozens of active Mary Kay Directors of all ranks made retail sales data from their units available to me through the newsletters on their websites. The data contained sales data from 26,279 IBCs across the USA, representing the potential sale of $39,139,496  in product, in 2005 and 2006.*


I know, from reading the training material that the directors also made available to me, that directors put pressure on their downline unit members to keep inventory on hand. "You can't sell from an empty store" is a recurring phrase. The recruiting and training material also shows that consultants are encouraged to use their credit cards, take out small bank loans, borrow from relatives, beg from friends, borrow against their life insurance, and even pawn items in order to "stock the store" with several thousand dollars of inventory.  And I know, also from the training material, that part of the proceeds from sales should go to repaying these loans.

But let's pretend that doesn't happen. Let's pretend that this is zero-inventory, just-in-time ordering, with customers who don't mind waiting. Therefore, I'll assume that every estimated retail sale makes an immediate profit for the IBC, because she has no money tied up in inventory and didn't borrow money. 

Mary Kay claims to have a potential profit of 50% (it's really 100% markup, but let's use their terminology for now). If you order enough product in a single order you get a 50% discount off the suggested retail price. You then sell it at full list price - twice what you paid. Many of the training materials recommend offering discounts and "gift with purchase" items to drum up sales, and FaceBook is full of IBC's offering all kinds of discounts.

But let's pretend that isn't necessary. Let's pretend that the customers are willing to pay full retail price for everything. For the purposes of this analysis, I assume that all IBCs buy at the full discount price and immediately sell at the full retail price. 

Profit Assumptions
The formulas I used to estimate income are taken from training and recruiting material that was made available to me by the active Mary Kay sales directors. Where this material gave differing values, I accepted the material that was most favorable to Mary Kay - whatever gave the lowest expenses and the highest profits.

NSD Diana Sumpter's worksheet on money management estimates this: 50% of the gross income is the cost of buying the discounted product. Another 5% should go to buy non-retail items such as catalogs, and 5% to buy "hostess gifts" for the sales parties. That leaves 40% of the gross income to cover taxes, other business expenses such as gas and babysitters, and provide the IBC some income from her business.

For example, an IBC sells $1000 retail to her customers in one week. $1000 a week sounds pretty good. But she has to pay her suppliers and the tax man: $500 pays for the product, $50 is budgeted for catalogs and samples, $50 is budgeted for hostess gifts, and $400 is left to pay the other business expenses. The government takes about $50 for taxes. She has $350 left to pay her other expenses, such as postage, gas, meeting fees, and office supplies. Let's assume the average expenses are $50 a week, leaving her with $300 (30%) of her sales as spendable money.

This agrees with other estimates that 1/3 of the retail dollars will turn into the equivalent of "take-home pay", so I use the 1/3 rule for fast calculations.

Is it a business opportunity? 

Do some quick arithmetic ... the total sales divided by the number of consultant-months in the study gives an average monthly sales of $283.73 per consultant. That is depressingly low, so I made a spreadsheet to analyse how the group compared to ordinary employees working for an hourly wage. Maybe some consultants were working their business the way the training literature tells them to and making a lot of money while others were slackers.

I compared Mary Kay IBCs' incomes to the 2006 federal minimum wage: $5.15 an hour. Minimum wage in some states is higher than that, but I'm trying to make Mary Kay look as good as possible.

10 hours a week @ minimum wage = $200 a month take-home pay. To make that much money in MK sales, you have to consistently sell $600 a month (only 1/3 is spendable, remember?). How many do that? Only 3178 of the 26,279 consultants (12.1%) were selling enough to equal or exceed the take-home pay of a teenager working 10 hours a week as a minimum-wage burger flipper after school.

32 hours a week @ minimum wage = $600 a month take-home pay. To make that in MK sales, you have to consistently sell $1800 a month. How many do that? Only 428 of the 26,279 consultants (1.63%) are selling enough to equal or exceed the take-home pay of someone who works 4 days a week as a minimum-wage Wal-Mart greeter. 

40 hours a week @ minimum wage = $825 a month take-home pay. With this kind of job, you might even get paid vacation, health insurance and other benefits, which you do not get from Mary Kay until you reach exalted rank. To make that in MK sales, you have to consistently sell $2400 a month. How many do that? Only 119 of the 26,279 consultants (0.45%) are selling enough to equal or exceed the take-home pay of someone who works 40 hours a week as a minimum-wage cashier at a convenience store.

Conclusion: Being a Mary Kay consultant is not a home business opportunity. Mary Kay Cosmetics and the upline high-ranking directors are running a zero-sum game, like a lottery or a casino. All of the income the few at the upper levels are bragging about comes from the losses of the downline thousands of struggling consultants at the bottom of the ... dare I say it ... the pyramid! It's just another MLM, selling the dream.

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*This was originally published on Yahoo! in 2006, with data from 4 consecutive months of sales from 7,912 IBCs across the USA, representing the potential sale of $2,503,720.85 in product. Increasing the sample size did not change the results.

3 comments:

Anonymous said...

Here is a Mary Kay director's site that I stumbled upon. Her name is Lissette Arroy-Ortiz from Washington state. Here is her statement to lure people in:


"Did you know only 1% of women in America today make over $100,000 a year; and 70% of that 1% are in Mary Kay!"


Hold up. Let me get this straight. Lissette Arroy-Ortiz is trying to claim that out of all the jobs that typically pay over $100,000: women doctors, women lawyers, women executive professionals, women entertainers, women real estate agents, women small business owners, etc, that they only represent 30% of the women who make over $100,000?.... and the other 70% are in Mary Kay???

This is material dated March 2016 so it is not as if it is an old document from way back. And she tells her followers to use this to recruit women in! How on earth can this cult-like group get away with the blatant lies like this? It is un-bee-lievable!

Source:
https://c.unitwise.com/003089/Docs/3857/mar2016_mk_eofe_20_min_scc_dialogue_lissette.pdf

Lazy Gardens said...

It's not a new claim ... it just keeps coming around again like an airport shuttle.

Lazy Gardens said...

If Ms. Ortiz is correct, there are 2,937,200 women in Mary Kay earning over 100K a year.


Here'e some real data on that:

Female > $100k: 3.25% of women 15 years and over (as of March 2013) earned more than $100k in total money income (excluding capital gains) in 2012, before payments for personal income taxes, social security, union dues, medicare deductions, etc.

(For more on money income definition and data collection: About Income - U.S Census Bureau)

Female > $100k: 4,196,000
Total Female: 128,912,000
Percentage: 3.25%


Source: U.S. Census Bureau, Current Population Survey, 2013 Annual Social and Economic Supplement. (PINC-11 - U.S Census Bureau)
Total Female: 128,912,000
Percentage: 3.25%


Source: U.S. Census Bureau, Current Population Survey, 2013 Annual Social and Economic Supplement. (PINC-11 - U.S Census Bureau)