Name: Herbalife, Inc.
Price: $94 USD to start
Founder: Mark Hughes
Overall rank: 25 out of 100
Herbalife Company Overview
Herbalife is a nutrition and personal care products company that uses MLM as it’s business model. In 2015, the company had net sales of $4.5 billion worldwide. It is publicly traded on the New York Stock Exchange, symbol NYSE:HLF.
Herbalife uses multi-level-marketing as it’s business marketing method. That means that people who wish to sell Herbalife products sign up as distributors, and as distributors they earn a commission on any products they purchase or sell. They can also sign up distributors under them and receive a commission on any products their downline sells. Usually a distributor can receive commissions for three levels down in his or her downline.
As sales grow commissions grow also. Initial commissions for a distributor start at 25%.
The good and the bad
- Established company
- Publicly Traded
- Good products
- Large variety of products
- Distributors purchase at a discount
- You can recruit others and get paid for their sales
- Relatively expensive products
- Complicated payment structure for distributors
- 90% of distributors quit during their first year
- No real earnings at lower levels
- Easy to lose money trying to make money
Who is Herbalife for?
The products are for everyone. They are overpriced in order to pay the commissions earned by distributors, as is the case with just about all companies that use multi-level-marketing as their business model. The purpose of my review, however, is not to reveiw the products, but rather the business opportunity that Herbalife advertises to potential distributors.
According to the company website, you can earn money as a distributor by:
- Selling Herbalife products that you buy at a discount
- Sponsoring someone who either sells Herbalife products or purchases them at a discount for their own household use
- You cannot earn money simply for recruiting or sponsoring someone
This last statment is to avoid being branded as a pyramid scheme. A company is designated as as pyramid scheme if the participants make money primarily from recruiting rather than sales to ultimate users.
The compensation plan
According to Herbalife, as an Herbalife distributor, you can participate in three ways.
- You can buy products at a discount for your won or household use
- you can sell products to make a retail profit
- you can recruit others who want to consume or sell the products
It is this third way where things start to get a little dicey.
Is Herbalife a pyramid scheme?
If it’s not, it comes awfully close. The company has been under scrutiny by the FTC for it’s business practices. The problem, which I have experienced myself, is that distributors attempt to recruit other distributors not at the beginning level, but at the supervisor level, which requires an investment of about $4000.
The pitch is that at the supervisor level there’s greater compensation and that’s where the “real” money begins. If you bite and sign up at the supervisor level, then you are trained to get your downline distributors to sign up at the supervisor level also. That’s the 5th level a distributor can reach. so you skip 4 levels where you would normally build up a downline and a solid business. As a supervisor, you are required to maintain purchases of $2500 per month, and distributors attempt to reach that goal by recruiting others at the supervisor level. If they can’t there is pressure to purchase the products yourself to maintain your status.
Distributors are also sold “leads” that are supposed to be pre-qualified as interested in the Herbalife opportunity. These leads are told about the compensation plan but not about the parent company, or, in other words, they are told that they can make lots of money and are recuited because of the awesome money-making potential they are being offered. The object is to get them signed up before they learn what the product is that they will be selling. The pitch is to sell the opportunity, not the product.
For most distributors that sign up, this is not sustainable. Most fail within a few months. I did. I found out that the pre-qualified leads that I was buying either didn’t have any money, had bad credit and couldn’t get any money either, or just never answered the phone.
It’s possible to be successful with Herbalife if you start at the lowest level and work your way up, staying within a budget and never going into debt, but it is difficult. The company tells you to sell to your family and friends, which no one wants to do. The products cost too much, so they are hard to sell on their merits. There are too many equivalent products available at local stores for about half the cost.
According to the company’s own Statement of Average Gross Compensation 2016, almost 86% of US distributors did not receive any earnings from Herbalife during that year.
Unless you are a recruiting machine, I recommend you stay away from the Herbalife opportunity. It’s an opportunity to fail.
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