In MK, Profit Versus Cash Flow (it's not profit!), Plus, Inventory Woes
I meant to come back here and continue my information about Mary Kay and how it manages to ruin so many people. Then I got busy with my actual job that earns me actual money, so my writing went by the wayside for a while. I actually wrote this one for Pink Truth last week, so apologies if it references anything strictly from PT or appears to be self-referential to my LJ. I tried to edit but I'm also trying to get to a real estate closing on Friday.
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How is it that a Mary Kay consultant ends up with thousands upon thousands of dollars in unsold, outdated inventory? You would think that there must be some smart women in Mary Kay, so how can it be that so many of us ended up with ridiculous amounts of products?
I was a consultant for about six years and a director for two, and my own inventory story ran the gamut of lessons learned.
When I started my business, I had very little room on a credit card. I did a $1200 order because that is what I could afford. After visiting my director's house and seeing how much she had on her shelves, along with hearing her explanation that you have to have it to sell it, I managed to find another $600 to bring my inventory level up to $1800. It seemed reasonable for a part-timer.
Six months after I started my business, the foundations changed. Of course, I tried to continue selling the ones I had, but when all of the company materials have the new products listed, when the old products are no longer available on the web site, everyone figures out pretty quickly that you're selling them the old stuff. So a few hundred dollars in foundations went into a box while I spent a few hundred more dollars on new foundations.
But then there always seemed to be a reason to order. Order limited edition stuff because it's going to sell out! Order this stuff that's being discontinued because you won't be able to get it anymore! Order new lipsticks in new colors! Order new lipsticks in new packages!
For me, probably the most awful moment (outside of my directorship woes that I have already written about) came when they decided to change to mineral colors. There I was sitting on $600 in eyeshadows and probably another $400 in blushes, and they were no longer going to fit in the compacts. I actually bought extra compacts in hopes that I could sell off what I had before the changeover. I held color parties constantly! I offered colors for listening to the business plan. I offered a discount on colors. The more popular colors--Orchid, Sunny Spice, and the like, I could sell with the "Going going gone forever" line, but try selling an Eggplant blush that way. Not so much.
A few months after the mineral colors came out, I could no longer get away with selling old colors to new customers, so yet again, I was stuck.
Stuck stuck stuck, with color after color that I would never be able to sell.
So until this point, I had bought inventory for a number of reasons: new consultant, building a store, products coming, products going, and limited edition. You see, you can say all you want that you are just going to replenish what you sell. But if you have to add new products all the time, you're not doing that. You still have to replenish what you sell, see? You can't sit there with no cleanser on your shelves. But you need the limited stuff (no you don't), and you need the new stuff (no you don't) and you have to have enough to cover demand, or your customers will go to someone who can (no they won't).
Well, then I became a director. And there is the number one biggest way that people end up with thousands of dollars of extra inventory that they will never sell. Because as a director, you can take all of the above and multiply it by 4 or more times. I was not a "successful" director by MK standards. I was constantly struggling to make my unit's $4000/month production, because after all of the inventory insanity that I went through myself, I could not bring myself to ask anyone else to front load inventory. It just made no sense to me! How could I be an honest person and say that someone really needed all of that on their shelves?
So I didn't, and I ate the difference. Between $1000 and $2000 every two months just to keep up my directorship, and all of that product went unsold. And you'd think I'd have learned my lesson and spent it all on Timewise cleansers and moisturizers! Instead I took the opportunity to stock up on the things I'd never had much of in the past, like perfumes and spa products. Of course if you sell one perfume, that's a nice profit, only, not really. A $40 perfume, as we know, is $20 in profit, but there is no profit when you're sitting on a mountain of product and debt.
A couple of years ago, I started off the year having a giant 50% off sale, just to get all of the discontinued stuff off of my shelves (it didn't work very well, but I brought in a couple thousand dollars to go toward the debt). At the end of the year, when we did our taxes, I was sure that I had made money that year. I was SURE of it! But there it came back... I had once again lost money in Mary Kay. HOW? I asked my husband, when I didn't spend anything on inventory that year and only sold what I had on the shelves?
Well, of course, I was selling it at a discount, and I was still sending out Look Books and I went to a couple of conferences. It's the great Profit Myth. I fooled myself with Cash Flow. I saw cash coming in and assumed I was making money, when, in fact, I was so far behind that there was no way I could ever show a real profit. Plus, by selling product at my cost (just to recoup my lost money), but by continuing to do all of the advertising and conferences, I was yet again spending money I wasn't earning. But that year, I was still truly surprised when the taxes were done and it showed that I had lost so much, yet again.
I've often said that I take all of the blame for what I did to my finances. I'm not a dumb person. But the culture of Mary Kay, the constant product line changes, and the rules for directorship is one where more and more people find themselves in the same situation I was in. That is why the system is broken. Recognition is always based on Retail, which puts you in the mindset of believing you have made more money than you have. And not just at Seminar. At your unit meeting, you are recognized for sales numbers, and even when they tell consultants to split 60/40, they tell all of the guests that it's 50% profit. They Remind you that it's 50% profit. When you have a large inventory, they tell you that you are operating at a "profit level," only no one reminds you that you're not actually making a profit if you have not yet paid for that inventory. You begin to think in terms of cash flow and not profit, and it is not until you see those numbers out in front of you on your Schedule C that you realize what you have done to your finances.
As I said, it is broken, and it is insidious.
(Final note: I have been posting these to my facebook and I assume some MK people will come over here to tell me what a Negative Nelly I am, and how I just didn't try hard enough. I would ask them to please post their Schedule C for us to look at. They are all welcome to black out name and Social Security number, but if they really want to argue with this, they need to pony up the Schedule C to prove it)
--
How is it that a Mary Kay consultant ends up with thousands upon thousands of dollars in unsold, outdated inventory? You would think that there must be some smart women in Mary Kay, so how can it be that so many of us ended up with ridiculous amounts of products?
I was a consultant for about six years and a director for two, and my own inventory story ran the gamut of lessons learned.
When I started my business, I had very little room on a credit card. I did a $1200 order because that is what I could afford. After visiting my director's house and seeing how much she had on her shelves, along with hearing her explanation that you have to have it to sell it, I managed to find another $600 to bring my inventory level up to $1800. It seemed reasonable for a part-timer.
Six months after I started my business, the foundations changed. Of course, I tried to continue selling the ones I had, but when all of the company materials have the new products listed, when the old products are no longer available on the web site, everyone figures out pretty quickly that you're selling them the old stuff. So a few hundred dollars in foundations went into a box while I spent a few hundred more dollars on new foundations.
But then there always seemed to be a reason to order. Order limited edition stuff because it's going to sell out! Order this stuff that's being discontinued because you won't be able to get it anymore! Order new lipsticks in new colors! Order new lipsticks in new packages!
For me, probably the most awful moment (outside of my directorship woes that I have already written about) came when they decided to change to mineral colors. There I was sitting on $600 in eyeshadows and probably another $400 in blushes, and they were no longer going to fit in the compacts. I actually bought extra compacts in hopes that I could sell off what I had before the changeover. I held color parties constantly! I offered colors for listening to the business plan. I offered a discount on colors. The more popular colors--Orchid, Sunny Spice, and the like, I could sell with the "Going going gone forever" line, but try selling an Eggplant blush that way. Not so much.
A few months after the mineral colors came out, I could no longer get away with selling old colors to new customers, so yet again, I was stuck.
Stuck stuck stuck, with color after color that I would never be able to sell.
So until this point, I had bought inventory for a number of reasons: new consultant, building a store, products coming, products going, and limited edition. You see, you can say all you want that you are just going to replenish what you sell. But if you have to add new products all the time, you're not doing that. You still have to replenish what you sell, see? You can't sit there with no cleanser on your shelves. But you need the limited stuff (no you don't), and you need the new stuff (no you don't) and you have to have enough to cover demand, or your customers will go to someone who can (no they won't).
Well, then I became a director. And there is the number one biggest way that people end up with thousands of dollars of extra inventory that they will never sell. Because as a director, you can take all of the above and multiply it by 4 or more times. I was not a "successful" director by MK standards. I was constantly struggling to make my unit's $4000/month production, because after all of the inventory insanity that I went through myself, I could not bring myself to ask anyone else to front load inventory. It just made no sense to me! How could I be an honest person and say that someone really needed all of that on their shelves?
So I didn't, and I ate the difference. Between $1000 and $2000 every two months just to keep up my directorship, and all of that product went unsold. And you'd think I'd have learned my lesson and spent it all on Timewise cleansers and moisturizers! Instead I took the opportunity to stock up on the things I'd never had much of in the past, like perfumes and spa products. Of course if you sell one perfume, that's a nice profit, only, not really. A $40 perfume, as we know, is $20 in profit, but there is no profit when you're sitting on a mountain of product and debt.
A couple of years ago, I started off the year having a giant 50% off sale, just to get all of the discontinued stuff off of my shelves (it didn't work very well, but I brought in a couple thousand dollars to go toward the debt). At the end of the year, when we did our taxes, I was sure that I had made money that year. I was SURE of it! But there it came back... I had once again lost money in Mary Kay. HOW? I asked my husband, when I didn't spend anything on inventory that year and only sold what I had on the shelves?
Well, of course, I was selling it at a discount, and I was still sending out Look Books and I went to a couple of conferences. It's the great Profit Myth. I fooled myself with Cash Flow. I saw cash coming in and assumed I was making money, when, in fact, I was so far behind that there was no way I could ever show a real profit. Plus, by selling product at my cost (just to recoup my lost money), but by continuing to do all of the advertising and conferences, I was yet again spending money I wasn't earning. But that year, I was still truly surprised when the taxes were done and it showed that I had lost so much, yet again.
I've often said that I take all of the blame for what I did to my finances. I'm not a dumb person. But the culture of Mary Kay, the constant product line changes, and the rules for directorship is one where more and more people find themselves in the same situation I was in. That is why the system is broken. Recognition is always based on Retail, which puts you in the mindset of believing you have made more money than you have. And not just at Seminar. At your unit meeting, you are recognized for sales numbers, and even when they tell consultants to split 60/40, they tell all of the guests that it's 50% profit. They Remind you that it's 50% profit. When you have a large inventory, they tell you that you are operating at a "profit level," only no one reminds you that you're not actually making a profit if you have not yet paid for that inventory. You begin to think in terms of cash flow and not profit, and it is not until you see those numbers out in front of you on your Schedule C that you realize what you have done to your finances.
As I said, it is broken, and it is insidious.
(Final note: I have been posting these to my facebook and I assume some MK people will come over here to tell me what a Negative Nelly I am, and how I just didn't try hard enough. I would ask them to please post their Schedule C for us to look at. They are all welcome to black out name and Social Security number, but if they really want to argue with this, they need to pony up the Schedule C to prove it)