We’re in the world of COVID-19 and I’m homeschooling two kids on two curricula at the same time. My military wife is deployed helping with the COVID-19 response.
However, the FTC has warned many MLM companies about COVID-19 claims about health and investment claims. I thought it may be useful to refresh (not republish) this article with this message. It may give you a flavor for how MLMs work in general.
Happy Halloween everyone. I’ve got a tale of a scary MLM to share. It’s my first attempt using a new writing tool, Scrivener and a new writing shorthand called Markdown. Normally, I’d put more time into proofreading the article and formatting, but having spent dozens of hours on it as it is, I need to bite the bullet and publish.
Regular readers know that I have a hobby of analyzing MLMs and showing consumers how they deceive you. Last week, I noticed that Nick Loper of Side Hustle Nation had highlighted a friend who has grown a $4k a month business in an hour a day. Kellie Gimenez is doing it with an MLM called Beachbody. You may know of Beachbody’s workouts: P90X and Insanity are two of the most popular ones.
Truth is, I’ve been meaning to write about Beachbody for a couple of years now. I noticed a good high school friend of mine promoting it on Facebook. I pushed it to the back-burner because I wanted to believe it was legit for his sake. Also, I see nothing wrong with P90X. From what I’ve heard it is a great workout.
With Nick’s podcast and what Kellie said, I couldn’t ignore Beachbody any longer. Oh well, this could make for an awkward 20th reunion in a few weeks if we both go.
This is a long article so if you want the “TL;DR” version, it’s:
“Get the hell away from Beachbody’s Shakeology and its ‘business opportunity.’ You are wasting your time and money. Every piece of information seems to show it is an illegal pyramid scheme according to the FTC’s guidelines. A former Beachbody Coach also gives good details into the pyramid scheme nature of the company. According to her, the focus is not on nutrition or fitness, but classes instead include: “How to never take no for an answer when trying to sign on new coaches” or “How to not take no for an answer when selling Shakeology.”
You can pick up Vega One available on Amazon which is extremely similar (and better in some ways) for half the price. A former Beachbody Coach mentioned Nature’s Plus Spiru-Tein High Protein Energy Meal is a great choice at about a single dollar per serving, 1/4th price of Shakeology.
There’s no reason to be a Coach to get a discount as you can get the Shakeology discount price on Ebay without paying coaching fees.”
As I said in the introduction, I don’t mind the workouts. They seem legit.
What is extremely fishy is the Shakeology product. The product itself isn’t particularly, but the pricing. Before I cover it allow me to explain why pricing matters in an MLM.
Why Does Pricing Matter in an MLM?
This is a good question and few people seem to grasp it initially. One of the best explanations I’ve seen is by a commenter on FatWallet using an analogy:
[I go into this analogy in more detail here.]
”Say Mr Pyramid buys pens in bulk from Staples and sells them for $100 each. Who’s gonna pay $100 for a pen? But tell them that they can also sell pens for $100, and we’ll pay you $30 for every pen you sell, plus you can recruit people to sell pens as well, and you’ll get $10 for every pen they sell, and $5 for every pen their recruits sell. Three levels, $45 commissions total on a $100 sale. Everyone has to buy 10 pens a month for personal use to participate in the program. Just find three people who find three people who find three people…. In the end, yeah, you are buying 10 pens a month for $1000, but you are getting $3150 in commissions, so don’t sweat it. Why wouldn’t you join?
Product is moving. The pens get used. No recruitment revenue, only product commissions. Absolutely 100% a pyramid scheme. The only real reason people are paying $100 for a pen is for the opportunity to make money off the sale of pens. Completely unsustainable as eventually, you run out of people to sell to and those at the bottom get hosed buying $1000 pens but not being able to sell them. This is an extreme example, but if you look at the world of MLM, there are some pretty big name companies out there that somewhat fit this mold on a less cut and dry basis.”
Back to Shakeology
Anyone who has read my ViSalus article knows this is a red flag. There I showed that ViSalus was charging $1.50 for a shake that any consumer could make with 3 simple ingredients for under 50 cents: whey protein, Fibersure, and a multivitamin. I know saving a dollar doesn’t seem like much, but in 10 minutes of time, you could save your $300 or more each year. Unless you are the CEO of company making millions this is exception use of your time.
Unfortunately Shakeology isn’t quite as easy to break apart. There are many ingredients. I found a nutritional label here, which is worth looking at.
There’s a pretty good product comparison of many shakes including Shakeology here. It criticizes Shakeology in quite a few places, but gives it an overall thumbs up for ingredient choices. His conclusion is interesting:
”Drinking shakes as meal replacements is not, in my opinion, a sustainable long term health plan. No liquid meal replacement satisfies the need to eat and chew solid food, which also stimulates the release of digestive enzymes in saliva… I do not recommend any of these products as a route to supreme good health. However, if you are going to drink a meal replacement, opt for Shakeology by Team Beachbody, it seems to be way better than the others in terms of the quality of the ingredients.”
So in fairness, Shakeology may have decent ingredients, but it isn’t necessarily a good health choice (according to this extensive review).
As we covered earlier, pricing does matter in MLM. According to Gimenez’ description on the Side Hustle Nation podcast, the meal replacement shake is around $4 or $120-130 a month. We’ll dig into pricing in a minute, but we are going to take a quick detour.
At the 11:50 mark of the podcast, Nick Loper politely says, “ummm, it didn’t really do it for me” while laughing (Translation: You don’t want to put this in your mouth.) Kellie says that some shakes “you can just shake in a shaker and go for it.” With Shakeology you need to “find your mix” and “you need to blend it.” She mixes the chocolate flavor with peanut butter, a banana, almond milk, ice.
This is where Shakeology starts to fall apart.
If you go back to the nutritional facts, it only has 140 calories a serving, not a good value for $4. It’s marketed a meal replacement, but I’ve never seen 140 qualify as a meal. The US RDA for calories in a day is around 2000 calories. (It varies with age/gender, but that is an average.) People typically eat three meals a day. Allowing for some snacks, a typical “meal replacement” should have between 400-500 calories.
Thus to get a true “meal replacement” you’d have to drink 3 shakes at a cost of $12. However, as Ms. Gimenez points out you need to “find your mix” and “blend it”, so it isn’t meant to be a “meal replacement” on its own. Let’s just say that for $4 and an additional dollar of mix ingredients, you can make yourself a $5 shake. That’s in your own home, not at a swanky restaurant as you might in Pulp Fiction (Note: adult language). If you are going to pay restaurant prices for a shake mix at home, you might as well buy $40/lb. steaks at your grocery store.
Wait, there aren’t any $40/lb. steaks at your grocery store? Are there any shake mixes that are $4 for 140 calories? The closest thing you can find is Carnation Breakfast Essentials, No Sugar Added, which has similar calories, protein, fiber, vitamins and minerals for $0.62 a serving (nutrition label: http://www.nestlehealthscience.us/asset-library/PublishingImages/8.0PRODUCTSLocalLandingPage/Nutritional%20Panels/CBE-Powder-NSA.jpg). If you use the Subscribe and Save option, the price comes down to 50 cents a serving. Yes, I know Shakeology Coaches are going to try to rip me apart for the comparison saying that Carnation is full of bad ingredients. However, as long as shakes aren’t a good health choice (according to the review referenced above) to begin with, quibbling over the differences here doesn’t make sense. What’s vastly more important is that the nutrition label is very, very similar, but at around 1/6th or 1/8th the price of Shakeology. If you are looking to get into shape the important things are calories, protein, carbs, fiber, etc., not whether it has apple pectin powder or wheatgrass in it.
Update 1: I found a similar product, Vega One available on Amazon, that is $53.48 (as I write this) or $2.43 per serving. Looks like it almost identical with digestive blends, antioxidant blends, probiotic blend, tons of vitamins and minerals, similar calories/protein. Vega One has double the fiber and an Omega 3 blend, which arguable makes it better at a much lower cost. Oh and Amazon’s autoship (Subscribe and Save) saves me an additional 20% off the $53.48 price making it $42.78.
Update 2: A former Beachbody Coach mentioned Nature’s Plus Spiru-Tein High Protein Energy Meal as a great choice in the comments. It is about a $1.15 a serving or nearly 1/4th the price of Shakeology. The comment also gives good details into the pyramid scheme nature of the company. According to her, the focus is not on nutrition or fitness, but classes instead include: “How to never take no for an answer when trying to sign on new coaches” or “How to not take no for an answer when selling Shakeology.”
In a year, you would spend over $1200 a year drinking Shakeology, but save a thousand dollars going with Carnation Breakfast at $225. That buys a lot of Beachbody workouts, time with a personal trainer, or other things that will help you get in shape.
And let’s take a minute to mention how terribly inconvenient it is blend a shake if competing products have an option to “shake in a shaker.” You certainly aren’t paying for convenience with Shakeology… you are paying for inconvenience.
However, if you are going to go with blending route anyway, I suggest that you get a Nutribullet (here’s my review) and make this mix at home for around 50 cents a serving. I combine frozen fruit (around a cup), whey protein (1/2 scoop), Greek yogurt (a tablespoon), and some spinach (you’ll never know it is there) and blend away. Sometimes I get crazy and add flax seed. It tastes great and costs probably around 50 cents a serving… again a fraction of Shakeology. So for the health nuts that have a problem with the Carnation Breakfast option, this is another option that should eliminate all health questions.
Finally here are some other cheaper alternatives to look into:
To summarize, it seems like Shakeology tastes so terrible that you need to mask it with a plethora of other ingredients. It is so expensive that the pricing at a restaurant is famous in a movie for being outrageous. Shakeology may be healthy for a shake, but shakes aren’t healthy to begin with. It misrepresents itself as a meal replacement when it is really nothing of the sort at only 140 calories. In only becomes a meal replacement when you add the other ingredients… at which point you might as well just had the meal.
Beachbody Bummer has a great chart about how absurd Shakeology pricing is… Pricing for 200 calories: Slimfast is $0.63, Ensure is $1.03, GNC Total Lean is 2.36, Shakeology is $6.66. Yikes!
Given all the problems with Shakeology, a natural question to ask is, “Who is going to pay $4 a serving for Shakeology?” If that sounds like the “Who’s gonna pay $100 for a pen?” from the Pen Pyramid Scheme, you are starting to get the idea.
What Can you Expect to Earn as Beachbody Coach
When someone presents you with a business opportunity it is always wise to crunch the numbers. Beachbody has posted an their income disclosure statement (PDF) on its website. You’ll want to click on that.
The first thing you’ll notice is that the document is from 2010-2011. Hmmm, that’s not a good sign. Giving Beachbody the benefit of the doubt, I dug deeper and found a Beachbody income disclosure statement from 2011-2012 at an obscure URL (see the link when you mouse over it).
I was unable to find information from 2012-2013. Maybe it exists, but I think Beachbody just gave up and didn’t release one. You’ll find out why I presumed they gave up as we analyze it.
To make things easy, these income disclosure statements are commonly referred to as an IDS in the MLM world, and I’ll keep the same convention. Also since they go from the end of December to the end of December, I’ll just use the year that encompasses 99% of the data. So I’ll refer to the 2010-2011 as simply the 2011 IDS and the 2011-2012 as the 2012 IDS.
I’ve evaluated IDSs from dozens of MLMs, and the first place to look is always the fine print. In footnote 2 of the 2011 IDS you’ll find that only 49.3 of Coaches earned a check from Beachbody… 50.7% earned nothing, nada, zilch. In the 2012 IDS it gets worse as footnote 3 says that only 45.9% earned checks… 54.1% earned nothing, nada, zilch.
Thus the chart that you see in each of the IDS’ is automatically missing half the data. It’s like analyzing hitter’s performance in baseball, by only looking at the hits and ignoring the outs he makes. Or it’s like evaluating a QB in football by looking at only the completed passes he makes and ignoring the incomplete passes.
It doesn’t make sense to sweep the failure of 50+% of the workforce under the rug in a footnote…
…but it gets worse.
In each IDS footnote 1 says that it includes Coaches who were with Beachbody the entire period. Thus the data includes only experienced coaches who have been with Beachbody for a year. The growing pains of people new to Beachbody are excluded. This means that those who have put in a year in the business had a less than 50% chance of receiving a check of any kind.
Churn Rate in MLM
I Interrupt this analysis to talk about churn rate in MLM.
It’s important to note that there is a huge churn rate in MLM. It ranges from 60-90% from the few companies that have accidentally disclose it at one time or another. (It is never regularly reported by any MLM that I am aware of.) It’s not often that people will stick around in business when they aren’t earning a check. In fact, I go out on a limb and say that it is dumb to put a year in a business that isn’t paying you a check. It’s a crazy limb to go out on, I know.
There is a great article on Seeking Alpha that explains that the people at the top of the pyramid stay year after year while the people at the bottom quit when they make no money and are replaced by new people (i.e. churn).
Back to Beachbody IDS analysis
Getting back to the IDS analysis, all the people who got churned in under a year or were members from June to July (not qualifying for either IDS), are excluded from this analysis.
Here’s what I would consider a more accurate representation of the Beachbody Income Opportunity. This chart has four “cases” depending on the churn rate that I don’t believe is disclosed by Beachbody. It assumes 100,000 Coaches – I had to pick a number since I didn’t see one disclosed. This is a nice round number to get an idea of the percentages… and in my experience it probably isn’t too far off from the actual number of Beachbody Coaches in the United States.
From my experience with MLMs, “Case C” or “Case D” are the most likely cases accounting for the churn. So when you read this chart you’ll see that somewhere between 4.59% (4,590 of 100,000 in Case D) and 18.36% (18,360 of 100,000 in Case C) of Coaches earn checks after accounting for typical churn for IDS 2012. From there you’ll most of those (71%) are “Retail Seller” Coaches.
While Beachbody provides an Income Disclosure Statement, like all MLMs, it avoids any attempt to estimate expenses. Thus we are at a loss to figure out how much money a Beachbody Coach actually brings home.
The excuse they give is that the expenses vary with each person. They do, but many of them are consistent. Here are a few to think about:
- Conference Fees – The Beachbody Coach Summit ranges from $99 to $295 depending on when you buy it. As I write this, 10/24/14, the price for the event on 7/16/15 (still nearly 9 months away) is $195. The early pricing was expired months ago (7/31/14).
The people who benefit from this early pricing are the people who are already in and already making good money… the people in the diamond ranks. It doesn’t seem right to me that the people who are making the most are going to end up paying the least. The new person who joins in 2015 is going to pay $245 or more.
This doesn’t count hotel, car, airfare, and food (restaurants are expensive), which reasonably add another $1500 in costs. Some will argue that conferences are optional. No doubt about it, they are.
However, the same people will talk out of the other side of their mouth saying that if you are serious about the business, you need to go. They’ll also say that the people who aren’t making money aren’t putting in the effort in doing stuff like this.
To those people, I’d say, “You can’t have it both ways.” Either going to the conference is a critical ingredient AND COST of doing the business or it is not. If it is not, then not going is not an example of something “not trying.”
- Monthly Coach Fees – There is a monthly $15.95 fee to be a Coach. That pays for a website and a subscription to “Success.” I’ve covered this already when I wrote about the ViSalus scam, a similar MLM shake company, but it is worth mentioning here.
The “Success Magazine” is brainwashing material, more commonly known as propaganda, directed at the MLM business. If you look at the company that distributes it, they make it clear that their business is partnering with MLMs. Just go through all the partners at the bottom of the screen and you can see that they work (it appears 100% exclusively) with pyramid selling companies. If you’ve ever seen a copy of Success Magazine, you’d see that 90% of it is sound business advice designed to gain trust… but the other 10% of it is about legitimizing MLM. In contrast, pick up any other business magazine, Fortune, Entrepreneur, Inc. Fast Company, BusinessWeek, and you’ll see nothing about MLM being a legitimate business. In fact, Inc will tell you quite the opposite.
The problem is that most people buying into MLM are too brainwashed to see that “Success Magazine” is essentially an infomercial. You shouldn’t pay a monthly fee for propaganda… especially propaganda that sells advertisements. It is a combination of paying for the Metro and your company newsletter.
The website is another area where the company shouldn’t be charging money. Facebook, Tumblr, and other similar websites don’t charge money. They make their websites available to you for free and you don’t even work for them. Why would you pay Beachbody money for a website to sell their products? Does your current office job charge you for the use of the company’s email system? Of course not.
The website that Beachbody provides has almost no incremental cost to add coaches. It is similar to the cost that iTunes incurs when you buy music there: it is fractions of a penny to send the music. The real costs are in producing the product the first time. Same thing with the Beachbody website. I don’t know how often they roll out new tools on the website, but for the most part it should be very basic, something with minimal costs to produce the first time and very few ongoing costs to update pricing and policies.
It may not seem like the monthly $15.95 fee is outrageous, but it’s a huge deal when Netflix raises rates from $7.99 to $8.99. Netflix is a good example of a company that provides product in unlimited quantities that is extremely expensive to produce… and it’s priced at nearly half of Beachbody Coach fees. It is interesting to see how the $190 in annual Coach Fees stacks up add up to the income that is being earned.
- Weekly Club Fees – I’ll let this Beachbody Coach explain this: “There is also an option to be Club Member that costs $2.99 a week and is billed quarterly. I consider the Club Membership as a cost of doing business, because in order to qualify for the customer lead program, one of the requirements is for a Coach be a Club Member. Some Coaches don’t like this, but to me $2.99 a week is a small price to have customer placed in my business.”
This is Mindbloggling. It is an annual fee of over $155 a year. It is almost as much as the Coach Fees themselves, but it can be overlooked since it is such a small number. It’s billed more often though. I realize this is “optional”, but many, like the Coach above, consider “a cost of doing business”, simply because the Beachbody created a policy to makes this fee a requirement for the customer lead program.
The customer lead program is a hairy best of complexity. Good luck wrapping your head around this 5 part series. The gist of it is that if someone signs up at Beachbody who wasn’t referred by a Coach, Beachbody will place that customer with a Coach who has paid this $155 annual membership.
Breaking it down, Coaches make money by either selling product or recruiting people to be Coaches who buy product… but this system allows Coaches to make money for doing neither. Essentially Beachbody’s website is doing the Coach’s job. Sounds like a nice free lunch, until you realize that it isn’t free.
It should be obvious that it is a strange game Beachbody is playing. They charge Coaches for websites, but when the Beachbody.com website makes money they disperse the commission to Coaches.
Shouldn’t Beachbody keep those commissions that they earned without any Coach’s help and use it to pay for the websites? That would make sense. The only reason I can see to NOT do it this logical way is that there are very few leads, and it is more profitable for Beachbody to collect the annual $155 in Club Membership fees from Coaches to qualify to get one.
It’s business 101 that income minus expenses equal profits. Making money is earning profits, not income. Here’s some analysis from Beachbody’s own information.
The easy expense is coaching fees. The $15.95 monthly fee comes is rounded down to $190 a year. The “cost of doing business” weekly fee to qualify for leads is another $155 a year. That’s $345 and you haven’t gone to a conference. You didn’t put gas into your car to go a meeting. You didn’t buy any sample product to give away. This is pretty close to the bare bones minimum.
When you fall into the 50% that didn’t earn a check after a year, the Beachbody people are going to say, “It’s because you weren’t committed.” However, by “committing” yourself, you are guaranteeing yourself of only one thing: greater expenses. As we see, the odds of greater income are extremely slim and there are certainly no guarantees.
If you start adding some of the expenses I listed it isn’t trivial. It can be thousands of dollars.
Using “Case C” of the 2012 IDS in the above chart, we see that only 18% (18,360 of 100,000) earned any income at all… 82% (rounded) earned nothing. Of those lucky enough to make a check, 71.4% had an average income of $467 Combine those two stats and 95% of Coaches are below Emerald who either lose money or maybe break even… earning no real profit for their time spent.
Using “Case D” of the 2012 IDS in the above chart, it gets worse with only 1% of Coaches making it to Emerald or above… around 99% either lose money or break even.
And remember these expenses are incurred from the start of the business, while the income is measured of those who have been there for a minimum of a year.
Is Beachbody a Pyramid Scheme?
That’s the question that people are going to ask when looking at MLM. Many people just jump to the conclusion that it is a pyramid scheme. That’s not a bad instinct and let’s look at why:
The Federal Trade Commission (FTC) is the authority on pyramid schemes and put together this document to help consumer tell whether an MLM is legit or if it is an illegal pyramid scheme. I’ll quote some important lines, but it is worth reading the whole document:
”Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money…
… Avoid any plan where the reward for recruiting new distributors is more than it is for selling products to the public. That’s a time-tested and traditional tip-off to a pyramid scheme…
One sign of a pyramid scheme is if distributors sell more product to other distributors than to the public — or if they make more money from recruiting than they do from selling.”
In three separate places in one small document they’ve made it very, very clear… selling product to the public (people not in the MLM) is legit, making money recruiting people is a pyramid scheme. That’s consistent with every legal definition of a pyramid scheme that focuses on endless chain recruiting.
To summarize in caveman language: “recruiting hierarchy (”building a team”/pyramiding/[call it what you want]) is very bad. Selling to public (friends, family, etc.) is good.”
So with the FTC guidelines in place, I have to conclude that Beachbody is indeed an illegal pyramid scheme. I’m sure Beachbody’s lawyers are drafting their cease and desist letters now. To them I’d say, this is my constitutionally protected opinion based on the FTC’s guidelines and the information that I am going to (and have already) presented. While you may choose to conclude differently, I think your opinion would not be based on any evidence, so you might as well conclude the world is flat.
Before we Get started. Let’s debunk the pyramid scheme myths
To start I have to debunk the three pyramid scheme myths that MLMers always come to me with:
- A pyramid scheme doesn’t have a product or service. It seems this is part of a definition on Wikipedia. It simply isn’t true. Otherwise the FTC wouldn’t have put out the document on MLMs that I referenced above. MLMs clearly have products and services yet they can be pyramid schemes. Also, the FTC wouldn’t have shut down this MLM which was selling Dish Network products for being an illegal pyramid scheme.
- You can earn more than the person who recruited you, so it can’t be a pyramid scheme. That’s another common myth. Go through the FTC guidelines again and tell me where you see that. It’s a story that MLMers tell each other to convince themselves that they are legal. It’s not based on any case law or regulatory body that I’ve ever seen.
- Your company is a pyramid. This is the most common one. These people are confusing legal hierarchical organizations not based on recruiting with pyramid schemes that are based on endless chain recruiting. Think of it this way… A software engineer at Microsoft can make 6 figures a year without ever recruiting a single person. Typically zero percent of his annual salary is based on him recruiting others. If we go back to the FTC guidelines, this income is not based on recruiting, and clearly it is very legal. So no, Microsoft, nor your typical company, is not a pyramid scheme.
Here are some Beachbody Coaches spreading these myths (and a couple of others):
Coach 1 – Spreads “doesn’t have a product” and “a company is a pyramid” myths.
Coach 2 – This Coach doesn’t use any of the above pyramid scheme myths, but instead uses Donald Trump who licenses his name to MLM companies and sells books to MLMers. Of course Trump isn’t a distributor or Coach with any MLM company.
Coach 3 – Spreads the trifecta: “doesn’t have a product”, “a company is a pyramid”, and “you can earn more than the person above you” myths.
Lindsay Matway via YouTube video – Says a pyramid scheme is “making money not by selling product, but signing up people below them”, which is an accurate definition of Beachbody, at least in the Gimenez case study above. She spreads, “no real product being consumed” myth. The example of the FTC shutting down a company used Dish Network TV service, which is certainly a real product and consumed by viewers. The rest of the video is fluff unrelated to definition of pyramid schemes.
Coach 5 – Spreads “You can earn more than the person who recruited you” myth. Doesn’t address any of the key things that may make an MLM a pyramid scheme.
Coach 6 – Spreads “doesn’t have a product” and “a company is a pyramid” myths. Documents the money that Beachbody pays him, despite misleading people with these myths.
Coach 7 – Spreads “bogus product” myth.
Coach 8 – Spreads “doesn’t have a product” and “a company is a pyramid” myths. Creates a whole chart of misinformation such as legal MLM is generated ONLY by product sales which ignores the key difference of selling to recruits vs. selling to the public. Chart has a myth about the presence of a training program making a difference. Chart makes up a “get rich scheme” vs. “true work” myth. The only thing really accurate about the chart is the overpriced product being a sign of a pyramid scheme. As covered earlier, this points to Beachbody being a pyramid scheme. Spreads a myth about the BBB not accepting Beachbody as a member if it were a pyramid scheme, but the BBB page clearly says, “BBB accreditation does not mean that the business’ products or services have been evaluated or endorsed by BBB.” Spreads a myth about the DSA not accepting companies that pyramid schemes, but the DSA spreads a definition of pyramid schemes that doesn’t match federal regulators.
Coach 9 – Spreads “doesn’t have a product” myth. Doesn’t cover any of the points brought up by the FDA.
Coach 10 – Spreads “a company is a pyramid” (via image), and “you can earn more than the person above you” myths.
That’s 10 Beachbody Coaches I found in just a few minutes simply by going to Google and searching “Beachbody Scam” and “Beachbody Pyramid scheme.” Not one of them had a legitimate reason that I could see why Beachbody is not a pyramid scheme. Not one of the coaches addressed the point about making more sales to the public than through its downline of distributors.
Some of them are making significant money. It is gross negligence on Beachbody’s part to not sufficiently police the misleading of consumers. At a very minimum, Beachbody could put an official page on its site and tell distributors to not address the topic at all simply point to the website.
I just solved Beachbody’s massive compliance issue in under an hour. This stuff isn’t rocket science and any reputable company would have been all over it.
So How is the Money being Made in Beachbody?
The Kellie Gimenez case
Kellie made it clear in the Side Hustle Nation podcast that she makes $4000-4500 a month and that $500 comes from direct sales. The rest comes from commissions from her downline. Here is what she says at the 17 minute market of the podcast:
”A majority of your income isn’t going to be coming from the products. The majority of your income, as you grow a team, is going come from your Coaches and the volume they sell. Because you can only sell so many workouts a month… If they aren’t drinking Shakeology every month, I mean, they can buy one workout and never buy anything else from you.
… When I first started as a coach and didn’t have a team underneath me, I was making about $500 selling products. That’s not bad. It paid for our groceries. It paid for gas. It was a good income, but it’s definitely not something that could be a successful side hustle.
She’s clearly making more from recruiting than from sales to the public. Kellie is essentially saying this is how it is designed. She even is negative on making sales to public.
This fits the FTC’s definition of an illegal pyramid scheme exactly. Any reasonable person would have to conclude that using the FTC’s guidelines and definition, Gimenez is running a pyramid scheme. She may not even realize it, because of the myths of pyramid schemes that I presented above. She might be a fantastic person… certainly sounds like it on the podcast.
As a reminder Kellie is a Diamond level Coach in Beachbody. This is in the 0.4% or 0.1% of Coaches depending on “Case C” or “Case D” of the my IDS analysis chart above. If anyone in the organization should know the rules and is abiding by them, it should be diamond Coaches. Beachbody corporate should be “coaching” their distributors about the FTC’s guidelines regarding pyramid schemes and at the very least look at its top distributors and see if they are making their money from the downline vs. selling to the public.
Let’s Look Back at Shakeology’s Pricing again
Ms. Gimenez’ quote in the previous section about which products are being bought is significant. If someone buys a workout, the commission is earned one time and then maybe never again. However, Shakeology is different as a customer spends consistently on it month after month. It seemed like Nick cut her off before she could say it, but it certainly sounded like she was ready to say that the emphasis is on selling the shakes.
In fact, if you go back and listen to the podcast, at the 11:30 mark, Kellie says that she tries to get everyone to buy the shakes.
Given what we saw with the Pen Pyramid Scheme analogy in the section about Shakeology, it fits the mold to be a pyramid scheme. Get people using vastly overpriced pens/shakes regularly and reward a fraction of the money back to the people at the top pyramid.
It might not be a smoking gun of a pyramid scheme, but it is another major piece of evidence against Beachbody. They could very easily offer an affiliate program that rewards Coaches for selling product without the pyramid of rewards for recruiting more Coaches. Such an affiliate program would quickly end any questions as to whether it is a pyramid scheme.
Beachbody’s own words on their Income Disclosure Statements
I thought that Beachbody’s own words in its Income Disclosure Statement interesting.
”Many of our Coaches have chosen not to build a business, but rather join for the opportunity to purchase our programs at wholesale and to be able to earn extra income by helping their friends and family purchase our programs. For this period, 33% of our Coaches decided to take advantage of the bonuses available for those who help the company recruit and enroll other Coaches and retail Beachbody® products to customers. This activity is rewarded through a binary compensation plan which pays bonuses at the Development and Leadership Ranks of Emerald Coach and above.”
First Beachbody makes the fundamental mistake that most MLMs make and have Coaches “join the [business] opportunity” to earn a discount. Many MLMers describe it like being a member of Costco. There’s fine, but Costco conflate a business opportunity with a discount.
The discount earned by joining is 25% according to Kellie in the podcast. That is a hefty chunk on the monthly price of Shakeology. The question becomes, who is left to buy the products at a retail price… the “public” mentioned in the FTC guidelines?
Next, the Coaches who join “to be able to earn extra income by helping their friends and family purchase our programs” are building a business contrary to the opening sentence of that quote. If selling product to family and friends doesn’t count, then it looks even more like a pyramid scheme when evaluated through the FTC’s guidelines.
The final two sentences of that quote are confusing at best. It makes it sound like earning a bonus is a decision that someone makes such as ordering a cheeseburger at McDonalds. It then bonuses are earned by recruiting and enrolling other coaches as well as retailing Beachbody products to customers. However, according to the first sentence retailing Beachbody products to friends and family are not running a business. So unless there’s some distinction of what a friend/family/customer is (and the FTC doesn’t seem to make this) apparently we can exclude retailing Beachbody products in the later part.
That leaves us with earning bonuses for recruiting and enrolling. As you can see, this is where the majority of money is earned. That’s hits the FTC’s guidelines for being a pyramid scheme on the nose.
Beachbody Bummer is a great resource
I stumbled upon Beachbody Bummer which lists federal warnings about pyramid schemes and MLMs. I would have like him/her to link to the SEC’s guidelines, but nonetheless she/he does a great job at highlighting some of the important things like inappropriate pricing (as mentioned earlier).
The Beachbody Scam
As we’ve seen actual profits are very, very rare in Beachbody. Yet it doesn’t distributors from recruiting. They can’t see the “business opportunity” for what it is… a wolf in sheep’s clothing.
Here’s a great quote from Harper’s Magazine on Mary Kay and MLM schemes:
“The women I interviewed for ‘The Pink Pyramid Scheme’ told me stories about struggling to patch together daycare or to survive high-risk pregnancies while working long hours scouting prospects and hosting parties without any guarantee of a sale. Debts mounted, marriages failed. They couldn’t have it all because Mary Kay’s business model (like that of any multilevel-marketing enterprise) is designed primarily to profit from, rather than enrich, its workforce.“
Think about those recurring expenses in relation to the average income. Suddenly the Coaches fees and Club Membership fees make sense.
Think about the high margins the company is earning on distributors buying Shakeology… even when distributors buy it wholesale Beachbody makes a substantial profit. It’s essentially the Pen Pyramid Scheme, but with (slightly) less exaggerated margins and purchased much more regularly. The Pen Pyramid Scheme doesn’t become less of pyramid scheme if they give distributors the right to buy pens for $80 instead of $100. A 20% savings looks good, but it is minimal when the pricing is so absurd.
Do the Ends Justify the Means?
Beachbody Coaches may argue that in the end people are getting healthy, so who cares about all the scammy stuff that goes along with it. If you are really interested in people’s health, then I suggest you simply coach them without Beachbody. Form a buddy system and keep each other in check.
There are countless other tools available. The free website SparkPeople is a health community. Additionally you could also use another site StickK.com (my article on it: StickK to Your Goals) is a way to keep people motivated.
I have no problem with Beachbody workouts, but there are numerous options available. Workout videos have been around for decades.
Just a few minutes of research can give you all the value of the “ends” without all the problems associated with the “means.”
I STRONGLY IMPORE everyone to petition the government with your feelings about this as I have done. The official FTC Twitter account has instructions about how you can communicate your opinion of scams and help others avoid being scammed:
— FTC (@FTC) May 20, 2020
This article was originally published on October 31, 2014. It contains the best information I found at the time of publication. If anyone has factual information where I may be incorrect in my OPINION above, they are welcome to leave a comment for my own and public review. Readers with different opinions are always free to publicize those opinions elsewhere.
I strive to update this article, and all my articles, with the best information available to help consumers make an informed decision. I may not always achieve that goal due my other career and family obligations, but I do my best. If I’ve been informed publicly (such as Twitter) multiple times over 1-3 months it will probably get my attention. One easier way is to leave a comment.
Just to make it extremely clear to readers and MLM lawyers looking to sue me, the article above is my constitutionally protected opinion. It’s strange that I have to say it and cite the FTC above, but some lawyers act badly when they are offered a bunch of money by a company looking to bully a military family.