LIFE Income Disclosure Statement (IDS) Analysis for 2012-2013
The long-awaited LIFE Income Disclosure Statement (IDS) is finally here1. In the revised LIFE Compensation Plan now available on the LIFE website2, a copy of the IDS has been included, along with a two-page overview, starting on page 13.
Income disclosure statements are commonly handed out by multi-level marketing distributors and companies to show the potential financial benefits of participating in the scheme. They are required by the Federal Trade Commission (FTC) in the United States. In Canada, the required document is called the Statement of Typical Participant Earnings (STPE). These documents must be presented when making any income claim.
In an email sent out to LIFE members, the company claims that the IDS provides complete transparency for prospective members. This is not the case with many MLM income disclosure statements. Often deliberately vague and lacking in critical details, these documents make it difficult for the lay person to truly understand his or her odds for success. Investigating the figures in an income disclosure statement goes a long way towards determining whether or not an MLM is a good business opportunity.
This analysis uses sound mathematical principles, the figures in the IDS and information from public sources such as Facebook, Twitter, and blogs to paint a realistic picture of LIFE. Our opinion and conclusion remain the same: the LIFE business opportunity is not good. Let’s jump in!
It All Starts at the Top: Reverse Engineering the Numbers
The IDS is like a puzzle, and the critical piece of information that’s missing from the table is exactly how many people belong to each rank in LIFE. Knowing this number will help us determine how many people are (1) losing money each month or (2) making money each month after expenses.
We set about reverse engineering the numbers in the IDS. To that end, we have created a public spreadsheet which crunches and analyzes the LIFE IDS figures.
We know from Orrin Woodward’s LIFE First Year Business Results post that combined TEAM/LIFE sales topped $50,000,000 between November 2011 and November 2012. Furthermore, there are currently 8 Policy Council members in TEAM. Does this number also correspond to the number of LIFE Coaches, the highest rank possible in the LIFE business?
The main table are the figures copied from the IDS. Above that table are two variables that are adjustable in the original spreadsheet.
- Estimated number of LIFE Coaches
- Average expenses per month
This analysis uses 8 LIFE Coaches and $500/month in expenses to compute the following calculations:
- Estimated total members per rank
- Estimated qualified members per rank
- For qualified members, the average gross income for the 9 months covered in the IDS
- For qualified members, the average gross income per month
- For qualified members, the estimated profits and loss per month
- Estimated total payouts for all members over the past 9 months
- Membership breakdown with regards to payout allocation
- Average gross income per month for all ranks
After plugging in 8 for the number of LIFE Coaches, we can determine how many people are in the LIFE business (number of qualified members listed in bold):
- Student: 20,441 (41)
- Student 150: 9,860 (190)
- Student 300: 11,811 (525)
- Student 600: 8,826 (719)
- Student 1000: 6,336 (825)
- Student 1500: 6,106 (1,169)
- Student 2500: 3,703 (975)
- Student 4000: 2,012 (661)
- Student 6000: 1,405 (553)
- Student 10000: 477 (220)
- Student 15000: 234 (99)
- Leader: 199 (195)
- Coordinator: 31 (31)
- Sr. Coordinator: 11 (11)
- Life Coach: 8 (8)
The total number of LIFE members is 71,461 (6,225 qualified) based on 8 LIFE Coaches. Recall that during the period of the IDS, Wayne and Raylene MacNamara were named Policy Council members in TEAM. If we plug in 7 LIFE Coaches, the total number of estimated LIFE members is 62,528 (5,447 qualified).
Once we know how many people are in each rank, it’s simple to calculate the average gross income and the payout allocation. As one might expect from these schemes, the majority of the money is made by the people at the very top of the LIFE pyramid. Here’s a visual representation of the money allocation:
Student 6000s and above get 78% of the total payout. Out of that group, Leaders and above take 53% of the total payout. Leaders and above make up 99% of the average monthly income per person in LIFE. Yet, Student 6000s and above make up just 3% of the total number of members in all of LIFE. Leaders and above make up a minuscule 0.35%!
Orrin and others within TEAM/LIFE like to poo-poo corporations, calling them corporate pyramids. Network marketing, he argues, “doesn’t pay based upon where you fall within the hierarchy or how long a person has been with the company.” If you look at the pay ratio between CEOs and employees of the top 250 companies in the S&P, you’ll note the following:
- JC Penney: 1,795 pay ratio: $53.3 million (CEO) versus $29,688 (average worker)
- Abercrombie & Fitch: 1,640: $48.1 million versus $29,310
- Simon Property Group: 1,594: $137.2 million versus $86,033
- Oracle: 1,287: $96.2 million versus $74,693
- Starbucks: 1,135: $28.9 million versus $25,463
Comparing the average monthly income for a LIFE coach at $53,585/month with the average monthly income for all Members (Apprentice, Non-Qualified, Qualified) — $38.48, we see a pay ratio of 1,392. It gets worse if we calculate the pay ratio for the exceptional LIFE Coach who made $205,806.12/month: 5,348! Which pay ratio is out of whack here again? As MLM Myth points out, “Corporate America is simply a hierarchical organization. It isn’t a pyramid scheme with endless recruiting of 2 or more people making the same investment.”
As for the tens of thousands of apprentice and non-qualified members, they are clearly spending more money than they are making by being a part of the LIFE business.
40.4% of LIFE Members Do Not Renew
Contained within the fine print of the IDS is the following statement:
40.4% of Members do not continue with LIFE after their first year.
A 40% drop-out rate each year is not good. Nearly half of LIFE’s entire membership did not see the value in continuing to “improve” their lives after only one year? Imagine how difficult it must be for LIFE members to sell LIFE products to the general public knowing this statistic. Recall that the customer sales requirement is 50PV each month.
In the two-page summary in the LIFE Compensation Plan, the company tries to explain this number away by stressing that the business isn’t for everyone. LIFE then compares itself with college and fitness clubs. The implication here is that if you do the work — like in school or at the gym — you will succeed in the LIFE business. This is not the case with LIFE, because a member can do lots of things — show plans, attend meetings, buy tools, be a faithful member of LIFE — and never rise up in the ranks.
This is because the high drop-out rate shows that a large percentage of a LIFE member’s time will be spent replacing those people who quit the business and convincing those who stay in at the lower levels to “keep doing what they’re doing” in the hopes of making it big.
The Cash Value of One Time Cash Awards and LIFE Incentive Trips are Included in Gross Income Figures in the IDS
In his LIFE First Year Results blog post, Orrin Woodward listed a number of financial figures for the period between November 2011 and November 2012.
- $1,800,000 in end-of-year bonuses and free trips.
- $50,000,000 in combined sales for TEAM and LIFE
The IDS noted that the end-of-year bonuses and free trips were included in the calculations of the IDS. The One-Time Cash Awards were for those LIFE members at the Leader 6 rank and higher. As shown above, that’s where the majority of money is made in the LIFE business.
With 8 Policy Council / LIFE Coach members, the annualized sales estimate (based on Orrin’s comment that 70% of gross product volume is paid back to the field) was just shy of $47 million. If the numbers are run with 7 Policy Council / LIFE Coach members, the annual sales estimate is $41 million. It’s hard to know how much money TEAM made last year (separate from LIFE), but these numbers show that we’re in the right ballpark.
What’s the Break-Even Point in LIFE
In the spreadsheet, one can set the value for expected monthly LIFE business expenses. Based on previous posts on the subject, it’s easy to envision $500 in annualized monthly TEAM/LIFE expenses (i.e. meeting and conference tickets, gas, hotels, food, tools, and products).
With this amount, we see that the break-even point in the business is either at the Student 6000 or the Leader level3. A Student 15,000 may even be losing money depending on how his or her team is structured. See the example to the right which compares a two hypothetical Student 15,000 members.
It’s clear that most Student 15,000s are not configured like in the first example, based on the average Student 15,000 income of $547.17. Rather, it’s likely there are a number of Student 15,000 members who themselves have downlines that are Student 15,000s. Because their bonus money comes primarily from their personal volume and their meager side volumes, they are making little to no money after expenses.
Yet, this second person will still be walking across the stage as a Student 15,000 and hearing the cheers from the crowd. How many high-level members in LIFE are structured like the first example? How many are structured like the second example? Should those in the second bucket receive the same accolades and adulation as the former?
Remember only 3% of the entire LIFE organization are at the Student 6000 level or higher. That means that potentially 97% of all of LIFE may be losing money each month, based on $500 in monthly business expenses.
Medians and Averages
The IDS would have been more useful had it listed the median values (in addition to the average) for the monthly income by rank. Because we do not know how the income values are distributed, there could be extreme outliers (on both sides) that could be skewing the average values listed in the IDS. This becomes more important as you move down the list (i.e. rise up in the ranks of LIFE) and see such a wide disparity between the high and low income values.
TEAM Profit Sharing Not Included
As far as we can tell, TEAM profit sharing income is not included in the figures listed in the IDS.
From the TEAM FAQ:
Do some people make money on the sale of these leadership materials?
Yes, based upon the amount of total profits (if any) left over at the end of each month. Those who participate at this level are called Directors. LIFE Training invites certain individuals to become Directors from a pool of business builders who have proven their ability to build and lead successful teams of people. Directors must exhibit high character, integrity, professionalism, teamwork, people skills, consistency, and the ability to help the other Directors run and manage the training environment.
Because LIFE sprung out of TEAM, it is reasonable to assume that the structure of the two organizations are similar. As a result, TEAM profit sharing would mirror LIFE’s, with two exceptions: (1) only the high level LIFE leaders (and only those who are voted in) are making any significant money and (2) the lower-level LIFE members are making zero from the sale of TEAM tools.
On To A Million!
TEAM/LIFE members proudly follow their leader, Orrin Woodward, in proclaiming their goal to reach a million members in LIFE. Our LIFE IDS spreadsheet has a sheet in which we calculate the year-over-year growth required to reach one million members. Based on the 40% attrition rate, LIFE will need to experience 200% growth each year for 5 years to reach one million members4.
While it is described as providing “complete transparency for prospective members,” the IDS is really translucent and does not show the full picture. The analysis here confirms what many people on this site believe — LIFE remains a bad business opportunity. LIFE members may argue that if the dream is big enough, the facts don’t matter. That may be the case in their minds, but the reality is this:
- The majority of people who are involved in LIFE do not make a profit after factoring in business expenses
- The income is skewed to those at the top of the organizational pyramid
- The high attrition rate shows that the business is not easy to maintain
Thanks to everyone who helped crunch the numbers on the IDS. Readers – have some thoughts about this analysis? Leave your comments below!
1 The IDS was first shown at the LIFE Chart Topper event in April, 2013. Only LIFE members who were at the Student 15,000 rank or higher were allowed to attend the conference, meaning the majority of LIFE participants have not seen the IDS until now.
2 Not wanting to miss out on selling a free tool to members, LIFE sells the IDS in packs of 25 for $12.
3 Those LIFE members with at least 15,000 PV in team volume and 6,000 PV in outside volume are also eligible for 8% Leader bonuses. The outside volume requirement gets reduced as the member develops more teams with at least 15,000 PV. These bonuses are significant enough to boost the average monthly earnings for those who qualify. See the LIFE compensation plan for more details.
4 An earlier version of the spreadsheet incorrectly calculated the One Million person analysis to take 12 years at 255% growth. The correct number is 5 years at 200% growth (with an attrition rate of 40%).