Thread: Watkins... a scam or not?

For Watkins part of their pay is based on recruiting, however it seems like for most people in Watkins their money is made selling the actual products. I've used some of their products, I picked them up from WalMart. I do like to cook and have used their vanilla, curry powder and cinnamon. In my personal opinion, the products that I have used were worth the money I spent. My favorite is the curry powder because it's not too terribly spicy but isn't as sweet as some other curry powders.

I also found out that they've ended their contract with WalMart and have been phasing out the selling of their products there.

So what do you think... scam or not? Is there maybe a middle ground on it?

Are you talking about J.R. Watkins? If so, then the first thing I see when googling this is "business opportunity", so it's already not looking so hot. I'll check it out, however.

Watkins products were all my Grandmother would use, so that says a lot about the quality. They are still around, and you can order online. It reminds me of when my older brother was a Fuller Brush salesman, similar approaches, I suppose. But the main qualifier (at least for me) is that they have a legitimate product to sell, quite unlike a lot of the other "opportunities" offered on the net that are solely funded by recruitment.

While I am not a big fan of MLM's, it seems Watkins is a real business have been around since the 1890's. But then, what does one really do to differentiate between a scam and a real network marketing company; it seems both can be scams or not...

Originally Posted by Porkchop Express

Are you talking about J.R. Watkins? If so, then the first thing I see when googling this is "business opportunity", so it's already not looking so hot. I'll check it out, however.

Yep, J.R. Watkins. They do have recruiting available. It kind of reminds me of companies like Tupperware and Avon where they have a legitimate products to sell that aren't extremely overpriced. If you like to cook, a lot of their spices and other cooking extra's are definitely high quality. I have a cheap thing of curry powder in my cupboard as well as the Watkins curry powder. I used the cheap one in a casserole a few days ago and it tasted awful (my husband agreed). If we had never actually used the Watkins curry powder then I doubt we'd know just how awful the cheap one was.

One other thing I've found, I actually have some information on The Summit Group which is a recruiting group based on Watkin's products. For them it seems like their main focus is recruiting. It seems like actual Watkins is more concerned with selling product than recruiting though. They allow their reps to do fairs and farmer markets, however I know a couple of people (through other message boards) that only take a very small inventory to a farmer's market then take orders for products they don't have there and still do decent. Apparently they sit out there with some of their mixes already made so people can eat some of the food and try it out. (Kind of like a Pampered Chef show.) I'm not big on companies that tell people they should carry a big inventory, and I haven't seen much of that with Watkins.

I think the main difference between Watkins and many other MLM-companies is that the company started out in 1885, before the birth of the MLM-concept, probably meaning that they have picked up this business model to earn more, but still sell their products "their way" meaning through Walmart for instance.

Here is actually an inspiring story of a sales man for Watkins with cerebral palsy doing a magnificent job selling products. Now I don't usually think much of door-to-door-sellers, but this guy has some percistense :).

Lisa,

Just want to make something clear about the Watkins pay plan. All income earned in Watkins is based on selling products either by the consultant and his team of consultants. No income is earned simply by recruiting, 100% of the Watkins membership fee of $39.95 goes directly to Watkins. You can have a team of 500 people but if they have $0 in sales, you will earn $0 in income on your team. Having a large team helps you earn income as the sponsor you earn 5-10% of the sales of your team. But without products being sold, there is no income to be earned in Watkins. Watkins makes the highest quality of products because the products are the company and it is in selling products Watkins earns income and the consultants earn income.

Originally Posted by Porkchop Express

Are you talking about J.R. Watkins? If so, then the first thing I see when googling this is "business opportunity", so it's already not looking so hot. I'll check it out, however.

I don't understand how Watkins having a business opportunity alarms you. Watkins was founded in 1868 by J.R. Watkins who sold pain relieving liniment from his home in Minnesota. He was selling it himself throughout Minnesota and then decided that he could sell more by hiring dealers to sell his products, hence the birth of the "Watkins Man" and the direct sales side of Watkins. My great grandfather was a Watkins man in the horse and wagon days of the business.

Watkins has been offering a direct sales opportunity for over 140 years, with 300 products now including the original product, red liniment. In 1979, Watkins added a MLM compensation plan that added to direct sales commissions the ability to earn bonus income from team building. The direct seller can earn up to 39% of the retail price of products sold, so there are people who focus solely on direct sales and do not get involved in sponsoring. There are also a good portion of people that join Watkins just to be a "discount customer" and get 25% off all the products.

Let's be very clear here.

There is a vast difference between Watkins and The Summit Group.

Watkins is, as you say, a legitimate and long established, sales based direct selling company.

HOWEVER,

the Summit Group is quite another kettle of fish.

Based on its' own emphasis on "non sales" and encouragement of recruitment based marketing as shown in these two examples:



Summit Group marketer "Christine"



Summit Groups' "itsworkfromhome" website

You can't have it both ways.

MLMs with an emphasis on recruiting are both illegal and an almost guaranteed way for consumers to lose their money, because they simply don't work in the long run.

Littleroundman,

The Summit Group is just emphasizing the network marketing structure of Watkins. Recruiting 5,000 team members with nobody selling or buying products will get you a check for $0 every month in Watkins. Unless products leave the distribution center in Minnesota nobody makes money.

The above examples from The Summit Group emphasize team building and personal use of the products in essence the consultant being their best customer, Watkins sells over 300 products many that people use everyday so rather than shopping at Walmart for laundry detergent, vitamins, hand lotions, etc. the Summit Group model is to buy these items from your Watkins business and encourage other people to join your team too and buy their grocery items with their consultant discount. So the Summit Group model still is based on Watkins direct sales model but rather than going door-to-door or setting up a booth at the flea market, the sales each month are generated from personal use of the products.

There are MLMs that pay for recruits but as I said the only income earned in Watkins is from sale of products. 100% of the membership fee to join goes to Watkins so there is no advantage to recruiting unless people are selling the products to themselves or to others.

"by using the team building approach that does not focus on selling products, earn six figure incomes"

If Watkins, therockroad and / or The Summit group want to use that sort of language to attract new recruits, good luck to them

However, by doing so, it puts them smack bang in the middle of the countless pyramid / endless chain recruiting schemes against which genuine MLMers speak out.

Forget about the legality or The Summit Groups' "spin doctors" weasel words, by emphasizing "NOT" selling products and "six figure incomes" in the same sentence you and they are removing any doubt as to the legitimacy of the Watkins "opportunity"

Fair enough, if that's what you want to be seen as, go for it.

You can't have it both ways.

If Watkins wants to be seen as a legitimate, product based direct sales organization, then it would take steps to ensure that is the ONLY image it projects to the public at large.

No ifs or buts, transparently product focused or its' just another pyramid / endless chain recruitment get-rich-quick scheme deserving of every bit of negative comment it attracts.

If watkins was making money actually selling products, they wouldn't need a recruiting scheme. It's a slap in the face to the hard working people who are legitimate sellers that don't want/need to recruit. Their area can now be overrun by the recruited who think they are going to make money. But the territory has effectively been cut by at least half, if not more, so everyone makes less and the person who was successful there now has to struggle for no reason but greed of some scumbag who doesn't want to sell or work. I guess if you watched the movie Door to Door with William H Macy, the writing was on the wall.

littleroundman,

I don't understand your anger over The Summit Group emphasizing one of the most basic part of network marketing, sponsoring people into the business. The above statement is true that there are people that through recruiting a large team are earning six figure incomes and they are buying products/selling products to themselves and encouraging their teams to do the same.

Watkins is a diverse company with people successful in direct sales doing home parties, flea markets, online sales, trade shows, catalog distribution, wholesaling to mom and pop stores, doing cooking demos, state fairs and even some still doing door-to-door. Though Watkins is a direct sales company with a network marketing compensation plan most people in Watkins are direct salespeople that just happen to be in a MLM structure. Watkins Corporate primarily focuses in their training on direct sales and the network marketing side is secondary.

The "No Selling" concept is to help people that are not looking to go door-to-door or have home parties every week to look at the business and as I said before income at Watkins is earned on sales and not on recruiting. Whether I sell $500 in products at the local farmers market or if I purchase $500 in products for my family to use, there still was $500 in products sold by me as a consultant and $500 in products that UPS picked up at Watkins distribution center.

Whip,

Watkins is a direct sales network marketing business and having people recruited into the business is basic to the model. Watkins products are almost exclusively sold by Watkins consultants so without more people out sharing the products and business products aren't sold and Watkins does not make money. The great thing with Watkins is that territories really don't matter because there are so many ways to market products you could have a Watkins consultant as a next door neighbor and both be successful, you doing home parties and your neighbor selling at local farmers markets. As said before if someone does not sell Watkins products to themselves or other people they earn $0, so the successful person mentioned in your post could have 50 people not selling in their neighborhood and if he is selling he will make money and the 50 not selling will make nothing.

Originally Posted by therockroad

there are people that through recruiting a large team are earning six figure incomes

Welcome to the site rockoad. One thing that would be nice if you don't mind would be to post an income disclosure so folks could see what percentage of distributors are making six figures. That is sort of being tossed around. While I don't doubt there are people who make that much money, the numbers do matter. Is it 1% of the sales force or is it 50%, as with a lot of things in life I am guessing it takes a bit more than a little shoe leather and a Zig Zigler cassette to earn something with five zeros.

Originally Posted by therockroad

There are also a good portion of people that join Watkins just to be a "discount customer" and get 25% off all the products.

Originally Posted by therockroad

Whether I sell $500 in products at the local farmers market or if I purchase $500 in products for my family to use, there still was $500 in products sold by me as a consultant and $500 in products that UPS picked up at Watkins distribution center.

While my thought here is not original, it bears repeating. If someone likes the products then there would be NO reason for them not to join and get a discount. At that point the "discount" has to come from somewhere. The person who was an affiliate's customer is now in their downline. Instead of $500 coming into the pipeline $375(75% X$500) is now coming in, which hardly seems like a boon for the salesperson.(Unless you have a new kind of math that I am unaware of.) (Assuming the former customer has no desire to recruit, just use the product.)

Stepping that up to the next level assuming $1,000,000 of sales comes in total in any one group. The person at the top with a bunch of recruits makes a ton of money, and most of the people at the bottom very little. There is no other possible outcome, $1million is not $2million, it is not Six Figs for all. This is why the earnings statement is so important, so we can take this beyond speculation.

I bought some of the Foot Cream once and asked the girlfriend to rub it on my feet. She told me to go to hell, but it seems like a quality product. I don't know that I need $500 a month, apparently even $9 is too much to ask in my house. It is the model that seems suspect to me when mentioning large incomes.

Originally Posted by therockroad

littleroundman,

I don't understand your anger over The Summit Group emphasizing one of the most basic part of network marketing, sponsoring people into the business.

You obviously don't understand if you think I'm in the least bit "angry"

As ribshaw says, post the income statements and we can go from there.

littleroundman,

Ok angry may be wrong unnerved may of been better. It seems that you have never heard of sponsoring people as part of a network marketing program.

it is amazing how this one phrase written by this person named christene that is not a Watkins associate as far as I can tell. It is interesting that the whole statement was not commented on:

How Much Can I Earn?

Depends on you. They have a wide variety of Associates - some do not earn anything - just enjoy using the products at the dealer Discount. Some are part time earning a few hundred per month - but the most successful Associates, by using the team building approach that does not focus on selling products, earn six figure incomes. It depends on you and the business approach you choose.

You will earn 25% to 39% on everything you sell and 5% to 10% bonus commission on your team member’s activity.

All this statement is saying is that the most successful Associates make 6 figure incomes and this is true. This is more of a goal like saying to a new car dealer that the most successful car dealers can earn 6 figure salaries or a football coach telling his star quarterback that the most successful NFL quarterbacks make over $15 million a year.

Most people join Watkins to buy products for their own use at 25% off and therefore "earn" money in cost savings. Many do some selling for part time income and enjoyment. There are those who have devoted 20+ years to building their business through sales, team building and training that make 6 figure incomes.

Originally Posted by therockroad

littleroundman,

Ok angry may be wrong unnerved may of been better. It seems that you have never heard of sponsoring people as part of a network marketing program.

Here we go again with imposing your own values on someone else and using weasel words such as "seems"

I am in no way "upset" or "angry" or "unnerved" or any other descriptive you'd like to throw into the conversation.

As a matter of fact, I'm a long time admirer of the DIRECT SELLING organization, Watkins.

HOWEVER, having said that, I'm also highly critical of the smarties who have bastardized the Watkins name and message and are turning it into nothing more than just "another" get-rich-quick, recruitment focused pseudo MLM.

Forget about the legalities of endless chain recruitment schemes and the misleading earnings claims which accompany them.

Prudent potential Watkins direct sales candidates will recognize that once it becomes possible to make the bulk of any income within an MLM company, once six figure "potential earnings" figures are thrown around and once product becomes secondary, the managament of the MLM or DS organization have virtually signed its' death warrant by not stepping in.

Maybe not today, not next month or even next year, but, sooner rather than later, the pyramid WILL collapse, and while the recruiters will simply move on to the next one, the direct selling members will suffer.

Below is the Income page from the current Summit Group recruiting site:

Screen Shot 2014-04-01 at 10.52.08 PM.jpg

__________________________________________________ _________________________________________





For the source of the six figure income that is drawn from the average income information that Watkins lists in their training materials:

Screen Shot 2014-04-01 at 11.07.36 PM.jpg

I apologize for any judgmental wording.

Watkins is a direct sales company with the opportunity to earn bonus income from the network marketing model. No income is earned outside of selling products so the products are PRIMARY and the selling of products is PRIMARY.

Watkins is not a get-rich-quick scheme and is not promoted that way by Watkins or The Summit Group, those few that have achieved the Gold Executive level have devoted 20-30 years or more to building their businesses through selling products and team building. Though the website that you found mentioned that THE MOST SUCCESSFUL ASSOCIATES MAKE SIX FIGURE INCOMES, this is true of the most successful. The most successful in most businesses earn the most money.

In Watkins there is no income earned unless product is being sold. As I said earlier you can have a team of 5,000 people who don't order products for themselves or sell products to others and you will make $0 every month. No money is earned unless product is sold.

Watkins is a direct selling organization that pays consultants on direct sales (15-39% of retail) and for people that build teams they can earn bonus income on the sales of their team members of 5-10%. So for those doing direct sales they earn up to 39% of their personal direct sales, if they add team members they can earn bonuses of up to 10% of sales by their team.

So rest easy the DIRECT SELLING organization, Watkins is alive and well and is based solely on products being sold by it's consultants.

Originally Posted by therockroad

Below is the Income page from the current Summit Group recruiting site:

Income Disclosure.JPG


Thank you for putting up an income disclosure. What it does not tell us is the percentage of total affiliates that are at the Manager, Gold Manager, or Gold Executive levels. At the very bottom in teeny tiny font we can just barely see "A typical participant is a consultant who earns less than $50 per month"

So the typical person of which most of us are is going to gross $50 a month. At some level it is tiring to continue to rehash the same arguments against MLM as a "business opportunity" versus a "buyers club". If someone wants to put extra money in their pocket the typical person would do better statistically speaking with just about anything else. If they want to self consume products and get a discount of some nature then that is what it is.

But the ads promoting this as some sort of panacea to a families financial ills and telling people they don't have to sell, well that is just silly, if not downright dishonest.

Income disclosures are identical for 95%-99% of MLM particpants regardless of company.

Amway

Amway ID.JPG

Advocare

ID Advocare.JPG

Monavie
Monavie ID.JPG

Veema
ID Veema.JPG

A few other items, it seems either the company does not have the affiliates back, or they are turning a blind eye to marketing practices that run counter to its own policies and procedures.

So I was going to sign up for an account, but HOLD the phone Charlie.... I can't be my own best customer, teach others to be their own best customers, who teach yet more. It says right here in the agreement I have to sign that to be eligible for commissions 70% of the goods I purchase must be sold RETAIL. WOW, I suppose I could lie, I like to lie. But that really calls into question the ads from the Summit group. In fact it calls into question the whole model, almost as if the company knows something.

T & C.JPG

Here is part deux that me no likey. I can't talk about income beyond what is in the company literature, but certainly that sort of thing never happens. Additionally, one is signing up as an "Independent Contractor", which means when an affiliate breaks the rules laid out in the T&C, under the bus they go. Thumpa Thumpa.

T & C2.JPG

https://www.jrwatkins.com/account/create-consultant

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A little more on "Associate Retailing", suffice it to say this really runs contrary to what the Summit group is selling.

Associate Retailing.JPG


This is sort of nice, they give affiliates some phrases to use. Once again, the Summit group may need a refresher.

Vocab Choices.JPG


The last one is in my opinion very sound advice regardless of the business. If you are using your house or auto for business purposes then they need to be insured as such. Otherwise if you have a business related claim it can be denied.

Insurance.JPG

http://www.homebiz-online.biz/pdf/Co...n_Plan_ENG.pdf

Ribshaw,

As to income, most Watkins consultants join specifically to buy at the 25% discount because they love the products so then most people are only earning in cost savings. There are also people who join to make some extra income doing home parties or flea markets. There are also people who focus on doing Watkins as a full time business and are doing state fairs, multiple home parties and team building. So there are people who are happy with their favorite products at discounted prices, people happy with a little extra income and those pursuing full time incomes all using the resources of the Watkins company.

As to the sales requirement the consultant can be considered an end consumer. As long as products are bought for the personal use of the consultant and his/her family that meets the requirement. The purpose of this rule is to prohibit someone to buy $5,000 of lip balm in a month that they don't intend to use just to meet an achievement level or win a Lip Balm Sales Contest. All purchases must be for consumption by a consumer and the consultant can be a consumer of Watkins products.

As to the "no selling" it is a matter of letting people know that they don't have to be a door-to-door salesman, which many people think is the Watkins business because they remember the Watkins man like my great grandfather that rode up on his horse and wagon throughout Arkansas selling Watkins products door-to-door. I have heard of new Watkins consultants that went down to their local city hall to check on getting a peddler permit for door-to-door sales, so for those who aren't looking to be a door-to-door salesman we offer them other options to sell products. People can sell to themselves for their personal use.

Originally Posted by therockroad

Ribshaw,

As to income, most Watkins consultants join specifically to buy at the 25% discount because they love the products so then most people are only earning in cost savings. There are also people who join to make some extra income doing home parties or flea markets. There are also people who focus on doing Watkins as a full time business and are doing state fairs, multiple home parties and team building. So there are people who are happy with their favorite products at discounted prices, people happy with a little extra income and those pursuing full time incomes all using the resources of the Watkins company.

I get what people do with it. And the expectation of the "Typical Participant" is $50 a month gross as a result of the total combination of those behaviors.

Originally Posted by therockroad

As to the sales requirement the consultant can be considered an end consumer. As long as products are bought for the personal use of the consultant and his/her family that meets the requirement. The purpose of this rule is to prohibit someone to buy $5,000 of lip balm in a month that they don't intend to use just to meet an achievement level or win a Lip Balm Sales Contest. All purchases must be for consumption by a consumer and the consultant can be a consumer of Watkins products.

That is what your upline may be telling you, that IS NOT what this says:
Associate Retailing.JPG

More important is WHY they use this verbiage:

the court threw several obstacles in the way of traditional methods of tying commissions to retail sales.

a. Products Purchased by a Distributor for Personal Consumption do not Qualify as a Retail Sale

The court stated that sales to persons who are participants in the company's compensation program do not qualify as "retail sales" for purposes of satisfying the Koscot test.


The Personal Consumption Dilemma - MLM Attorney Newsletter from Lawyer Grimes & Reese - MLM Attorney Specializing in Multilevel Marketing Law


I also encourage you to check out this link.

How Pyramid Schemes and Ponzi Schemes are Prosecuted in the US: Do You Know Koscot Test and Howey Test?
Koscot lost the lawsuit, and the definition FTC created for pyramid scheme became known as the "Koscot Test" (for pyramid schemes). It can be roughly summarized as follows:

The participant makes a payment of money to the company;
In exchange, the participant receives the right to sell a product (or service);
In exchange, the participant receives compensation for recruiting others into the program;
The compensation is unrelated to the sale of products (or services) to the ultimate user.

Originally Posted by therockroad

As to the "no selling" it is a matter of letting people know that they don't have to be a door-to-door salesman, which many people think is the Watkins business because they remember the Watkins man like my great grandfather that rode up on his horse and wagon throughout Arkansas selling Watkins products door-to-door. I have heard of new Watkins consultants that went down to their local city hall to check on getting a peddler permit for door-to-door sales, so for those who aren't looking to be a door-to-door salesman we offer them other options to sell products. People can sell to themselves for their personal use.

Again the "No Selling" is not language approved by the company as seen below. An inquisitive person would ask WHY the discrepancy between what their upline is feeding them, and the reality of what the company has laid out in its T&C, probably drawn up by attorneys, jesss a guess.
Vocab Choices.JPG

Originally Posted by therockroad

Ribshaw,

As to the sales requirement the consultant can be considered an end consumer.

Here is some additional reading as you seem like a sincere person trying to do the right thing. It is your business, and I wish you luck.

That said, I would seriously consider who I was listening to, much less repeating in the course of business. In a similar vein, I see a lot of "tax advice" offered by upline leaders that is tantamount to income tax evasion.



Unless this has been overturned by a higher court, or I am completely missing something, it is really not a matter of semantics what "RETAIL" means.

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The illegality of buyers' club pyramid schemes

It is interesting to note that by promoting and profiting from the BSM business and the "buyer's club" pyramid (where most of the products are bought for the personal use of the "distributors" themselves) Amway would fall within the Sixth Circuit's own definition of an illegal pyramid from the court's opinion in United States v. Gold Unlimited, Inc., 177 F.3d at 479. In affirming the use of a definition that excluded self-consumption of products from the "retail sales" requirements of the landmark Koscot case, the Sixth Circuit endorsed the position taken by the FTC and the Omnitrition court, and specifically pointed out that a basis for the Koscot case was the extensive self-consumption of products by the scheme's participants rather than actual retail customers. Id., 177 F.3d at 480. The court concluded:

Given the district court's instruction that a pyramid exists when a program's rewards relate to recruitment, not product sales, the jury necessarily found the possibility of saturation when it found that the defendants ran a pyramid scheme: "'The presence of this second element, recruitment with rewards unrelated to product sales, is nothing more than an elaborate chain letter device in which individuals who pay a valuable consideration with the expectation of recouping it to some degree via recruitment are bound to be disappointed.'" Omnitrition, 79 F.3d at 781 (quoting Koscot).

Id., 177 F.3d at 481. Indeed, the Sixth Circuit noted that the payment of money that is unrelated to sales of products to retail customers is the sine qua non of an illegal pyramid scheme under the Koscot test. Id. at n6 (citing Omnitrition).

Many other courts have viewed buyers' club-type pyramid schemes in the same manner as the Sixth Circuit, the Western District of Michigan, the Ninth Circuit and the FTC in In re Koscot Interplanetary, Inc., 86 F.T.C. 1106 (1975). As indicated in FTC v. Five Star Auto Club, No. Civ-99-1693, 2000 U.S. Dist. LEXIS 10548 (S.D.N.Y. 2000) and FTC v. Equinox Int'l. Corp., No. CV-S-99-0969-JBR, 1999 U.S. Dist. LEXIS 19866 (D. Nev. 1999), the FTC continues to consider a purported MLM in which most of the products are sold to the "distributors" rather than "retail customers" an illegal pyramid scheme. Id. ("Retail Sales do not include sales made by participants in a prohibited marketing scheme or multi-level marketing program to other participants or recruits in that scheme or program or to such a participants' own accounts").

Nor is this rule new. It was not new when the Ninth Circuit wrote about it in 1996 in Omnitrition. It is clearly the definitive factor in the landmark Koscot case and has been repeatedly applied by courts across the country to shut down schemes that, like Quixtar, involve unenforced retail sales rules and where, as a result, a small portion of the products are sold to retail customers. See e.g. State ex. rel. Webster v. Membership Marketing, 766 S.W.2d 654 (Mo.App. 1989)("The sales representative acquires nothing for resale to an ultimate consumer because the plan depends on that consumer becoming a salesperson himself and, in turn, persuading others to join and participate in the same way. The Amway exemption simply does not apply."); People ex rel. Hatigan v. Dynasty System Corp., 471 N.E.2d 236 (Ill.App. 1984)("The evidence overwhelmingly demonstrates that the primary emphasis is on commissions earned by building a down-line organization. Testimony established that TDSC was represented as a consuming organization and not as a selling organization. Commissions are not dependent upon retail sales to ultimate consumers, but are paid solely upon purchases made by distributors in the participant's down-line organization"); Schrader v. State, 517 A.2d 1139 (Md. App. 1986); State v. Phase II Sysems, Inc., 440 N.Y.S.2d 454 (S.C.N.Y 1981). The explanation from the California Court of Appeals in People v. Bestline Prods., Inc., 61 Cal.App.3d 879 (Cal. App. 1976) is not only typical of how courts have viewed schemes like these, but shows unequivocally, that they have been viewed in this light for decades before Omnitrition:

The Bestline plan, as alleged in the complaint and found by the court, offered compensation for recruitment based upon sales to the recruits. This element of the Bestline plan, which is what makes it a chain scheme under California law, serves to increase the certainty of deception by diverting the effort of all distributors from retail sales to the sales of distributorships. A pyramid sales plan under which the compensation for recruitment is limited to "payment based upon sales made to persons who are not participants in the scheme and who are not purchasing in order to participate in the scheme," does not come within the definition of endless chain schemes set forth in Penal Code section 327. The section, however, declares the policy of this state that such schemes are deceptive when compensation is offered "for introducing one or more additional persons into participation in the scheme" based upon sale to the person introduced. It is on the basis of this policy that participation in such schemes is made criminal.

Pyramid Q & A

ribshaw,

Thanks for your extensive quoting of information above.

As to the Koscot Test:

The participant makes a payment of money to the company;
In exchange, the participant receives the right to sell a product (or service);
In exchange, the participant receives compensation for recruiting others into the program;
The compensation is unrelated to the sale of products (or services) to the ultimate user.

To be judged a pyramid scheme, the scheme must have all four elements.


Point 1 applies to many business opportunities including Watkins that has a $39.95 startup fee.

Point 2 applies to most business opportunities including Watkins that allow you to purchase products and sell them.

Point 3 does not apply to Watkins because there is no compensation for recruiting, 100% of startup fee goes to Watkins and no commissions or bonuses are paid just for recruiting. Compensation is based on retail sales not recruiting others into Watkins.

Point 4 does not apply to Watkins because income comes from direct commissions for the sale of products or bonus income derived from the sales of sponsored consultants in a team to the ultimate user. Recruiting 5,000 people that have no sales get $0 every month.