If you’ve been looking for opportunities to work from home, or researching how to start a business, then you will have probably come across multilevel marketing companies. Since you have found this article I’m guessing you’ve been approached by someone from Monat and you’re wondering whether the opportunity is legit, or whether Monat is a pyramid scheme.
Well, the good news is, you’ve come to the right place. This article will give you an unbiased overview of Monat, with everything you need to know about the company, including whether it’s a pyramid scheme, or not.
Let’s dive in!
What is Monat?
For anyone that doesn’t already know, Monat Global Corporation is a ‘naturally based’ haircare direct selling, or multi-level marketing, company. They specialise in products that claim to address the impact of pollution, product overuse and even the ageing process and hair loss. Monat have recently expanded and introduced a skincare and ‘wellness’ range as of September 2020, the latter of which is reported to have had substantial initial financial success.
Is Monat a legitimate company?
Monat was founded in Florida, United States in 2014. The business is a subsidiary of Alcora Corporation and currently operates in the United States, Poland, Canada, Ireland and the United Kingdom.
Monat’s global revenue for 2019 was $388 million, and they are one of the fastest-growing multi-level marketing businesses currently operating. The company has been recognised on the Direct Selling News Global 100 list of top direct selling businesses since 2018.
However, Monat has been involved in several well-publicised legal disputes and scandals since its inception. In the United States, several class-action lawsuits have been filed against the company related to hair loss and scalp irritation after consumers used Monat’s hair care products.
During 2018, the United States’ Food and Drug Administration (FDA) received hundreds of complaints relating to harm caused by Monat’s products. In response to these concerns, the FDA conducted an official inspection of Monat’s factory in Miami, Florida, in 2018. The assessment concluded that products in the facility were not protected from cross-contamination and machinery used was not adequately cleaned, and therefore products could have been “contaminated with filth”. Monat has acknowledged that “five minor observations” were noted during the inspection, but stress that as the FDA is not responsible for approving or certifying products themselves, that the company is in line with broad FDA compliance.
The company has responded aggressively to criticism of its products in some instances, filing defamation lawsuits against several women in the United States who wrote “negative comments” about Monat products online.
How does Monat operate?
Monat sells its haircare and other products through “Independent Market Partners”. Monat requires those interested in selling products with them to invest £99 ($99 in the United States) for a “Monat Starter Kit” which includes training and marketing materials, as well as product samples. Independent Market Partners are encouraged to sell Monat products primarily online, utilising their existing networks of friends, family and colleagues – mainly via social media. Monat does not guarantee those signing up an income in their official marketing materials. Still, they do claim to offer “competitive compensation” and say that becoming an Independent Market Partner is an opportunity for individuals to “fulfil their dreams”. Critically, Monat encourages sellers to rise through the internal ranks by signing up others to become sellers, and therefore benefit from their sales. The higher you rise in rank, the greater the commission you earn.
Monat is relatively new to operating in the UK market, and so those interested in working with them will not find as much information available online about the company as with more well-established multi-level marketing operators, such as Arbonne or Younique. Still, it is difficult for consumers to assess the legitimacy of the products online when Monat encourages its sellers, who are also customers, to flood online review sites like TrustPilot with positive reviews.
Despite being a relatively new presence in the UK market, during 2020, Monat’s online profile has risen considerably. This is explained by the company adopting messaging seeking to capitalise on the coronavirus pandemic and mass redundancies around the world. Because online direct selling businesses promote the tactic of sellers securing customers via social media, targeting family and friends primarily online, companies like Monat have been able to pitch themselves as an opportunity to make money from home while in lockdown and therefore reduce risk of COVID-19 transmission. This opportunism has led to widespread accusations that Monat has been using predatory tactics to recruit new direct sellers and exploit people made vulnerable by widespread economic shutdowns.
What is a pyramid scheme?
A pyramid scheme is similar to a Ponzi scheme, named after the Italian-American fraudster Charles Ponzi. A Ponzi scheme works by luring investors with the promise of high returns on investment. Early investors receive a return, but the money they receive is from other more recent investors. Eventually, when new investment stops, the scheme collapses. Pyramid schemes work in the same way but with a slightly more sophisticated offering. Pyramid schemes usually operate by paying a commission to people who refer others to the scam without realising it is fraudulent -as it is generally marketed as an exciting financial investment opportunity. A critical difference between a pyramid scheme and a legitimate multi-level marketing operation is that multi-level marketing schemes have actual products being sold. However, the UK’s Financial Conduit Authority states that pyramid schemes are often called multi-level marketing or chain referral schemes and that consumers should be wary of any enterprise that requires you to recruit other people to make money.
Is Monat a pyramid scheme?
Many people assume that a multi-level marketing opportunity cannot be considered a pyramid scheme if there is an actual product, or products, available for sale. This is not strictly the case; there are examples of companies such as the one-time successful multi-level marketing legging-retailer LuLaRoe that collapsed under the weight of numerous lawsuits, including from the state of Washington, accusing it of being a pyramid scheme. Like LuLaRoe, Monat has faced widespread criticism of its products, with many accusing the company of selling harmful haircare products, despite the company’s insistence that they are safe to use.
While Monat does not put as much emphasis on recruiting others to sell – and thereby earn a proportion of their commission – as other multi-level marketing schemes, that is a core component of the business. Encouraging women to monetise their social connections can have terribly destructive consequences, particularly for those on low incomes as investigative reports by The Guardian and other news outlets have demonstrated. Equally, YouTube and other social media platforms have thousands of testimonies from former Monat sellers discussing the pressure they felt to keep buying inventory that was difficult to sell on and recruit family and friends as sellers. It might be argued that some people sign up to companies like Monat to benefit from the purchasing discount without intending on selling themselves directly. Still, given the high price of securing a sales discount, this is unlikely.
The best way that we have across to assess whether a multi-level marketing opportunity is a pyramid scheme is by using Dr Jon M. Taylor’s 5 Red Flags, taken from a white paper produced for the 2002 Economic Crime Summit. Dr Taylor advises that if a multi-level marketing company matches each characteristic, then the company is probably a pyramid scheme and the chances of being able to make a profit through involvement are close to zero. Based on available information on Monat, our conclusions are below. Unfortunately, because UK authorities do not actively investigate multi-level marketing schemes, there is no official Ombudsman data to analyse.
Let’s take a look at each of the 5 red flags to see if Monat shares the characteristics of a Pyramid scheme…
1. Each person recruited is empowered and given incentives to recruit other participants, who are empowered and motivated to recruit still other participants, etc. – in an endless chain of empowered and motivated recruiters recruiting others – without regard to (de facto) market saturation.
Monat actively encourages those recruited to recruit others; the commission offered rises exponentially with the highest-ranked with the company receiving 29% of the profit for each item by those sold down the chain from themselves. This is excellent news for those who reach the high ranks, usually, those who join early in the company’s inception, but it means for those starting to sell they do not receive a high proportion of the profit of what they sell. In fact, Monat’s own data for 2018 reports that over half of the Market Partners for that year were considered inactive and therefore earned nothing. The only way within Monat’s structure to overcome this is to build your own pool of sellers, but if your network is made up of those not interested in selling, or who have already done so, the ability to progress stalls and you cannot make a profit.
Conclusion – Monat aligns with this red flag.
2. Advancement in a hierarchy of multiple levels of “distributors” is achieved by recruitment, rather than by appointment.
It is undoubtedly the case that progression within Monat is based on the successful recruitment of others. The more people you recruit, the faster you advance up the rankings. Unfortunately, Monat’s own data suggests that in order to be profitable, you need to rely on people below you investing and that many will be losing money.
Conclusion – Monat aligns with this red flag
3. “Pay to play” requirements are met by ongoing “incentivised purchases,” with participants the primary buyers.
This is a little bit more complex. We have already explained that a Monat starter pack costs £99. But, that pack does not include any actual products for sale, only sachet samples. To start selling, you would need to buy a Busines Product Pack for £199. The pack contains eight products, so approximately £24 each, with various retail values. Furthermore, in order to continue being an active seller, you are required to continue purchasing – even if you do not have a realistic chance of selling those products. Former sellers of Monat products report feeling pressured to continue to buy products from other associates with the company.
Conclusion – Monat aligns with this red flag.
4. The MLM company pays commissions and bonuses on more “distributor” levels than are functionally justified; i.e. more than five levels
This is true of Monat; there are at least ten levels of ‘Sellers’ within the company’s hierarchy. These levels seem designed to give sellers ongoing targets to aim for, and encourage further investment in stock, rather than providing any institutional benefit.
Conclusion – Monat aligns with this red flag.
5. Company payout (in commissions, bonuses, etc.) per sale for the total of all upline participants together equals or exceeds that for the person selling the product – resulting in inadequate incentive to retail and excessive incentive to recruit.
This is at the heart of pyramid schemes and why they continue to flourish. Monat products retail for a high price – even compared to high-end stylist and designer brands like Aveda or Korres. For example, a 178 ml bottle of conditioner retails at £45. A Monat Market Partner will pay £31 for the product, meaning it can be sold at a profit of £14. But, to be considered income, you would need to deduce the initial investment the individual has made, which is likely to be close to £200 – so a seller would need to sell several products, a minimum of ten, before they start to see a return on their investment. Meanwhile, those higher up the chain from their recruitment will stand to make up to a 12% profit on their sales.
These hierarchies and commissions are not as egregious as in some other multi-level marketing schemes, but nevertheless Monat’s commission tables while difficult for a layperson to understand, do demonstrate that the company provides what could be described as an excessive incentive to recruit rather than sell by including bonuses for other sellers within the wholesale price that those on the lowest rungs pay for products.
Conclusion – Monat mostly aligns with this red flag.
To sum it up…
Clearly, like other multi-level marketing opportunities, there is good reason to doubt that Monat will provide a reliable income stream for those looking for an additional source of income earned from home. Testimonies of those who have participated suggest that it functions much like a pyramid scheme and Monat’s own data, while difficult to find and understand, indicates that the majority of its sellers do not make a profit. While the company portrays itself a direct sales company, in reality, it appears to be a standard multi-level marketing scheme with many of the attributes of a pyramid scheme. We advise anyone considering in getting involved in Monat or any other similar organisation with a high-pressured sales pitch to do plenty of research, including of the products and calculate the costs and likelihood of your sales prior to investment.