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The HerbaLife Scam
HerbaLife: Scam or Not?
Have you heard of HerbaLife, or do you even sell its products? If not, then let me tell you about the Herbalife scam.
If you walk around any major city, you'll probably see flyers posted on light and electrical poles saying things like "Work From Home", or "Lose 30 lbs Now, Ask Me How!" The ads may all be different, but what they all share in common is the same phone number. When you call that phone number, you obtain a company by the name of HerbaLife.
Back when I was unemployed, I toyed with the idea of joining HerbaLife. Little did I know the company history or the other questionable business practices of this firm. However, after doing some online research, here is what I found out:
HerbaLife was founded in 1980 by Mark Hughes, a guy who, at the young age of 44, was found dead due to a likely drug overdose. Still, HerbaLife continued on, and is now almost 30 years in business. As of this posting, the HerbaLife company states that it has over 1.8 million distributors in about 66 countries. The company is even on the New York Stock Exchange (NYSE: HLF). Annual gross sales for HerbaLife are roughly $3.5 billion, though they may have taken a hit due to the recent recession.
HerbaLife sells all kinds of vitamins and other nutritional supplements. There are shakes, protein bars, weight loss products, herbs, even meals replacements.
Do you like what you hear so far? Would you like to buy some HerbaLife vitamins? Well, you can't. First, you need to become a distributor.
HerbaLife makes the big bucks not by selling nutritional supplements, but by recruiting folks to become distributors.These distributors buy up a certain lot amount of the company's products, sample them, and try to sell them. More importantly, though, the newly-minted distributors are "encouraged" to recruit their friends and family (and anyone else they know) to become distributors too. And when I say "encouraged", I mean that the company will pretty much twist your arm in order to have you find new recruits. Weekly meetings, HerbaLife newsletters, company-wide e-mails, etc., will all repeat the company core motto until it comes out of your ears: recruit, recruit, recruit!
Of course, there is an incentive to finding new distributors: a portion of their earnings on products gets kicked up to you. And likewise, part of your earnings get kicked up to whoever recruited you. And so it goes, until the very few people at the top of this pyramid scheme rake in the big bucks while you drive around in your car with big boxes of muscle-building protein powder. It's multi-level marketing (MLM), plain and simple.
What are the costs for this pyramid scheme? It takes around $220 to enroll in the HerbaLife scam, er, I mean program. This money pays for your enrollment, your first pack of product, and also some samples for you (since distributors are highly encouraged to use the company's products as well as to sell them).
If HerbaLife would just stop here and allow you to just purchase and sell its products, I doubt you could call it a scam. However, the scamming really starts when you listen to what the company is trying to have you believe:
In its flyers, HerbaLife claims that you can make as much as $1500 per week for part-time work. If you work full-time, you can make $5500 per week. However, the statistics say otherwise. In actuality, about 1% of HerbaLife distributors make 85% of the company's gross sales. These distributors are in the upper echelons of the company, and were around back when the company was still starting up in the early 80's. The remaining 99% of HerbaLife distributors, who joined the company after the mid-1980s, make the remaining 15% of the company's gross sales.
What does that mean math-wise? Let's crunch the numbers: 99% of all reported HerbaLife distributors comes out to 1,782,000 distributors (99% of 1.8 million). Meanwhile, 15% of $3.5 billion comes out to $525 million. Divide $525 million by the 1,782,000 distributors and you obtain $294 in annual sales per distributor!! And keep in mind that is not profit, but sales, so the actual take-home pay is even less.
Of course, not all distributors are alike. Some may have enormous selling potential, and lots of eager friends and family to whom they can sell HerbaLife products. But that's still a big chance to take when your initial investment in the company is almost the same amount of money that you are likely to make over the course of an entire year!
Another problem with HerbaLife is market over-saturation. It's not as if nutritional supplements, vitamins or protein shakes are in short supply; just look through your local grocery store, sports nutrition store or pharmacy. And those nutritional supplements, vitamins and protein shakes are also priced far below what HerbaLife charges for its comparable items. Granted, when HerbaLife first introduced its products, the market was way smaller, giving HerbaLife a major advantage over its nonexistent competition. But nowadays, when such products run the length of two or more store shelves and are often priced at discount, what's the point of paying top dollar for HerbaLife? It is little wonder why so many HerbaLife distributors have resorted to selling their remaining inventory on places like eBay and Craigslist.
So, in conclusion, should you invest in the HerbaLife scam? Only if you have extreme sales savvy, as well as lots of spare time on your hands. As for me, I think I'll pass. I can think of many other businesses that pay a lot more money for a lot less work.