Culture

About that lipstick all your Facebook friends are selling...

Multi-level marketing companies like LipSense blur the lines between sales and pyramid schemes.

Culture

About that lipstick all your Facebook friends are selling...

Multi-level marketing companies like LipSense blur the lines between sales and pyramid schemes.
Culture

About that lipstick all your Facebook friends are selling...

Multi-level marketing companies like LipSense blur the lines between sales and pyramid schemes.

Like many LipSense distributors, Michelle* was encouraged to sell the company’s lipstick by someone she trusted. “I was recruited by a family member during that out-of-stock situation,” she said, referring to a six-month period earlier this year when dozens of popular colors were constantly sold out. She signed up in April, and instead of relying on lipstick sales alone, she said, “I was told to build a team, build a team, build a team — that’s how you make money.” Eight months after becoming a distributor, Michelle has recruited 26 women for her “downline.” She also has $6,000 of credit card debt.

“I did a lot of fear-based ordering,” she told The Outline, saying she bought whatever colors were available at the time in order to maintain her stock. “I ended up with a ton of stock that I didn’t need and couldn’t sell.”

LipSense distributors, many of whom are prolific posters on Facebook and Instagram, where the brand appears to have gone viral, order lipstick and other branded products — LipSense’s parent company, SeneGence, also sells ShadowSense eyeshadow, BrowSense eyebrow gel, and MakeSense foundation — from the SeneGence distributor portal. Every time a distributor places an order, the person who signed them up gets a commission, and so on. And since distributors can’t sign up without first being sponsored by an “upline” seller, someone is always profiting off a new recruit buying up stock for her business. There are no requirements on how much product a distributor has to buy or sell in a given period — that is, unless, they want to earn commission through their downlines, the sellers under them, in which case they have to spend $200 a month to qualify. (SeneGence did not respond to repeated requests for comment.)

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SeneGence’s complicated pay structure may be a red flag indicating that the seemingly valid multilevel marketing company may actually be closer to an illegal pyramid scheme.

Douglas Brooks, an attorney who has brought several class action lawsuits against multilevel marketing companies including Herbalife, told The Outline the lines between legitimate multilevel marketing companies and illegal pyramid schemes are often blurry. “The key issue is whether a participant in the MLM program has to make a payment in order to receive payments,” Brooks said. “In the 1970s, MLM companies that were prosecuted by the Federal Trade Commission blatantly had payment requirements — in order to rise through the ranks, you had to make various payments to the company. The more sophisticated companies since then, they don’t have explicit payment requirements, but they do effectively have payment requirements in the form of product inventory purchase.”

SeneGence was founded in 1999, but its distributors are part of a wave of millennial-focused multilevel marketing programs that encourage women to sell to their friends and family on Facebook and other social media platforms. Similar brands, like the weight loss company It Works! and the colorful clothing brand LuLaRoe — which is currently embroiled in two class-action lawsuits — have comparable business models. (“When I read the LuLaRoe class action suit,” Michelle said, “I was like, SeneGence is not far behind!”) Unlike the MLM that targeted previous generations, like Mary Kay and Tupperware, these new companies don’t just promise women “passive income” or additional spending money. Instead, as Gray Chapman recently wrote for Racked, they rely on “a patois of pseudo-empowering marketplace feminism with a tinge of gig economy side-hustle speak. It’s not just about selling lipstick and leggings; it’s about ambition, chasing a dream, emancipating itself from the chain’s of one’s cubicle.” LipSense distributors, then, are selling something far more elusive and intangible than long-lasting makeup; they’re selling empowerment.

In the SeneUniverse, any woman — and the overwhelming majority of LipSense distributors are women, as are nearly 75 percent of all direct-sales consultants in the U.S. — can achieve her SeneGoals if she SeneHustles hard enough. SeneGence founder Joni Rogers-Kante is the aspirational ideal. According to the company’s website, Rogers-Kante, then a single mom, “began in 1995 with a business plan and set out to make her dream a reality.” Four years later, her dream manifested as SeneGence, which remains privately held by Rogers-Kante and her family. SeneGence promotional materials paint Rogers-Kante as a fairy godmother of sorts: She built her own business from the ground up, decided to share her largesse and business acumen with her distributors, and even has a foundation “dedicated to helping women and children in need.”

Women who move lots of product or build robust downlines are rewarded with all-expenses-paid vacations and “a brand new vehicle of your choice, in SeneGence blue color.” The most successful ones — the few who have ascended to the ranks of “Queen” by managing a team that has made more than $5 million in annual sales, and “Crown Princesses,” whose distributors have sold at least $1 million — can make thousands of dollars a month from LipSense, even if they’re barely selling any product themselves.

LipSense distributors say they’re selling the best lipstick on the market. It’s touted as being “smudge-proof” and “budge-proof,” as well as “kiss-proof” and “BJ-proof.” Even Michelle, who has all but given up on SeneGence, says she still loves the product and continues to receive discounts when she orders in bulk. “Any time someone places an order, you’re encouraged to remind them of the discount they would receive as a distributor if they signed up under you,” Michelle said. Once you recruit enough people on your downline — the sellers under you — you get a cut of their sales, meaning it’s often more profitable to turn customers into distributors than it is to make direct sales.

According to the Federal Trade Commission, the main thing that distinguishes legitimate multilevel marketing companies from pyramid schemes is the sale of goods or services. SeneGence is a member of the Direct Selling Association, the lobby for multilevel marketing companies, giving it a guise of legitimacy. Brooks, however, clarified that the DSA is "not a responsible player. There are a number of associations of that organization that, if they’re not pyramid schemes, they’re close, and they’re terrible business opportunities.”

Since SeneGence only keeps track of orders distributors make instead of the sales they make to the public, it’s unclear how much reach LipSense distributors actually have. The upline person who recruited Michelle gets commissions based on Michelle orders through the SeneGence distributor website, not of the actual sales she makes to customers. Michelle gets a cut of the purchases her downlines make, and so on.

A handy quiz to determine whether you should become a Lipsense distributor.

A handy quiz to determine whether you should become a Lipsense distributor.

Some LipSense distributors hawk their wares the old-fashioned way, through in-person “parties” where they try out products on guests, or by selling to their small social network of friends and family on Facebook. For those at the top of the LipSense regal hierarchy, the real profits come from the sales made by downlines. Recruiting downlines and encouraging them to frontload on supplies — which they guarantee they’ll be able to sell — can be lucrative, and these websites create a sense of urgency around the product to lure in would-be distributors. Several distributor websites claim that SeneGence is in its “momentum phase,” calling it the best time to join a multilevel marketing company. “I've been suing these companies since the early 1990s and they all say, you know, ‘Now is the time to join,’” Brooks said. “And really if you think about that for a moment what they're saying is you better join now, because if you don't join now the market is going to get saturated. The pyramid is going to collapse.”

In a graphic explaining SeneGence’s byzantine pay structure, another blogger encouraged new recruits to order at least $375 worth of product each month to ensure they “pay LESS for MORE product” with little apparent regard for how much they actually sell. SeneGence has a buy-back program for distributors who can’t unload their products, but there’s a catch. “Every order you place, you’re required to click a box that says you’ve sold 70 percent of your [existing] product or are using it for personal use,” Michelle said. “Everyone just lies. So you can’t go back to them and say, ‘Hey, you were being predatory.’ You checked the box.” Even when she did make sales, Michelle said her profit margins were low. “You could put in 60 hours a week and only make $300 in commission a month, plus your personal sales,” she said. “And you don’t make a lot off personal sales once you divvy up the shipping costs, marketing….” She estimates each lipstick netted just $8 in profit.

Michelle isn’t the only one who has gone into debt to sell LipSense. In an April blog post, former SeneGence seller Kati Powell — who achieved the rank of Crown Princess before being terminated by the company — had seen several of her downlines “go into debt to ‘front load’” after “being told to buy inventory they didn’t need, because ‘if you have it, you will sell it!’” But for Michelle and dozens of others, selling LipSense wasn’t the path to success it was advertised as.

“When I sit back and I realize how much money I was in debt and how little I made, I feel stupid,” Michelle said. “I have a college degree. How did I get sucked into this?”

*Name has been changed due to privacy concerns.

Correction: This article has been updated to reflect the amount of money required for distributors to earn a commission from downline sellers. It is $200, not $100.