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HerbaLife is a Big MLM Scam
HerbaLife: Pyramid Scheme
The publication of my HubPages article “The HerbaLife Scam,” has left many people quite steamed. As of this article’s publication, I’ve received a grand total of 512 comments. Some of the comments are good, some are bad, and some are just plain ugly. Many of the people making the comments are under the assumption that I am a burned out and jaded HerbaLife distributor. Others assume that I used to be a HerbaLife customer and the company’s products did not work for me. In fact, I am neither. Rather, thanks to what I've been reading and researching about HerbaLife, I am convinced that the company is nothing more than an elaborate pyramid scheme.
I wrote the original HubPages article “The HerbaLife Scam” after carefully reading and studying its business model. What I found out was shocking. First of all, HerbaLife’s 2009 corporate annual report boasts that the company has 2.1 million distributors in 72 countries, with annual sales of about $3.7 billion. At first glance, this would appear to be good news: $3.7 billion divided by 2.1 million distributors equals $1,761,904 per distributor. Unfortunately, such a number assumes that every distributor is paid equally from that $3.7 billion pot. The company’s own Statement of Average Gross Compensation of U.S. Supervisors for 2009 states otherwise.
To begin with, the Statement starts off with the sentence “Over 25% of Distributors reach the rank of Supervisor and above (“Leader”), qualifying them for additional compensation which is paid by Herbalife based upon the sales production of those they have sponsored directly and indirectly.” This means that a large percentage of the HerbaLife Supervisor’s annual salary is based not on how much product he or she sells, but rather on the number of individuals that are recruited to become Distributors themselves.
Reading further, I found the following statement: “The annual gross compensation paid by Herbalife to all Leaders during 2009 averaged $2,400. Over 46% of Supervisors are “Active” (defined as those who generated at least 2,500 points of volume in 2009 after becoming Supervisor). The annual gross compensation paid by Herbalife to Active Leaders during 2009 averaged approximately $5,100.”
When I first read this statement, I was dumfounded. $2,400?!? $5,100?!? If active “Leaders” were making such a pittance, then where was all the big money going?
The answer was provided in the next few calculations:
Earning Level % of Total Leaders % of Active Leaders Average Earnings (USD)
President’s Team 0.2% 0.5% $ 449,261
Millionaire Team 0.7% 1.4% $ 85,515
GET 2.4% 5.2% $ 19,470
World Team 2.6% 5.6% $ 5,064
Supervisor 40.9% 87.3% $ 478
Total 46.8% 100.0% $ 5,120
Apparently, life is pretty good if you find yourself on the President’s or even the Millionaire’s Team. However, if you are starting out as a newbie distributor, you’ll be lucky to make even the Supervisor’s compensation level. And even the number of distributors who make it to the Supervisor level is not that large: for 2009, out of 2.1 million distributors, the company’s annual report estimates that about half a million were “sales leaders.” So, not only do you have only a 25% chance of making it to Supervisor (or above) level, once you do “make it”, you have only a 0.9% chance of making a decent living wage on the President’s or Millionaire’s Team. However, your chances jump to 1.9% if you go about recruiting others. Let me ask you the following question: would you go to work every day, and work an average of 40 hours per week, if there was only a less than 2% chance of you making a real wage?
Taking a look at the numbers stated above, it does appear that the majority of HerbaLife distributors work for a pittance of what they could be making. Meanwhile, a small upper echelon that is able to recruit others to work below them makes a good sized chunk of the company’s earnings. I think there is a word for this type of arrangement: pyramid scheme.