Herbalife is a pyramid scheme that harms millions of people around the world.
For most people, it’s pretty straightforward. But, if you are an Herbalife distributor, the answer isn’t so easy. In fact, a lot of people who have signed up with Herbalife can’t explain how they make money. New recruits often get a lot of misinformation. As Herbalife distributors buy product from the company and get others to do the same, they move up in this complicated plan. As distributors advance, they gain access to product discounts and commissions that are paid when distributors in their downline (those who they’ve recruited and their recruits’ recruits etc.) make purchases from the company. The recruiting distributor, or sponsor, often doesn’t explain how difficult and expensive it is to advance in the plan. Instead, recruits are told that with hard work, they can make a lot of money from Herbalife. Sadly, too often they are not told the most important pieces of information any new recruit should know: that 89% of new recruits will earn nothing from the company and 90% will drop out in the first year.
90% OF NEW HERBALIFE DISTRIBUTORS DROP OUT IN THE FIRST YEAR[/vc_column_text]
One of the hallmarks of a pyramid scheme identified by the SEC is: “Complex commission structure. Be concerned unless commissions are based on products or services that you or your recruits sell to people outside the program. If you do not understand how you will be compensated, be cautious.”
A company is deemed a pyramid scheme if the participants make money primarily from recruiting rather than sales to ultimate users.
RETAIL COMMISSIONS
WHOLESALE COMMISSIONS
ROYALTIES / ROYALTY ROLL-UPS
PRODUCTION BONUS
CASH PROMOTIONS
PAID VACATIONS
MARK HUGHES BONUS
They make it seem as though it’s easy to make money because there are so many ways to do so.
The truth is that it’s incredibly difficult to make any money from the 7 streams and distributors who are making money often have massive downlines working beneath them. Herbalife’s plan consists of four discount levels and 11 positions in the marketing plan with several sub-categories within those positions. It’s easy to see why new recruits might be confused.
When a person signs up as an Herbalife distributor, she buys Herbalife products from the company at a discount and tries to sell them to friends, family and others at the suggested retail price (SRP), hoping to pocket the difference. The problems start there.
1. Herbalife’s products are overpriced versions of similar products available at health and wellness stores at a fraction of the cost, making these products difficult to sell.
2. The company doesn’t disclose how many other distributors live in a given area who are trying to sell the same products to the same pool of possible customers. Higher-level distributors who get bigger discounts might be able to sell the product cheaper, making it harder for an entry level distributor to sell any product at all.
3. Some distributors sell Herbalife product online at a near 40% discount. Why would anyone buy product at full price if it’s readily available online for much less?
A distributor earns “wholesale profit” by capturing the difference in discount levels between herself and people in her downline. So, the distributor needs to have recruited people and have bought enough product to have moved up at least one level in the system. For example, a distributor who purchases product at a 42% discount to SRP is able to capture the spread between their discount level and that of a downline member, purchasing at a 25% discount. This 17% difference is tracked by Herbalife and paid to the upline distributor by direct deposit or check.
To be eligible for more than just the first two income “streams,” the distributor needs to spend a significant amount of money, about $3,000 for 4000 “volume points” (Herbalife’s universal currency where one volume point is roughly equivalent to one US dollar) to reach the “supervisor” position.
People who have achieved the position of supervisor are eligible to receive “royalties.” But a distributor can only earn these royalties if she has recruited people and convinced THEM to become supervisors too.
Additional royalties (1-5%) are earned on the volume purchased by anyone in a distributor’s first three levels, which is to say, up to the recruits of the recruits’ recruits. These royalties are based on total volume point value of downline purchases,regardless of whether those distributors actually sell the product.
Here is a slide adapted from an Herbalife video explaining the marketing plan.
What does that look like to you?
The Production Bonus, or 4th stream of income, becomes available only when the distributor reaches the GET Team, which is the seventh position in the plan. Upon reaching the GET Team, distributors can earn 2-7% on the TOTAL volume of their organization (i.e. infinite levels), with some exceptions. This level is important. As if the plan didn’t already incentivize recruiting, the production bonus is payable on infinite levels. Meaning, if a distributor has 50 levels of distributors below her, she makes money on each level, all the way down.
Herbalife distributes $500 to distributors upon their reaching Active World Team. Herbalife runs other promotions, including non-cash promotions that occur regularly throughout the year and are designed to inspire large purchases.
Several times a year, Herbalife runs promotions with high qualification thresholds, usually lasting for 3 or 4 months to win a cruise or vacation. Upline distributors use these promotions as opportunities to pressure downline distributors to buy large quantities of product. At every local, regional or national event, the mantra (and popular hashtag) “Qualify for Everything!” is repeated to recruits, encouraging them to purchase enough product to qualify for certain thresholds.
Promotions like these reward those at the top of the pyramid by encouraging those beneath them to make product purchases even when no end customer demand exists.
Finally, there’s the Mark Hughes Bonus, where 1% of the entire company’s annual revenue is divvied up among the top of the pyramid during a highly photographed gala. The check for the top distributor is often in excess of $2,000,000 and with a few exceptions, the top winners have been the same group that’s been collecting those massive checks for 15-20 years.
The distributor receiving the $2,000,000 check isn’t the best salesperson. They will say they’re “just like you!” But the truth is, they likely joined the company in the mid-80s, recruited like crazy and probably used business methods that have since been prohibited.
In the end, Herbalife’s compensation and commission structure works to benefit those at the very top of the pyramid, and usually to the detriment of those new recruits at the bottom. It is complicated, structurally designed so that the only way to make any real money from the company is to sell others on becoming Herbalife distributors. They, in turn, can really only make money by recruiting their own downline and getting them to do the same. The confusing scheme obfuscates the probability of success and makes it easier for the company to recruit.
Because the compensation plan is complicated – and rarely thoroughly explained – millions of people every year sign up for an opportunity that will rob them of time and money and leave them far short of becoming the millionaires they thought they might be.
Distributors can’t advance to the upper echelons of the company without recruiting distributors who themselves are advancing in the plan.