How you can lose money in Multi Level Marketing by the example of Herbalife

by Rudolf Faix 20. July 2015 10:02

HerbalifeLike others I have calculated that you need to spend at least US$ 370 per month (US$ 4,440 per year) for keeping your membership active at Herbalife. According their own documentation only 1.39% of their members are earning more then they need to spend. Such a system is called "where everybody can succeed"!

At "HERBALIFE Life Changing Products and Business Opportunity" on page 28 we'll find the income disclosure from Herbalife: 

People become Herbalife Members for a number of reasons. A substantial majority (73%) (73%, based on a survey of former U.S. Members by Lieberman Research Worldwide, Inc. (“LRW”) in January 2013, with a margin of error of +/- 3.7%) join us primarily to receive a discounted price on products they and their families enjoy. Others wish to earn part-time money, wanting to give direct sales a try. They are encouraged by Herbalife’s minimal startup cost (at their option, a Mini Herbalife Member Pack [Mini HMP] at (USD) 59.50, or full HMP at (USD) 92.25 (Prices quoted are for the U.S. as of December 2014, and are subject to change. For current prices, see opportunity.herbalife.com), plus applicable sales tax, shipping and handling) and money-back guarantee (If requested within 90 days for the return of the HMP and one year for the return of resalable inventory, upon leaving the business). There is no need to purchase large amounts of inventory or to purchase other materials. In fact, Herbalife’s corporate policy discourages the purchase of sales aids, especially in the first few months of a Membership.

According to the above arguments is my opinion: You only need the right arguments for whitewashing a negative result and don’t trust any statistics you did not fake by yourself.  The start-up costs are small compared with staying active in the system. True to the motto "Hope dies last" many will pay the contribution and hope that at some point they will make some profit with the system from Herbalife. If someone has the possibility to earn more he will not say no to this possibility.

Let us continue at their income disclaimer:

PROFIT ON YOUR OWN SALES: One element of the income a Member can earn is the profit, after expenses, from the resale of Herbalife® products. Members decide for themselves the way they do the business, the number of days and hours they work, the expenses they incur and the prices they charge.

MULTILEVEL COMPENSATION: Some Members (20.1%) sponsor others to become Herbalife Members. In that way, they may seek to build and maintain their own downline sales organizations. They are not paid anything for sponsoring new Members. They are paid solely based on product sales to their downline Members for their own compensation or to sell to others. This multilevel compensation opportunity is detailed in Herbalife’s Sales & Marketing Plan, which is available to all Members online at MyHerbalife.com.
For the 13% of Herbalife Members who are Sales Leaders (Sales Leaders are Members who achieved the level of Supervisor or higher. See details on Herbalife’s Sales & Marketing Plan at MyHerbalife.com. 58.2% of Sales Leaders as of February 1, 2014, requalified by January 31, 2015 [including 41.2% of first time Sales Leaders]) with a downline, the average compensation received from the Company in 2014 was (USD) 5,456. These amounts are before expenses incurred in the operation or promotion of their business.

In the chart below, we summarize the economic benefits available to Herbalife Members in 2014. For most people (89%), the economic benefits resulted exclusively from a discounted price on products they purchased for personal and family use or for resale to others, neither of which took the form of a payment from the Company.

Herbalife Member Levels

The majority of those Members who earned in excess of (USD) 100,000 from Herbalife in 2014 had reached the level of Herbalife’s President’s Team. During 2014, 31 U.S. Members achieved the level of President’s Team. They averaged seven years as an Herbalife Member before reaching President’s Team, with the longest duration being 18 years and the shortest being less than three years.

If we take from the above chart the data then we see that from 554,353 members are only 7,695 earning more in the system from Herbalife than they need to spend (US$ 4,440 per year) - that are only 1,39% of all members! The bitter truth is that all others are only paying into the system.

The sentence "58.2% of Sales Leaders as of February 1, 2014, requalified by January 31, 2015 including 41.2% of first time Sales Leaders" shows additional how difficult it is to keep such a system upright and running. 83,6% of the experienced Sales Leaders before the year 2013 and 58.8% of the first time leader of the year 2013 failed to keep their level or reach their level again during the year 2014. That shows us the quality and or pricing problems of their products that they have too less returning customers.

 

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