Is Color Street a Pyramid Scheme


If you’re on Facebook, you’ve probably seen someone promoting Color Street Nails – but is Color Street a Pyramid Scheme or a Scam? Let’s find out, starting with some background and then getting to my thoughts!

Color Street is a multi-leveling marketing (MLM) company. The majority of participants that sell products on Color Street do not earn any money, after business expenses and taxes. Legally, Color Street has not been determined to be a pyramid scheme.

Overview

Color Street is a Multi Level Marketing (MLM) Company that according to a Facebook post has been in business since 2017. The company sells an alternative to nail polish in the form of nail polish strips. The company appears to only sell nail polish strips but does have many different categories of this product.

Competitors/Alternatives to Color Street

  1. Incoco – made by the same company that makes Color Street, but can be purchased at stores like Walmart.
  2. Luna Nail Wraps – purchase directly from their website
  3. Etsy Options – Support a small business – search Nail Polish Strips on Etsy and loads of options pop up

Color Street’s Income Disclosure Review, Compensation Plan, and Required Buy-Ins

Overview

Numbers tell a story, and as an accountant, I feel it is the most important story when reviewing an established business. So, let’s talk facts about the financial commitment to start with Color Street, their compensation plan, and income disclosure. This is all information coming directly from the Color Street website.

Color Street Start-Up Expenses

In order to join Color Street, you need to purchase a starter kit. At the time this is written, that is $129. After this, you will also be charged a $9.95 subscription fee monthly for their “eSuite subscription”. In addition, you’ll need business cards and periodically want to purchase samples, etc. to give away.

Compensation Plan – How Stylists are Paid by Color Street

First off, the compensation plan is complicated, as it is with most MLMs. Color Street identifies three phases of compensation as you make your way up the ladder (pyramid).

  1. Marketing Phase – primary compensation from your own personal sales
    • Stylists and Senior Stylists
  2. Leadership Phase – pays bonuses on the sales of your teams
    • Team Leader, Director, and Senior Director
  3. Executive Phase – rewards you for mentoring other emerging leaders
    • Executive Directors, Senior Executives, and National Executives

What is important to focus on here is how to move up the ranks, it is not based on how much you sell (that is only a small component), it is on how much you recruit. You enter the leadership phase when you have recruited another stylist (your E1 or level 1) and they recruit another stylist (your E2 or level 2). To reach the leadership phase, you need to have 3 qualified legs. This means you have to have recruited 3 stylists, and one of them is a senior stylist that is bonus qualified ($300 personal sales per month). Let’s also keep in mind, when you reach team leader you are still on average only earning $4,300 per year of income.

As we will see below, to make a living wage in Color Street, on average, you need to be at the Executive Director level. To reach this, you need to have 6 qualified legs (meaning you’ve recruited enough people to have at least 6 successful legs). These have to include 2 Senior Director Legs and 1 Executive Director Leg.

Based on the above, based upon Color Street’s own Compensation Plans and Disclosure Statements you cannot make a living wage by selling Color Street Nails alone. You need to sell the job of selling Color Street to other people.

Income Disclosure Review – The Story the Numbers Tell

The below chart was created off of Color Streets 2020 Income Disclosure, using the average income. The blue bar represents the percentage of participants. The green dollar amounts on top of each bar is the average annual income earned by that category according to Color Street’s Income Disclosure. Almost everyone within Color Street is a Senior Stylist or below (approx 94%). The only people making above a living wage of $68,000 are Executive Directors and above, which make up .37% of the company. The odds are not in your favor.

As noted above, you pay $129 starter kit + $120 annually in monthly fees = $249 a year. As you can see below, approximately half of the people involved in Color Street (Stylists) do not even earn that back. I would guess the majority of people in the BQ Stylists also do not earn it back as well.

2020 Color Street Ran and Average Income Distribution.

Is Color Street a Pyramid Scheme or Scam (My Opinion Based On Facts)

Legally, there is no evidence that they are a pyramid scheme in the eyes of the law. In my opinion, anyone recruiting others to join the business with the promises or insinuations that if you work hard enough you can make money – is deceiving that person. However, I do think that people who recruit others to MLMs truly believe these claims, because they have also been duped. I do have an opinion those at the top of the organization do know they are making money by manipulating people into joining. Is it possible to make money in Color Street (or any other MLM)? – sure. Is it likely? No. If you’re not making money and simply “work harder” will you then become a top .37% of Color Street and start making money – unlikely. There are so many factors.

Should you Sell Color Street?

I would not recommend getting yourself in Color Street or any other MLMs. There are alternative products and ways to make money. I cannot in good conscience recommend anyone getting involved in any MLM.

Color Street Resources

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