Over the past few months, I have seen a lot of new LuLaRoe businesses popping up. LuLaRoe is a company that sells clothing (mostly women’s, though some children’s and men’s) through home-based parties and internet parties.
I have purchased a couple of pieces of LuLaRoe clothing, both in parties held by friends and parties held through Facebook. I like some of their stuff. It’s cute. But I worry about the number of people getting into the business. This is most definitely not a quick way to get rich. Like many small businesses, it takes a lot of hard work and organization.
I think when people think home businesses, they think of things like Tupperware or Mary Kay, which have changed over the years. Instead of a consultant showing up to your house with product to sell, they have samples to show and items to display, but then you place your order, which either gets shipped to you or the consultant delivers. This is a great business model because the consultant doesn’t have to spend a fortune on stock, and it’s easier to make back your initial investment.
LuLaRoe is a different model. Consultants purchase their stock and then resell. So their initial outlay is a lot better. A bit of research shows me that the initial required investment is $4800 and $6800, depending on which package the consultant purchases. And while they get to choose the style, they don’t choose the size or the pattern. So they’re stuck with whatever they get in their order.
I’ve heard both $15 and $18 as the average profit per item sold, so let’s assume the number is in there. If the profit is $18, that means selling 266 items to just break even on your initial investment of $4800. That package has 336 items, so that’s when you can start making profit.
Oh wait, but that’s not your only expense. The consultants I know have had to purchase portable clothing racks for in-home shows as well as a whole lot of hangers. So many hangers. Then there’s the at home storage – typically giant Rubbermaid bins. Yes, hangers and bins aren’t that expensive, but you’re only making $18 per item, so it adds up. The most successful consultants seem to be the ones who host online shows on Facebook, and to do so, they often purchase a mannequin and a backdrop to make their photos look good. A smart consultant will also buy some sort of additional business insurance to cover the stock in their home, because frequently, your home owners coverage isn’t enough.
But let’s say you still want to do it. This isn’t some get-rich-quick business. Anyone who owns a business will tell you that it’s a lot of hard work. A consultant will need to carefully photograph all of your items. You will need to host parties, either in person or online. Prepping for these parties takes a few hours, and hosting takes a few hours. You will have to do a lot of marketing to get the word out about your business. (Oh, and if you’ve got someone willing to host a party for you, you will owe your hostess some sort of hostess rewards, often a percentage of the sales, so that cuts into your profit.)
Of course, like most of these businesses, if you manage to bring someone else into the company, you will receive a fee based on the cost of the items they purchase.
So this all sounds okay. You’re ready. You have the time. What’s the downside? Well, remember how you can’t pick out the patterns or sizes you get? What happens if you get items that just don’t sell? That certainly cuts into your profit. If you’ve shopped LuLaRoe, you’ve seen consultants with items they’re selling at a discount, typically less popular patterns or sizes.
Now, this doesn’t mean that I think you shouldn’t do it. But you have to be ready to really work your business. You can’t just sit back. While it may not be full time, this is a solid part-time job that can easily take 20+ hours of your week. You have to constantly be marketing and reaching out to new customers. And you have to constantly be putting money back into the business to get new patterns and new styles to keep your existing customers happy.
LuLaRoe isn’t a get rich quick scheme. But with hard work and commitment, it’s a business you can make work. Just be aware of the risks.
Finally, my friend James over at savingadvice.com did a rather nasty piece on LuLaRoe – pretty much saying its a scam, check out here.
Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.