LuLaRoe or LuLaNo: Will Your Investment Pay Off?
May 19, 2016
If you’re reading this article, you’re either an avid BOTTLESOUP reader or you’re curious about becoming a LuLaRoe Fashion Consultant. Either way, you’ll enjoy this in-depth look at the LuLaRoe business model. By the end of this post, you’ll have a clear understanding of the company. Allow me to preface this by saying I am not a LuLaRoe Fashion Consultant and, thus, I have no skin in the game. This article is meant to be objective and informative.
What Kind of Business is This?
LuLaRoe is a direct sales company that recruits informal retailers, branded as Fashion Consultants. Translation: LuLaRoe does not hire Fashion Consultants. You are not a LuLaRoe employee if you sell LuLaRoe. You do not get any LuLaRoe health benefits, retirement, etc.
Essentially, the relationship you have with LuLaRoe is that of a retailer and wholesaler/manufacturer. LuLaRoe produces the product and sells it to LuLaRoe Fashion Consultants at wholesale cost – essentially like Target, Walmart or any other big retailer, it is your responsibility to sell the product in order to recoup the wholesale costs and potentially earn money on markups.
Sounds simple, right? You know lots of women who like LuLaRoe’s products. In fact, there’s thousands of women on the LuLaRoe BST (Buy/Sell/Trade) groups! There must be money for the making!
Not so fast, tiger.
How Much Money Do I Need to Get Started with LuLaRoe?
LuLaRoe requires a substantial monetary investment for sales. Unlike other direct sales companies like Jamberry and KEEP Collective, LuLaRoe requires you purchase pieces at wholesale and in advance of sales. There’s no catalog. There’s no online shop. You can create a “pop up” shop through a Facebook group or in person, but, essentially, the burden of creating incentive, collecting payment, and recuperating your operating costs are all on you. So how much money does it cost to begin?
Yes, you read that correctly. The start up cost to become a LuLaRoe consultant is between $5,000 and $6,000.
Let me be quite clear: LuLa Girls on FIRE is a website dedicated to recruiting new LuLaRoe Fashion Consultants and occasionally selling some product. Don’t believe me? Hop on over to the website and tell me which is easier: buying a pair of LuLaRoe leggings or getting tons of info geared to becoming a consultant? Yeah. You can’t even buy any LuLaRoe products from this LuLaRoe Fashion Consultant on her website.
How Long Will it Take Me to Earn Back my Investment?
According to LuLa in Love, the retail value of a $5,500 start up purchase is $12,500. This assumes that each piece will net an average profit of $18 (and you have approximately 381 items to sell). LuLa in Love provides the following graph:
Perhaps you’re wondering what’s wrong with this graph and its math. I’ll explain:
Let’s say you want to pay off your LuLaRoe investment in 1 month. According to the chart, you need to sell an average of 70 items per week, or an average of 10 pieces per day. If you meet this sales goal, 70 * 4 weeks in a month = 280 pieces sold. Your kit contained 381 pieces. You’ll have 101 pieces left to sell, and you’ll still be in the hole -$460 for the first month. IF you’re scratching your head, let’s back up: you invested $5,500 in your starter kit/inventory. You earned $5,040 from selling 280 pieces of LuLaRoe clothing. $5,500 – $5,040 = $460 shy of your initial investment.
But that’s ok because you still have 101 pieces of inventory left to sell, right?
Sure. If you sell 101 more items at an average of $18 profit per item, you will earn $1,818. Oh, wait, you need to subtract that -$460.
$1,818 – $460 = $1,358.
You will have broken even, but you’ll be out of inventory.
Also, wasn’t that inventory supposed to be worth $12,500 retail?
Yes, the retail price will add up to $12,500 in revenue. But you will not earn $7,000 profit from your $5,500 investment. (Profit = Revenue – expenses) It’s easy to get confused. Don’t feel stupid. I’ll break it down:
$12,500 – $5,500 = $7,000. So how does a $5,500 investment only earn you $1,358 instead of $7,000?
The answer is pretty frustrating. In order for their math to make sense, they must use the highest retail prices to estimate the worth of your inventory. However, it assumes you will price your retail in the mid-level instead of the high level cost. Reality is, with so many LuLaRoe Fashion Consultants many consultants end up having to price items competitively. And in business, competitive means cheap. The lowest possible cost. Why? Well, you need to make sales. If you don’t make sales, then you will lose your investment. For the record, for the $12,500 “value” to be accurate, each piece would need to have an average retail face value of $32.80 ($12,500/381 pieces). The LuLaRoe butter leggings everyone loves? They sell for 2/$40. This makes their retail face value $20 each.
Would you rather make $18 profit on a couple sales and be short a few thousand dollars or lower your prices to make just $2 a sale but “repay yourself” quickly?
For fun, let’s say you engage in competitive pricing. Your LuLaRoe pop up is cheaper than all the rest of the ladies. You sell 381 pieces at a $1 markup and earn just $381, BUT you’ve paid off your investment. Right? Probably not. You’re assuming there’s no shipping and handling fees on your part, which, there will be unless you exclusively sell local. So, add postage and packaging to your costs. If your average shipping and packaging cost is $1.50 an item, you’re actually in the hole -$190.50.
I haven’t taken into account those who have absolutely lost hope and are unloading their LuLaRoe products as cheaply as possible just to get a fraction of their investment back.
But let’s be generous and say you unload all your stuff for an average $18 profit per piece. Let’s say you earn that $1,358 and business is booming. What then? You will need to purchase more inventory. So, let’s say, for simplicity, you decide to purchase $5,000 more in wholesale LuLaRoe clothing. To “repay yourself” this time, you’ll need to earn:
$5,000 – $1,358 = $3,642
You’ll need to earn $3,642 to repay yourself. Or sell approximately 203 pieces to break even this time. After 203 pieces, the remaining 178 pieces are profit. Sell them for an average of $18 profit per piece, and you’ll earn $3,204. But, again, you’ll need to get more inventory to continue.
So, do it again. Another $5,000. This time:
$5,000 – $3,204 = $1,796
Hmm. Ok. So this time, you sell 100 pieces at an average $18 profit per item, and you earn $5,058. Yes, for the first time you actually profit while replenishing inventory. Rate of return? 1.16%.
Essentially, you must invest over $15,000 and sell everything at an average profit of $18/item to start seeing true returns and true profit on your inventory.
LuLaRoe Fashion Consultants and recruiters will tell you “it takes money to make money” and “every business owner invests in their company” and these things, in many cases, are true. However, the differences between a LuLaRoe Fashion Consultant and a business owner are vast. First, LuLaRoe sets the terms and restrictions. Second, you don’t own or control anything; you and your “business” are dictated by the home office. Third, successful business owners enter into entrepreneurship by creating a business plan and working the numbers (like I walked you through).
Being a successful LuLaRoe Fashion Consultant takes a lot more than $5,000 and a few LuLaRoe pop up shops. It takes sophisticated marketing, business savvy, and significant investment to become a retailer. (I’m not the only blogger who feels this way!) And, please don’t mince my words: I said a retailer. I am not suggesting that marketing, business knowledge, and seed money are the keys to success for LuLaRoe. In fact, my opinion is that LuLaRoe is a risk not worth taking. The returns are very low. The investment is very high. And the market is futile. LuLaRoe is not an innovative necessity; it is a company that produces clothing in poor countries, very cheaply, then profits from wholesaling it to you. Make no mistake: you are LuLaRoe’s customer; they don’t care if you make sales or not.
Just because you’re asked to invest a significant amount of money does not mean the return on investment will be equally significant. Retailers operate successfully by diversifying the products they sell, whereas as a “fashion consultant” for one brand leaves little margin for error. If the product is a flop among your audience, then you have nothing left to offer.
Update based on comments found here.