Written by Anonymous
Do you really need all that inventory? Do you really “profit” 50% on inventory you sell? No and no. But they sure make it sound good, don’t they?
Now, Vice President of Legalized Larceny for Mary Kay, says, “Let’s Talk About The ‘Inventory’ Con Game”!
Below is a quick table showing, in detail, what the true profit margin is from customer sales for a brand spankin’ new Mary Kay consultant. We’ll call her “Britney”, and we’re assuming that Britney is selling $300 retail per week. (That’s probably a lot more than the vast majority of consultants sells, but work with me on this.)
Directors and recruiters always parrot the line about making 50% profit on “everything you sell” in Mary Kay. As you can plainly see, there is not a 50% profit to be made.
Below are all the actual costs, including the cost of going to meetings, averaged to $4 per meeting. (Remember all the FREE training you were promised when you signed up, gals? wink, wink) Also added in are Section 2 items, including those roll-up bags we’re supposed to use to entice women to buy 4 sets at $199 or a Diva Set at $299 (see below.)
About those lovely rollup bag… Selling a full rollup bag only result in a profit of $100, by the way, due to that great “special” we offer; that’s a 33% profit margin BEFORE including any of the additional expenses detailed below!
Don’t forget that a $300 sale results in $30 worth of credit for the lucky hostess, chopping it down to $70 and a 23% profit margin. Throw in 1/4 of our monthly expenses below, and you can take out another $33, for a $37 profit and a 12% profit margin. Wow. Sign me up!)
Paying For Inventory
For every sale made by a consultant, she must replace inventory, pay for supplies and gifts, and then the profits remaining can be used to pay off the initial inventory purchase.
Using our wildly optimistic estimate of sales of $300 retail per week, the below chart shows how longit takes to pay for the initial inventory purchase. Even with a modest initial inventory of $1,200, you see that it will take about 3 1/2 months to pay that off!
Profit From Recruiting
Okay, you say “Well, what about all the money we make from recruiting?” Glad you asked! Let me break it down for you…
The company’s own admitted dismal statistics show that 93% of all consultants never attain Star Recruiter status, which is having 3 recruits simultaneously active. Let’s assume for this example, that a consultant (named “Britney”) actually recruits 3 new consultants, who each come in with a $3600 initial inventory order (highly unlikely, and hopefully they’ll be smart enough not to.)
Just how much commission does she stand to make, and how soon will it help her pay off her own inventory purchase?
This figure of $432 only holds IF none of the duped consultants does the smart thing and returns the inventory she doesn’t end up selling within one year. Here’s how much quicker “Britney” can pay off her own inventory purchase: (*for mathematical simplicity, we’ll assume she recruited them all in her first month of business, when she was blissfully unaware and swept up in the pink haze…)
Wow! Notice that even as an “awesome” recruiter, Britney isn’t much closer to paying off that initial inventory purchase.
So, now what?
You say, “Britney needs to improve her selling skills so that she is selling at least $500 a week, every week!” Great point! Britney must just be a lazy consultant, right? After all, selling $500 a week is so eeeaaaaaasy!
Here is how long it would take her given this scenario (which even most Directors don’t do):
In this scenario, profit margin increases very slightly, to 31.4%. But, you may point out, the profit itself has increased, right? Ummm, yeah, to $628/month. Now, it will only take Britney 5 months to break even if she did the $3,600 inventory. Woo hoo!
Keep in mind that if she doing as her caring Director says, and reinvesting all of her profits until she reaches “profit level” inventory (a lie), then it will take us back to nearly a year as in scenario 1. The fact that $3,600 is referred to ubiquitously by Directors as “profit level” is such a blatant lie that only someone with no higher level business education or accounting background would fall for it. Which is why…. BINGO… this works so well for Mary Kay!
After all, who is the target market for recruiting? Bored housewives, young women, and undereducated women. The hard fact is that the lowest level of inventory, or keeping no inventory at all, is the most profitable way for any new consultant to run her business.
It makes no economic sense for each consultant to keep her own inventory. In fact, inventory as a business term is only appropriately applicable to the Mary Kay corporate warehouses. It only takes 4-5 business days to receive an order from Mary Kay, and most customers will have no problem waiting that long to receive their product purchase.
Now back to our regularly scheduled programming.