Multi-Level Marketing

Published on September 8th, 2014

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WakeUpNow’s Secret: Things You Need to Know about this MLM

UPDATE: WakeUpNow announced it is folding its affiliate operations in the U.S. The company reached a settlement in a lawsuit against former CEO Kirby Cochran in June 2015. Click here to read more.

WakeUpNow, a multi-level marketing company (MLM) based in Utah, has a secret. If you want to find out what it is and share it with others, you can live your dream. How? According to the company it’s simple: B3H3G3 or Bring 3, and Help 3 Get 3. But it’s never simple.

This publicly traded company, which describes itself as a “subscription based direct sales financial wellness company aimed at helping individuals save, manage and earn money,” offers a variety of products for purchase at its subscription-based Internet hub. Products available at the hub include vacation deals, business expense tracking, identity theft protection, energy drinks, and language training.

But TINA.org looked beyond the slick marketing and found some facts you may want to consider.

1. 160+ FTC consumer complaints. More than 160 consumers complained to the FTC about the company, many discussing multiple issues. About one-third of  the complaints said the company failed to cancel auto-deliveries and refund money, and instead repeatedly charged their credit cards. About 25 percent of the complaints said the company was a pyramid scheme and made false earnings and product claims. Others said the company was using aggressive marketing tactics to recruit young adults, members of the military and members of the deaf community. Several also said the company’s website was inadequate to support distributors and they didn’t receive the commission checks they had earned.

2. Here today, gone tomorrow? The company, which said in May it has more than 100,000 customers, has been losing money for the past two years. In its 2013 disclosure statement it reported losses of $4.5 million for 2013 and $3.3 million for 2012. It also reported an accumulated deficit of $10.4 million and a stockholders’ deficit of $4.6 million. Because of all this debt, the company has questioned its continued viability saying, “These conditions raise substantial doubt about the Company’s ability to continue as a going concern.”

3. Recruitment, recruitment, recruitment. WUN is pinning its hope for survival on getting more people to join its team. According to the company,

 Management’s plan of operation is based on three primary objectives (1) further development of its products with specific emphasis on its affiliate network, (2) continued domestic growth of its distributor base, and (3) expansion into international markets

If the company can’t successfully recruit more distributors, it may continue in the red. In its SEC disclosure under the section “Risks Relating to Our Direct/Network Marketing Methods” it explained that:

 If we are unable to retain our existing distributors and obtain additional distributors, our revenue will not increase and may even decline. … Our distributors may terminate their relationship with us at any time, and, like most network marketing or direct selling companies, we experience high turnover among distributors from year to year. …To increase our revenue, we must increase the number of and/or the productivity of our distributors.

4. The odds are against you.

wakeupnow screenshot
WUN’s 22-page compensation plan is confusing. Breaking it down as best we can, it goes something like this: in order to qualify for commissions and become an IBO – independent business owner — you need to buy at least $100 worth of product each month. Once you enroll three others, who are also spending at least $100 per month, you will earn $100 a month, which can cover your monthly qualification fee and put you at net zero (neither making nor losing money). The next commission level up earns you about $600 a month, and you get there by having 12 enrollees in your downline who are each buying at least $100 worth of product each month. But here’s the key – according to WakeUpNow’s 2013 income disclosure statement, 96 percent of distributors never get to that $600 per month level. In fact, 80 percent of IBOs lost money, and less than one percent of them grossed more than $2,000 a year.

5. Why get it for free when you can pay for it? Many of the products and/or services you can purchase on the WUN’s hub are readily available for free on the Internet, while other products can be purchased cheaper on other Internet sites. (For a fuller run down of the products and where you can get them for free or elsewhere see these posts by industry insiders and scam busting bloggers who have reviewed WakeUpNow.)

6. Draconian return policy. Here’s just a summary of the problematic – if not outright draconian– fine print in WUN’s return policy: If you are an IBO and want to cancel your affiliation, you only have three days for a full refund on auto-pay products. After that, if you are an IBO and want to cancel your affiliation and return inventory and sales aids, you have to request a refund, and then you have seven days to return the items. Upon receipt of returned items, the company will issue you a refund for 90 percent of the net cost of the merchandise assuming all merchandise is deemed reusable, excluding shipping and handling fees. Sales aids and products must be unopened and unused, and refunds will not be issued on any merchandise identified as nonreturnable, discontinued, or seasonable.

And then there’s this “customer satisfaction guarantee” fine print: To return any physical products, you must get an RMA  within 30 days and then return it within 7 days of getting the RMA. You must pay shipping fees and the product must not be opened and must be in original packaging, undamaged, unaltered and resalable. Any damage while shipped is born by the consumer. And, if that isn’t enough to annoy you, there is a 10 percent service fee.

Here’s another doozy. If you had a commission paid on a product purchased by someone you enrolled, and that enrollee returns it for a refund, a percentage of your commission will be clawed back from you and your upline, you will also be assessed a $100 service fee plus a possible charge back fee, and you and the next four in your upline will have to pay back the amount refunded.

7. Paying for your own perks. While WUN touts the fact that distributors can earn vacation dollars or money for a car, it neglects to mention in its marketing material that if you want to take advantage of these perks, you have to pay for that vacation or car out of your pocket first and then wait for the company to reimburse you. And if that wasn’t enough, you are only reimbursed if you show proof via pictures and videos. Oh, and you have to use your vacation dollars within three months. One more kicker, you are required to use your vacation dollars to purchase two tickets to the company’s annual conference whether you want to go or not and to purchase a backpack full of items you may not want. But you probably won’t have to worry about these rules anyway because only about one percent of distributors actually qualify for these perks.

8. Fake FTC email.

 Screen Shot 2014-09-08 at 1.57.05 PM

This email that was making the rounds on some WUN affiliate websites is fake. The FTC never sent the email or said WUN is a legitimate company. (The company recently addressed the fake email in May in a post warning IBOs not to use it when promoting the business saying it “undermines your personal credibility and is a serious matter of legal concern for WakeUpNow.”)

9. BBB Complaints. The company has a C rating with the BBB and 57 complaints filed against it, with a majority of the complaints centered on product and service issues and 16 about billing issues.

10. Leadership’s past: Kirby Cochran, the former CEO of WakeUpNow, has an interesting business history. He has been associated with more than two dozen companies, several of which have had their registrations revoked. One of his companies, Castle Arch Real Estate Investment Company, for which he was CEO, filed for bankruptcy in 2011 $40 million in debt. The bankruptcy followed a 2010 $15 million lawsuit alleging racketeering and breach of contract, among other charges (that suit was dismissed in 2013). This June, the SEC permanently revoked the company’s registration to sell securities because the company repeatedly failed to file required reports. Said the SEC in its notice about the revocation: “The commission has warned that many publicly traded companies that fail to file on a timely basis are ‘shell companies’ and as such attractive vehicles for fraudulent stock manipulation schemes.” Cochran stepped down in October and COO Phil Polich was named the new CEO. Polich, a purveyor of WakeUpNow’s pitch that joiners will live the ultimate lifestyle, is heavily in debt with banks and is facing multiple county, state and federal tax liens. He was also the president and CEO of Emerald Homes which was sued by the federal government for its role in the Charles Keating savings and loan scandal of the 1980s. The company settled the case for $10 million in 1993.

11. Elements of a Pyramid Scheme. WakeUpNow’s emphasis on recruitment, its complicated compensation plan based primarily on getting others to join and not on purchases of its overpriced HUB products to actual customers not affiliated with WUN – that sounds like the trappings of a pyramid scheme. Read more here about MLMs and pyramid schemes.

This story was updated most recently on 4/4/2016.

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Multi-Level Marketing – a way of distributing products or services in which the distributors earn income from their own retail sales and from retail sales made by their direct and indirect recruits.

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