Update: Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices.
– Source FTC Chairwoman Edith Ramirez
In this post and video, I walk you through the reasons why Herbalife is a scam and a pyramid scheme.
Bizzare Claims by the Company
Are you ready to lead the life that you deserve?
Live The Good Life!
A generous compensation plan
A proven business model
A business opportunity for everyone
that’s Fun, Simple and Magical!
Exposing Their Reality
90-95% Failure Rate for Herbalife distributors.
“… more than 90% of our distributors that are not supervisors turned over.” – Herbalife 2005 Annual Report
7 Out of 10 New Employer Firms Survive At Least 2 Years – Source SBA
According to the U.S. Bureau of Labor Statistics the survival rate for a normal business is 54-61% after 4 years. http://www.bls.gov/bdm/entrepreneurship/bdm_chart3.htm
Top 1% of Herbalife distributors make over $6000
Must Recruit to reach this 1%
You can get a 25% discount by becoming a distributor, but you can get the same product for a 35% discount online without paying for a membership.
There is no point for anyone to join Herbalife for a product discount.
70% Rule: Must Sell 70% of your products to others.
It costs almost $3000 to become a sales leader.
$4,485 Average Compensation for 82,464 U.S. Sales Leader Distributors
2,321 Make Over $25,000 Out of 434,125 Independent U.S. Distributors
These numbers do not include sales of products to others or expenses.
Average retail sales per distributor: $1,047 per year. This does not take into account personal consumption. With personal consumption it is $61 per year. – Source Herbalife 10-K (2011) and factsaboutherbalife.Herbalife’s inflated suggested retail prices for its products mask the fact that the recruiting rewards earned by distributors vastly exceed their retail profits. The retail profits and turn over rates for all distributors is hidden by Herbalife at this time to defend themselves from investigation by the FTC.
Anyone considering an active distributorship needs to understand the realities of direct selling. It is hard work. There is no shortcut to riches, no guarantee of success.
The Herbalife scam is a product-based Pyramid Scheme.
One sign of a pyramid scheme is if distributors sell more products to other distributors than to the public — or if they make more money from recruiting than they do from selling. – Federal Trade Commission (FTC) Info on Multi-Level Marketing: http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv08.shtm
In 2011 Herbalife was ruled by a Belgian court to be a pyramid scheme:
The judgment of the court is that distributors in the sales network of Herbalife can get more profits out of the indirect profit payments, Royalty Overrides, and production bonuses which are calculated over the sale of products by those under them in the network than by the profits out of the direct sale of products to the consumer.
The consumer is in a way forced to become an independent distributor to then purchase the goods in the context of his enterprise and ‘use’ the goods as a consumer.
The “supervisors” apparently seek to expand the hierarchical network, by recruiting lower placed salespeople to realize profit from products purchased by these salespeople, rather than to drive sales to end-consumers.
This company is getting the biggest part of her profit out of the distributors who don´t make a high monthly turnover and who most likely resign after less than a year.
Herbalife cannot even answer the question by the court as to how many of its products are eventually sold to an end-consumer.
Herbalife has now won dismissal of this case against them.
“The fact that the earned remuneration is based on sales of products by other participants in the network, namely ‘downline’ distributors, does not constitute a violation” of the consumer protection and market practices law at issue, the appeals court said in its Dec. 2 ruling.
I do not agree that this dismissal means that the Herbalife scam is not a Pyramid Scheme. The vast majority of sales to downline distributors are exactly what makes this company a product-based pyramid scheme. What these companies do is hide payments into the pyramid with product sales to downline distributors and not to customers. This court and the FTC are allowing the Herbalife scam to continue. It is time for reform to come to this industry.
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