LuLaRoe or LuLaNo: Calculation Flaw, But Still LuLaNo

I’ve received thousands of comments from many, many readers about my original piece: LuLaRoe or LuLaNo: Will Your Investment Pay Off? Quite a few commenters pointed out that the math I used in my article was not accurate. I read their comments, I evaluated my post, and I’m providing an updated article in response. I’ll cut to the chase: I made a mistake in my original calculation. I deducted the initial investment of \$5,500 twice. But, the cautionary advice I gave still holds true. And I hope you can understand that in my effort to be completely transparent, I am providing this revised article.

What Happened With Original Calculation

Here’s where the confusion began: I posted a link to a LuLa in Love article. That article had a graph illustrating how you could repay your LuLaRoe investment in one month. The graph indicates that if you sell 70 products a week in the first month, you can pay back your \$5,500 investment in LuLaRoe.

Assuming there’s 4 weeks in a month, you need to sell 280 LuLaRoe products in that month. The LuLa in Love article indicates that the gross sales will be equal to \$9,240 if you sell 70 products a week, or 280 products in one month (70 * 4 = 280). The graph also states that your net profit will be \$5,040.

If you’re following, here’s what we have so far:

\$5,500 initial investment in LuLaRoe (this is the money you put up front to become a LuLaRoe fashion consultant)

\$9,240 gross sales from selling 280 LuLaRoe pieces

\$5,040 net profit from sale of 280 LuLaRoe pieces

What does that give you?

I have no problem admitting it.

There was a mistake in the original calculation. The initial investment was deducted twice. Theoretically, you can make back your money in one month from selling LuLaRoe products. You have to sell 280 at a 54% profit, with an average sell price of \$33 per item in order to earn \$8,780. But, in theory, yes, it is possible. If you sell the remaining 181 pieces for a 54% profit (or approximately \$18 profit per piece), you can theoretically earn \$12,038.

So if the basis of my initial calculation was wrong, what about it was right? Here’s where your head will start to spin:

For the above to be true, you still need to be selling each product for an average of \$33 per piece.

You’ll still need to make an average profit of \$18 per item, or at a 54% profit.

But wait a second: \$33 * 381 items in your original investment kit = \$12,573 in gross sales (or approximately the \$12,500 retail value LuLaRoe boasts your investment kit is worth). A 54% markup on \$12,573 is \$6,789.42. (\$12.573 * 0.54). We’ll call it \$6,750, as \$12,500 retail value * 54% markup is \$6,750.

So, from your \$5,500 you could potentially earn \$13,750 profit.

Stipulations for LuLaRoe Profit

The stipulations, again, are that you must:

• Sell each product for an average of \$33 per piece
• Earn approximately \$18 or (or 54% of \$33) in profit per item sold
• Sell all 381 pieces from your initial investment kit for the above price and profit

Here’s some food for thought: is 54% profit per item sold realistic? According to the Houston Chronicle, “Profit margins for retail clothes are generally within a range of 4 percent to 13 percent according to industry analysts.” (Source)

That means LuLaRoe’s expectation that you will be able to sell a product with a 54% profit margin is not on par with the industry average. (For the record, if you sold all your LuLaRoe for 4% profit margin, you’d make \$228.60, or an average of 60 cents profit per piece sold).

despite calculation error, The truth about lularoe still hurts

Let’s get real. The wholesale cost of a LuLaRoe product selling for \$33 retail is just \$15. You get a 54% profit margin, giving you \$18 per piece. That means you’re earning more than the product is even worth. 120% more. That is a 120% markup on LuLaRoe’s cost. LuLaRoe doesn’t get anything if you sell your inventory or if you lose it. Because, as with any wholesaler, the customer is the retailer. In this scenario, you are the retailer. LuLaRoe wins no matter what happens to your LuLaRoe “business”.

Now, many people have told me that LuLaRoe will buy back your inventory at 85%, minimizing the risk involved. You know what’s fascinating about that? Theoretically, you sell 10 pieces, you make \$180 bucks, and you have 371 pieces left you decide to sell back to LuLaRoe. They’ll buy them back for you at 85% of the wholesale cost. Not the retail cost. So, \$15 * 371 = \$5,576 wholesale value of your leftovers. \$5,576 * .85 =  \$4,730.25. That \$4,730.25 is what LuLaRoe will buy your 371 pieces back for.

Here’s what that looks like:

So, you’ve lost \$590 attempting to sell LuLaRoe. You may be asking, why isn’t the wholesale value added to this? Well, because you are not going to get the wholesale value back. You’re getting 85% of the wholesale value. Also, is this math looking funky to you? It’s because you won’t earn a 54% profit margin or \$18 per item. If the wholesale value was \$15 per item, the \$5,500 initial investment would be worth more than that (381items * \$15 = \$5,715). But it’s not.

How You Know LuLaRoe is Not Worth It

Here’s how you know this is a bad investment: the company won’t even buy their own product back for 100%. They won’t take a return. If the product was any good, they would happily take it back. You can take your Macbook back after 14 days, even if you opened it up and used it. But you can’t get a refund for unused, tagged clothing? Get real.

I hope you understand that although my initial calculation had an error, the math just doesn’t add up in my opinion for LuLaRoe. It’s incredibly difficult to sell one thing to one friend. Imagine selling 381 things at \$33 each. Does it mean you can’t do it? No. But I stand by my initial stance: LuLaRoe is not the way to go. You don’t have control of your LuLaRoe “business”. There’s no negotiation with the wholesaler. There’s no diversification of inventory. You have one brand. That’s it. Start your own online retail shop. Think that sounds impossible? Babywearing supermom Frogmama did it. You can hear her story here.

1. Hurray! You fixed your math yet still decide to be completely biased and make out like you understand margins and how there is no possible way to make 54% margin. Wow. Have you done any research besides reading LuLaRoe propaganda, maybe spoken to actual consultants to find out their real numbers? 13% would make it not worth it without a ton of volume. However, many large companies do operate on those kind of margins. They also operate on higher margins, I work at a place who’s main product that has sold at a %63.3 margin for the last 25 years and that margin continues to this day. Anyway, since your prior error filled article my wife and I have started selling LuLaRoe, we are exactly one week in. Now as stated above \$18 per item is a bit high. While on most items that actually is the profit value, their estimated time of return on investment is a bit skewed as it doesn’t take into account the amount of party rewards and promotional giveaways that occur with pop ups. In one week we have thus far averaged ~\$14 profit per item, \$3600 in sales, \$1750 of which has been profit. 48.6% profit in 6 pop ups. One of the main reasons LuLaRoe has started seeing success is due to their marketing genius of short run patterns, this enables consultants to sell at a premium price due to scarcity which increases demand. One rule that LuLaRoe has, essentially prevents your above scenario from crashing the business. In your previous article you stated having to follow someone else’s rules was a major con, however I disagree unless you’ve got some great new idea and or special connection circumstances, doing everything yourself is kinda the pits. LuLaRoe has a policy that items cannot be sold publicly at a price below their set minimum average price. This, along with the value of the clothing scarcity, keeps the price high as well as the margin. Not to say they can’t sell for less, but if someone is jumping into this and selling at less than a 30%margin they are leaving a ton of money on the table. The demand in the market is currently very strong allowing for higher pricing. The only reasoning I can see for your quote lower margins on clothes, would possibly be due to the size of a retail store inventory which in turn translates to tons of stale inventory which only sells once discounted. LuLaRoe does not have that problem as of yet due to the fact that many individuals inventories never get to an unmanageable point as they would volume-wise in a big retail environment and also that many teams of consultants will actually trade around their stale inventory. Also, since marketing has done such a great job to keep demand up, even discounting down to %30 margin is still good money and the customer feels like they’re getting a great deal. This can help churn if it’s needed, but still making money and gaining a loyal customer.

Tidr: Author thinks good business ventures apparently don’t exist. While LuLaRoe markets profit margins as pie in the sky 54%, overall in a weeks worth of experience with it, it’s closer to %49 at least with the starting inventory package. There are higher end clothing styles which have a margin closer to %80 which would definitely boost your overall margin.

*Reminder, it takes a lot of hard work, as well as sales and management skill to be successful. It’s not a get rich quick scheme, it takes time to grow a customer base and maintain it. But it is possible, and I now personally know over a dozen women who’s lula business take home pay has far exceed the careers and jobs they previously had, and it has allowed them the flexibility to spend more time with their families.

• Author, here. I clearly state I do think good business ventures exist, and people should be empowered to do it themselves and diversify their inventory. You clearly have skin in the LulaRoe game, so I hope my readers take your bias into account.

• I certainly have. I think it is pathetic you cannot post the realistic side to this story without getting attacked by lularoe folks. I will say it sounds like one of the better MLM opportunities out there but still… it is what it is. i am here because i was curious to learn about it and how much it would cost me, if it was less i might consider it since i do see a lot of enthusiasm for the product, and i have a few pairs of leggings i really do like. the material is lovely. I do not have 5k to play around with or the time. Anyway when I see a group of people angrily disputing common sense that raises a giant red flag for me.

• They are disputing the fact that her math continues to be wrong over and over again.

• Marisa, I have made corrections to my math as appropriate. I continue to seek out the correct information to provide to my readers. Thanks.

• Why don’t you have someone check your math before posting since this seems to be an issue for you?

• The tax part and inventory replenishment schedule is what is being debated here.

• Most sales are friends, relatives after a while the well runs dry
Most people who sell are. Pardon me for saying, By a religious group and they sell through their network. It is a business which was started by a particular kind of religious person and just because they are it does not mean they cannot be crooks.

I have tried half heartedly MLMs and the only person I know who was successful was my old Mexican grandmother ( not rich ) she had thousands of clients, not relatives, not friends, but she was a English and Spanish speaking. She had clients from East LA, Downtown LA, Riverside, San Bernardino, Orange County.
When she finally retired the company and other sales reps were slathering over her “Black Book”. She had “Stanley parties” and used the products.

During the sixties she made \$3,000 monthly clear, but most of the money helped her 6 grown children and grandchildren. She had the granddaughters fill the orders when they visited and would go deliver and most importantly, collected ASAP.

Me, I ended up become a union Pipefitter for a measly \$50 and hour then retired with 2 union pensions plus Soc Sec. I was able to buy my own home being a pipefitter. Hard work paid off and I know it sounds tempting to do MLM I I am too pragmatic, you don’t get something for nothing. I love bees so I ended up as a hobbyist beekeeper for extra so I can travel.

And Mrs. Bottlesoup, I think you are a smart and cool lady who is not easily bushwacked or led by marketing schemes. I love honesty and want to puke at all the “unicorn dreams”.

Thank you for being so forthright!

• Kevin G. knows what’s up. Did LLR do you wrong sometime in your life? Sounds a bit bitter.

• I have never been a LulaRoe consultant, or a member of any direct sales or MLM company. I’m not bitter. My goal is to be informative and transparent, as most information about direct sales and MLMs is propaganda. I’m not selling anything here but the truth (or the search for the truth). I have always been transparent and made corrections to my posts when I’m wrong. Happy to have different people sharing opinions on my blog. Thanks for stopping by.

• how ya doing now that all their quality has severely gone downhill? Now that almost none is now made in America like it was and is now mass produced in other countries WITHOUT QUALITY CONTROL AT ALL. Obviously. Go find the LLR defect group on FB, there’s damn near 20,000 women in there with horror stories of this cheap, low quality clothing that either has uneven lines,upside down patterns, holes (before wear and during wears-even in correct “sizes”, that’s if they even make the sizes correct since their are now multiple sizes for each (yeah, its in the pics and its insane) the dye in the clothing is staining peoples skin-like this little girl who had it all over her arms at school, plus went on auto interiors, purses, jeans, underwear and more…even after washing a few times still bleeding clothes…whos to say its even safe for anyone’s skin?! LLR has basically got rich and got cheap. PERIOD. Its sad. but look on ebay and fb there’s thousands dropping from the queue ,selling full inventories and more due (at lower cost just to be DONE as they cant in their right minds sell this crap to people knowing its shit) to being so sick of this damn LLR CULT..and that’s a whole diff story but look it up, they are a CULT. Crazy as it sounds, the proof is already out -most people wont read it out of fear of being wrong but I assure u, LLR is losing momentum and they are hurting from it…just watch and see…already blasted on major news,FB, twitter too…its an eye opener people need to see

2. I’m not seeing the downside to this, even selling all 381 items from the \$5,500 investment at \$20 a pop, you’re still making a \$2,120 profit. No it doesn’t include labor hours or shipping costs and things such as those but clothes don’t really go bad, at least not like food.

I’d love to hear your clarification on this, because you’re making no sense.

• The issue is oversimplification. It’s difficult to sell 381 of anything. The time and energy it takes to sell 381 pieces, when divided by your profit, is likely to be less than minimum wage. Also, the fact is most people do not ever turn a profit with direct sales and MLMs. It’s easy to see why people are seduced, because it sounds like a great opportunity. But the bottom line is most people lose money – a substantial amount of money – while the parent company continues to turn a profit without paying consultants. It’s a pyramid scheme, and consultants are the customers.

• Actually true pyramid schemes are illegal and are defined by the necessity of people recruiting others in order to make money. That is NOT the case here. I really hope people are not taking your advice as truth. Where do you get the statistic that most people do not turn a profit with direct sales? And just for the record…it is not hard to sell 381 pieces of LuLaRoe. Yes…it requires work, but making money requires work. Please, before you put yourself out there as having any expertise in a given matter…actually know what you are talking about!

• The statistics are sourced in the article. I actually *do* know what I’m talking about. Direct sales and MLM companies are not a good investment and they are not true business ownership.

• Definition of a Pyramid Scheme: “A pyramid scheme is an illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide the funding, or so-called returns, the earlier investors/recruits above them receive. A pyramid scheme does not involve the selling of products. Rather, it relies on the constant inflow of money from additional investors that works its way to the top of the pyramid”.

All businesses are Multi-Level-Marketing companies, they have upper management, middle management and other ‘levels’ of leadership and also entry level positions. For you to suggest direct marketing, where stay-at-home parents, or people wanting to supplement their income by bringing products directly to the people is anything less than a vital sales practice, is, at the very least, a very false assumption, but could also be considered ignorant.

• No, not all businesses are MLMs. This is the typical, misleading pitch MLMs want you to believe. It’s false. MLMs are not subject to the same rules and regulations as other businesses. Businesses that you say are MLMs because they have “upper management, middle management and other ‘levels’ of leadership” is a false equivalency because you are missing a crucial element: other businesses are required to pay their employees wages or salary. MLMs are not. This is just one difference, but it’s a major one. Thanks for stopping by.

• I know a consultant that sold 1200 items in a 24 hour period. At a \$19 profit that after subtracting the inventory price from selling price.

• If that’s true good for her/him. However, that is not the norm or a sustainable form of income. You have no ownership when you are a consultant. Also, if this is true, why wouldn’t you say “I know a consultant who made \$22k in profit in 24 hours?”

Because it’s a ridiculous lie, that’s why.

• Yes! I loved every minute of it and shared it on the Bottlesoup Facebook page. 🙂 Thank you!

3. Yep, just keep on screening any critical responses to your idiotic post. I will say you are doing a great job trolling the internet for hits. Keep it up, way to make money in your own skeazy way. LLR is one of the few companies that really isn’t a scam, has an easy out, doesn’t rely at all on having a “downline” to be highly successful. You are biased, and your full of crap. But hey, you get to make all that advertising money by annoying the snot out of people, but its sad because you may have let someone not have their lives changed by something that really does work.

• I’m not screening critical responses. I just have not had the time to moderate all of the comments. I produce all the content for this blog, and, yes, I have ads on the blog to sustain the cost of running the blog. I’ve only made a few hundred dollars off my blog in the nearly 4 years I’ve been publishing it. It’s a hobby and a passion project for me. My goal is to always be honest and transparent in my pieces. That’s why when I understood my mistake, I published a follow up explaining what I miscalculated. Thanks for stopping by.

• I rather sell honey from my bees at \$12 a bottle and sell Nuc hives at \$220 a box.
And if I wanted to sell something, it would be at a farmers market. What is so hard about opening up your own, get a resale license. I rather buy all my items at downtown LA Garment District and sell with my own goal , not for the Kings and queens of MLM! We have resources through SCORE, it is free!

• And some people would rather sell clothing. And some people love LuLaRoe & want to sell it.

• Good for those people. Loving and wanting to sell something doesn’t equal profit. But, if people want to do it, that’s their prerogative. No one is taking anyone else’s choice away from them by providing a different side of the story.

• No, actually it’s not. The low percentages are fact-based and sourced in the article. Please, if you think I am wrong, provide legitimate sources for your “facts”, because trusting a LLR consultant at their word is the definition of bias.

• The percentages are not from MLM companies…but from retail overall. Every type of retail store is going to have different margins based on type of product, overhead, marketing costs, etc. MLM companies save on marketing by having independent consultants market for them which is one reason why there is a difference in margins.

• LOL. Yes, MLMs save on marketing because they don’t pay for marketing – they have you pay to market their goods and you’ve already purchased their product so they’ve already won.

But for the record, MLM and Direct Sales companies do employ professional marketing people – and they give them a salary, as they should. “Consultants” are customers in the Direct Sales/MLM world.

5. Thanks for the alternate opinion. It is refreshing as someone considering trying it out to see the not so sunny part. I really enjoyed your blog post and your breakdown of the costs. The only way to succeed is to have your eyes wide open and taking considerations on all aspects of the business. I’ve only seen super positive posts about it and have been looking for the other opinions. Great writing.

• Thanks, Allie!

6. Thank you for posting this. I’ve done taxes for years and have never seen a woman (and MLMs always target women – a red flag!) make a significant amount of money in an MLM. Most work a ton of hours and make less than minimum wage once it’s all averaged out. A LLR consultant on this comment thread should show us a Schedule C (blur your name and SSN) if a profit was made!

• Many women make less than minimum wage once you subtract daycare costs. What is wrong with women wanting to have flexibility to stay home with their kids & earn some extra money?

• What’s wrong is that they don’t earn extra money. The facts from the FTC and IRS are overwhelming. People don’t turn a profit from Direct Sales or MLMs. And if they think they have, once tax time comes or they subtract their costs of operating this “business” they usually owe money. That’s what’s wrong.

7. As someone who found themselves desperate to make a little bit of money for her family, and ended up doing another MLM (thankfully not one that cost so much, and I broke even but nothing beyond that) thank you SO MUCH for telling the truth about this crap. It’s insane. I’m sure it does work for SOME people. But for the vast majority it doesn’t, and you risk your friendships when you become that person who’s always selling something.

8. As an accountant it bothers me your math is wrong again on the buy back part. You can’t just subtract profit only on 10 pieces from your initial investment- you need to take out the inventory from that number before you calculate 85% of the whole sale investment you have left. Come on! Not everyone reading this can catch things like that!

• Is the updated post correct? It’s here.

9. Lularoe is a fad that will hopefully go away because those prints are super ugly and adults should never ever wear them. Leggings are not pants. Lularoe prints will make you look twice the size you really are.

• I feel like the leggings trend has already died – no?

• Ok, but why are you yelling?

Seriously, though, this is the exact line of bullshit they sell consultants. Even with hard work and dedication, the product is crap, consultants do not have ownership or authority over the brand, and they are essentially commission only salespeople.

11. The thing that gets my mind spinning about this is that from what I’ve read (and I could be wrong)…. You pay a min of \$8.50 wholesale, assuming that is for their lowest priced item of kids leggings? Those sell for \$22. When a customer buys from a consultant they are directed to LLR to pay so now LLR has collected a total of, 8.50+22= \$30.50 in their pocket for those leggings. They supposedly start their consultants at 35% commission, so 35% of \$22 is \$7.70? \$30.5 – \$7.7= \$22.8. ….. So essentially, they are getting full retail value for those leggings, while all these consultants run around selling for them… Essentially they are #1. getting free labor and #2. guaranteeing that free labor buys all their crap because they are convinced into this revolving door of constantly purchasing “their” inventory… You know, to make money? But for that 7.70 in “commission” they need to buy another pair of leggings to sell? Wow, I can never figure out how people get roped into this stuff.

• I think I understand why people “get roped into” direct sales and MLMs – it’s because these companies really sell people on the dream. People are optimistic about their futures and what they can do to make their lives better. In my opinion, these companies prey on people’s best intentions.

• They don’t start you at any commission. You buy them from the company then profit is on you to sell.

• Right, so you are a customer, not a “consultant” or employee.

• Could you at least not let this completely wrong information sit out here?

LLR handles the transaction — and charges the sales tax, but the consultant get 100% of the money from the retail purchase (minus the sales tax & credit card transaction fee which is typical of every company doing credit card transactions).

• No, it’s not completely wrong. Marie’s comment is valuable and much like how I keep approving your comments, I’m not going to delete someone else’s because *you* disagree.

12. You wrote “The graph indicates that if you sell 70 products a month in the first month, you can pay back your \$5,500 investment in LuLaRoe.” A but it should read 70 products a week in the first month because later in the article you state you have to sell 280 products a month.

• Thanks – I’ll update accordingly.

• The Houston Chronicle margin that you refer to is Net Margin (Net Profit); that is profit AFTER deducting Operating Expenses such as rent, salaries, utilities, etc. The 54% is the Gross Margin; that is gross profit BEFORE deducting Operating Expenses.

• No, you are wrong. I was using a general estimate for taxes which is affected by a lot of expenses you can deduct. I own my own company…not MLM…and understand how taxes work. And how buying wholesale and selling retail works.

I was using a general example to show that you are horribly wrong.

• Marisa, I admit when I’m wrong. However, your example where you do not deduct inventory cost at all (the purchase price of the leggings) and assume \$10 in your bank account minus \$10 for leggings equals \$0 and everything is “even” before a pair of leggings is sold is incorrect.

• You don’t even understand my example. I included in my example that you need to get back to \$10 to break even. I was trying to give you a simple example, and you try to find somewhere I’m wrong (when I’m not) instead of realizing your error.

• Please see Jack Spencer’s comment. Thanks.

13. I have to go with Mrs.Bottlesoup on this one, seen this scam too many times. The actual cost to manufacture the pants is about 3 dollars a pant, including the 25 cent labor a day you pay for those kids in third world country to manufacture them. LULOSCAM

14. I’m not a consultant but a buyer of LuLaRoe. Only time will tell if the fad dies down. However, when I sell my used pre-owned LaLaRoe on ebay I get what I paid for it (including taxes & shipping). Sometimes if it is a popular pattern three times my cost. I sold a pair of used Halloween leggings and someone paid almost \$200 for them. That’s crazy if you ask me. I’ve moved away from leggings into the skirts, dresses, and shirts that are nice enough to wear to work. It’s not all crazy patterns so if you saw someone wearing the more professional pieces you might not recognize it.

I wish I could become a consultant but it isn’t in the cards for me. I’m happy with selling my pre-owned and buying new patterns. I thought you could use a perspective from someone who buys and is not a consultant.

• It sounds like you have a better third party buying option going on.

15. So I’m a consultant. Yes, I did it. And after the hearts and rainbows and unicorns phases passes after you have a great launch and then blam-fizzle-why isn’t anyone buying-wtf did I just do phase begins, you sit down and think. If I pay 10.50 wholesale for 1 legging, and sell it for \$25, great! I made 14.50. Now deduct taxes from that 14.50 @ let’s say 30%. So now I made 10.15. Still great. But wait, now I have to go and buy a legging to replace the one I sold. That costs me \$10.50. So, you do the math on that. Am I wrong here?! My brain hurts just thinking about this now.

• Based on the information you gave me, you would be losing \$0.35 per sale.

Yikes.

• No, you bought the pair of leggings for \$10.50 (\$9.97 after the 5% wholesale discount) and then sold them for \$25. You would only pay taxes on the profit (\$15.03) which would be about 40% (for 25% tax bracket and 15% self employment tax for SS and Medicare). In this case, you would take out \$6 and your left with \$19 to buy another pair of leggings at \$9.97 or almost buy two. You can’t just look at the profit side, you have to look at the entire cash flow when considering what you have to reorder inventory.

• Wrong. You lose \$0.97 on each pair when you restock inventory. You’re only subtracting taxes from \$25, you’re not subtracting the purchase price of \$9.97 after 5% discount.

• So I understand your math here, but then, when you sell that pair, you receive \$25 (subtract the \$0.97), so \$24, take out 40% tax on the \$15.03 (so again about \$6), so that is \$18, buy another leggings for \$10, and you have \$8 profit.

Now, you sell that pair of leggings for \$25, pay taxes (\$6), \$19, buy another for \$10, and have \$9 profit.

Sell that pair for \$25, pay taxes (\$6), \$19, buy another for \$10, and have \$9 profit.

So selling those 4 pair of leggings (after taxes), you have \$1 loss (while building inventory), then \$9 profit, \$9 profit, \$9 profit. So \$26 profit for selling 4 pair of leggings.

You can’t continue to subtract the cost of leggings & the re-purchasing of leggings on each scenario for a loss.

Don’t ever start your own business. You suck too much at math.

• You have to continue to subtract the cost of the leggings. You can’t just decide that purchasing inventory doesn’t count against profit. That is nonsense.

• I understand what you’re saying, here, but the problem is repurchasing inventory happens on a larger scale than one pair of leggings. Let’s say you sell all your inventory and have demand, you still need to repurchase another round of inventory at a loss. It’s not until you’ve fully sold out of three rounds of inventory that you turn a profit, according to your math.

• Wrong. You already subtracted out the \$9.97 that you paid initially. Let’s use small round numbers to demonstrate. Say you have \$100 to start your business. You spend \$10 on leggings, so now you have \$90 and one pair of leggings. You sell the leggings for \$25. Now you have \$115 and no leggings. You want to replace them, so you buy another pair for \$10. Now you have \$105 and one pair of leggings. For taxes you owe \$6 on the profit, so you really have \$99 and one pair of leggings. Then you decide you don’t want to sell leggings anymore. You still have the product, so you sell it back to Lularoe at 80% of what you paid – \$8. Now you have no business, but you already paid your taxes and you’re left with \$107 which is more than you started with. It’s just basic principles of retail. Last time I posted an honest response that contradicted you, you never approved it. I would hope that was an oversight and will not be the same this time. I’m open to intelligent debate.

• No, I have not already subtracted the \$9.97 you paid for the leggings. If you sell the leggings for \$25, you have to subtract the COST you purchased them for in order to determine what is actually left over for profit.

Regarding comments awaiting moderation: there are thousands of comments pending approval. If your comment hasn’t been approved, it is because it is buried in the queue.

• You are subtracting the inventory twice again…the agent collects \$25 and with the first 9.97 above they can repurchase the inventory and have the \$9 to keep/apply to other expenses.

Just curious if you had a chance to look at my 2 other posts awaiting moderation…I assume you disagree and would be more than willing to explain further if you wish.

• You have to subtract the cost of buying the inventory from the \$25 received.

Regarding comments awaiting moderation: there are thousands of posts pending approval. If your comment hasn’t been approved, it’s because it’s buried in the queue.

• Your math is wrong. Period. You are wrong. You subtract the cost of the initial leggings and the cost of repurchasing the first timemail. But then you just subtract the replenish only because you already subtracted the purchase in the previous part. It’s not hard if you aren’t dumb.

• That’s exactly what I did. You end up negative \$0.97 on the second round of inventory.

Like you said, it’s not hard if you aren’t dumb.

• I ended up on this site because I didn’t know what LLR is and got dragged in by the comments, like usual. I agree with your premise that MLMs are typically a scam, and LLR is not a good deal. However, since 6monthsin mentioned taxes, you’ve started using math that doesn’t quite work.

If you are repurchasing inventory within the same fiscal year, you are doing so with pre-tax money, so you do not deduct the cost of new inventory from money you’ve already “taxed” on paper:

\$25 Revenue
-9.97 Cost of Goods sold
————
\$15.03 Net Earnings
-9.97 Inventory Repurchase
———–
\$5.06 Taxable Earnings
-\$2.02 40% taxes
——-
\$3.04 After tax earnings, BUT you still have a pair of leggings in inventory which you presumably can sell for \$25 to a customer.

If you sold them in the same fiscal year, you’d pay taxes on \$30.06 (\$5.06 + \$25), and your after tax earnings would be \$18.04 for selling two pairs of leggings

If you sold them in the subsequent year, you’ve already paid taxes on your first sale, and you would be taxed on \$25 this year. Year 1 after tax earnings \$3.04 + Year 2 after tax earnings \$15 = \$18.04. The exact same amount. The difference is, you’re able to use that \$25 in revenue for the entire year until you have to pay taxes on it.

This nuance is where someone with business acumen succeeds and someone who does not will fail. The former will only consider \$15 of those dollars as theirs to spend on non-business related items, knowing that they’ll have to pay \$10 to Uncle Sam come tax time. The latter will spend the \$25 on non-business related items and come tax time will owe \$10 to the government they don’t have. If this is their only income (1099 from LLR) they will owe the government \$10. If they or their partner (if filing a joint return) receive W-2 income, their tax return will decreased by \$10 and if they lack enough withholding, may receive no tax return, or still owe money.

This is a reason that all investments (unless investing in a business or partnership) are looked at with taxes being held aside. Everyone has different tax scenarios and may operate their business differently. It’s always better to leave taxes out of any analysis and leave that up to the person’s accountant.

• So you do not tax the profit on the first round of sale, you only tax the profit on end of year earnings minus inventory purchases/business costs?

• Whoops, left the comment in the wrong thread.

Correct.

Revenue
– Cost of Goods Sold
—————–
Net Revenue
——————-
Tax Basis
-Taxes
——————–
After Tax Earnings

As a small business owner, I really appreciated you taking the time to analyze LLR and shed some light on the real numbers so that people searching for that pot of gold don’t get trapped in a money losing “business.” I have to say that when I was 16, I lost money by joining the MLM, Nikken and am still embarrassed that I took the bait over therapeutic magnets & water filters!

I still cannot believe what vitriol is being slung around by people over leggings! Calm down people!

Keep up the good work!

• Thank you, Jack! Appreciate the walk through. I’ll direct readers to look at your comment.

• In your scenario, you purchase leggings (that is a cost), sell them, pay taxes & then repurchase a pair. You subtracted the repurchase amount (which is correct). BUT then every scenario after that, you only subtract taxes & a repurchase. You are ridiculously subtracting the purchase of the leggings you sell & the re-purchase over & over again. That means you are subtracting the cost of the leggings twice in every scenario after the first one which is WRONG! You suck at math.

Example using round numbers:

Starting Bank Account: \$10
Wholesale Purchase Leggings A: -\$10
————————————

Sell Leggings A: \$25
Pay Taxes: -\$6
Wholesale Purchase Leggings B: -\$10
————————————
Your Bank Account: \$9 (so -\$1 from initial \$10 bank account balance)

Sell Leggings B: \$25
Pay Taxes: -\$6
Wholesale Purchase Leggings C: -\$10
————————————
Your Bank Account: \$18 (so up \$8 from initial \$10 starting point with already paid for Leggings C to sell)

In your example where you ridiculously say you lose money on each legging sale, you are subtracting the Purchase of Leggings B from your calculation twice. This is what you did which is wrong.

Starting Bank Account: \$10
Wholesale Purchase Leggings A: -\$10
————————————

Sell Leggings A: \$25
Pay Taxes: -\$6
Wholesale Purchase Leggings B: -\$10
————————————
Your Bank Account: \$9 (so -\$1 from initial \$10 bank account balance)

Wholesale Purchase Leggings B: -\$10
Sell Leggings B: \$25
Pay Taxes: -\$6
Wholesale Purchase Leggings C: -\$10
————————————
Your Bank Account: \$8 (so -\$2 from starting \$10 bank account based on incorrect math)

Do you see how in your incorrect math, you subtracted the leggings B purchase twice?

IF you had an ounce of decency, you would post a huge apology to everyone for your math errors giving them such incorrect information. You are hurting Lularoe consultants, you are discouraging people from joining Lularoe using false facts, and you are wasting people’s time by not realizing your error when it is pointed out to you by multiple people. Your hobby is damaging. I would LOVE if Lularoe sued you for this false information. Warn people all you want that MLM is hard work — but posting false math MULTIPLE times and refusing to correct it – that just makes you look ridiculous. Hope your day job doesn’t involve math.

• Please see Jack Spencer’s comment. We were both wrong, Marisa.

• This math is certainly challenging.
Here’s my calculation for earnings-
Schedule C divided by number of hours worked.

16. You realize what “gross” and “net” are right? The net already has the “\$5500” taken out so you can’t add the gross and net.(\$5500 is not the starting cost for initial package it is down to around \$4800) Also, different pieces and styles bring different profit, so this is extremely inaccurate. If you are going to bash the company (and try to scare people from investing) AT LEAST get your facts straight and learn how to properly calculate the profit! Sounds more like someone who is upset that the starting cost is so high and you couldn’t find a way to invest in a great deal. Let me tell you that \$4800 for almost 400 pieces of inventory is nothing. Do the math is you go and buy 400 pieces of clothing at target and say they run you \$20/article (same shirt just different colors and sizes) you have spent \$8000. So \$4800 for all that is pretty dang good! Please get your facts straight before posting a 3rd correction article 🙂

• I’m not trying to scare anyone or bash anything. I am providing my opinion based on the information I’ve found. Perhaps you think getting 400 articles of clothing for \$4,800 is a good deal, but paying \$12 per article of clothing times 400 pieces of clothing – before you even make a sale – is a pretty risky move. Especially because you have no control over the inventory.

17. An interesting common thread in all of the pro-LLR responses to your post is that they seem to be unanimously people who have *just started* their LLR business. I can imagine a scenario where demand has built up in a local community and the first person in could sell their initial shipment quickly– what I have a harder time believing is that it can be duplicated long term. Especially since you have to re-invest your profit back into more merchandise to keep going. The initial profit from your sign-up order is meaningless unless you stop there and never purchase anything more.

And you didn’t even touch on the MLM “bonuses” that are paid– all of which require your entire organization to average 175 items per person, per month to qualify. That is pretty steep.

• Good points, Tom! I actually didn’t know about how MLM bonuses are paid. Do you have more information about that, or could you direct me to a place where I can find that info? Much appreciated!

18. You also leave out the fact that buying their inventory is a total gamble bc you have no control over what they send you except the style. That’s what concerns me. What retailer would do business with a company where you have no idea what the clothing will look like?

• Thank you. That’s a very good point! Perhaps if the process of becoming a true retailer, where you curate and control your inventory, was easily accessible, more people would choose that path. Your thoughts?

19. All of these forget about how every time you place an order you have to purchase min 33 more pieces. AND they encourage you to replenish your stock at least weekly so people will have a new selection to choose from.

• I wasn’t aware of that requirement. Do you have anything you can share – a specific policy or screenshot – that requires this?

20. And yes you can return to consultants. Just depends what their return policy is … and we as consultants get full refunds on any damages as well. They know their product is good and your just bitter.

• What am I bitter about? I’ve never sold or purchased LuLaRoe, or any other Direct Sales/MLM products.

21. Agreed! It’s really unfair to send inventory at random to consultants who pay good money, and from what I understand they no longer purchase inventory back at 85%. I could be wrong. Even still that’s a pretty good deal for LLR if they sell ugly clothes that a consultant returns as a loss to just unload it. At that point LLR has been paid a profit to take back clothes that won’t sell and they still get the clothes, which I’m sure they can unload for additional profit. Crazy. I would probably consider becoming a consultant if I had control over what I was buying in inventory because there is definitely a market for what they are selling. Someone needs to start a company with a similar concept except with clothes that don’t have patterns that look like they’re either straight from the 80s or something my grandmother would wear.

• Instead of becoming a consultant you can set up your own online boutique and decide which inventory you want to sell. People think it’s hard but it’s not that difficult to become a shop owner.

• It’s ok, I can take it. I make sure I read the comments with a glass of wine or, depending on vitriol, whiskey.

22. Correct.

Revenue
– Cost of Goods Sold
—————–
Net Revenue
——————-
Tax Basis
-Taxes
——————–
After Tax Earnings

As a small business owner, I really appreciated you taking the time to analyze LLR and shed some light on the real numbers so that people searching for that pot of gold don’t get trapped in a money losing “business.” I have to say that when I was 16, I lost money by joining the MLM, Nikken and am still embarrassed that I took the bait over therapeutic magnets & water filters!

I still cannot believe what vitriol is being slung around by people over leggings! Calm down people!

Keep up the good work!

23. Your math is not makin sense to me. The initial i vestment is the cost of inventory. All you should need to do is take gross sales less inventory costs and any other costs for net income. In the last example the 180 should have been the gross sales price of those items instead of the net because net = sales less cost but the initial investment is subtracted above. So the 180 should be average sales price times 10 items about 330.

• No, the profit is \$18 per for those 10 items sold. \$18 * 10 = \$180. And that is a hypothetical example.

• I’m a CPA not a lularoe consultant. I do this for a living on a much larger scale. What I am saying is that in that final example you had already subtracted all of the cost of inventory. The \$5,500. So when you figure in the sales of the last 10 items you should be adding the gross sales price not the net profit. You have subtracted the cost of inventory 2x on the last 10 items sold.

I agree that its not a risk I would take but the accounting is not working out in the blog post.

• Thank you. I’ll make a correction – can you C&P the exact place in the post where this error occurs?

• Here’s what that looks like:

screen-shot-2016-11-02-at-7-34-48-pm

The chart above this paragraph.

So, you’ve lost \$590 attempting to sell LuLaRoe. You may be asking, why isn’t the wholesa

• So, in that example, the assumption is that you’ve sold 10 products for \$180 profit, can’t sell any more, and have decided to return your inventory for 85% buy-back.

\$5,500 initial investment – \$180 profit = \$5,320 “invested” that you want to recoup. LuLaRoe will only buy back your remaining inventory at 85%, giving you \$4,730.25 “back”. Since you are invested \$5,320, you have lost the remainder – \$589.75.

Does that explain the issue? Where is the error?

• One more thing. I couldn’t resist clearing up the accounting but in genereal I agree with you on mlm’s. They target women and I rarely see them turn a profit. Thank you for your post and for replying to all of these comments!

• Thank you, Jennifer!

24. I don’t understand why you would be adding gross sales, less the initial investment which = net profit then adding net profit again. You need to take sales less average inventory value = net profit. If you purchase 381 items for 5,500, each costs approx 14.43. 381×33= 12,573 gross sales minus 5,500 cost of inventory= 7,073 net profit before other costs. In your math you added net profit again ending with 13k.
This doesn’t consider that you probably cant sell straight through your initial purchase of inventory without purchasing more and some might not be sold at \$33 to get it to sell. Inventory is an asset until it sells then it becomes cost of sales.

• So for this question I would redirect you to the amended calculations in the follow up article. Also, please see Jack Spencer’s comment (below) about profits.

25. No. Not wrong. Read it again. I note that we need to get bank account back up to \$10 to break even. So you have reading comprehension issues, too.

Good grief…I am trying to explain your faulty math to you in a simple way since math is not your strong suit, and you try to find a way I am wrong. Sorry…not going to work.

• I’m not going to keep going back and forth with you. I was wrong, yes. But you are also wrong. Please see Jack Spencer’s comment.

• I am not wrong. Taxes are complicated. You do only pay tax on your profits…but for those scenarios, I was subtracting something so it wasn’t ignored. It’s impossible to know how much tax you’re going to pay on a sale of 1 leggings because it depends on what your total income is to determine which tax bracket you’re in, what deductions you have, etc. Sorry – not wrong. I told you the taxes were just an estimate.

YOU stating that you lose money on each pair of leggings you sell shows that no one should take you seriously on any topic.

• For the umpteenth time, I’ve directed you to Jack Spencer’s comment for the appropriate math. You do lose money on the leggings if you haven’t fully sold out your inventory. If you still have inventory unsold, you have not made a profit. Let’s not oversimplify the entire profit model to just one pair of leggings when you have to purchase 280+ just to sell one pair.

• My math is correct. And you weren’t talking about overall profitability. Your example used incorrect math deducting the cost of leggings twice after the first re-purchase. That is wrong.

Your example of profitability per pair of leggings is wrong. My math was correct.

Yes, you do need to buy wholesale (bulk) and sell a lot of retail to be overall profitable (duh!), but your math was wrong. Does your boss know how incompetent you are at math? I know, as a business owner, I would never hire someone so horrible at math. It is ridiculous.

• Please see Jack Spencer’s comment.

26. That is true with any business. I think the debate is being confused between cash flows and profit. You need enough cash flow to purchase new inventory, yes. But the cost of inventory does not enter into profit calculations until the inventory is sold. Inventory is an asset like your bank account until that point. Asset means something that has value you could use or sell in the future. Once the inventory is sold then you have profit to match up with the leggings expense. You traded cash (an asset) for leggings (also an asset). You have revenue (purchase price of legging by the final customer) and expense (your cost of the leggings (either by an average cost or exact cost depending on your inventory system). Accounting 101.