Written by Lazy Gardens
For your entire Mary Kay “career”, your “business” will be at risk, not only from your business practices , but the business practices of others over whom you have no control.
If you have a dream month in Mary Kay, with 15 of your personal unit members each making a huge star order, don’t spend the commission check when it arrives. That money isn’t safely yours to spend until a year has passed since the orders were placed.
From the time you get a commission check for what your downline ordered until it is too late for them to send the product back, you have what accountants call a “potential liability” hanging over your head. It depends on the possibility of something happening that will trigger the liability. Warranties, for example, are a contingent liability because the company doesn’t spend the money until a customer invokes the warranty.
At any time during that year, one or more of those star recruits could decide to ship their product back and get their 90% refund from Mary Kay. When that happens, Mary Kay will want that love check money back. They don’t want 90% of the commission you got to match the 90% refund they gave your recruit, they will want 100% of it. They will take it out of any other commissions and bonuses you have due you until 100% of the commission from the returned product orders has been collected. It’s called a “charge-back”. If you don’t budget for it, you could end up deeply embeddedin debt because you had a successful month.
How can you budget for the potential liability? Businesses collect and analyze data on customer warranty patterns to decide how much they need to keep on hand to cover the warranty expenses. Where is the data on how many Mary Kay consultants send product back? Where is the data on how large the average product return is for a consultant who ordered $4800 wholesale 6 months ago? What is the optimal order size to minimize the risk of a chargeback? What are the characteristics of a consultant who is likely to send product back? You could ask your Mary Kay’s accounting department for the data. But don’t expect to get any answers.