Herbalife was first launched in Los Angeles in 1980. Today, it has expanded into a global company, available in over 90 countries. Herbalife is one of the largest multi-level marketing companies in the world. If you've seen the word 'Herbalife' at a promotional stand, or on a t-shirt, or anywhere else, then it's quite likely that you live in one of the many countries where Herbalife is active.
If you've met someone who has joined Herbalife, then it's quite likely they invited you to 'see the opportunity' and become a Herbalife distributor. I have personally been invited more than once. I even went to one of their promotional seminars but I decided not to join Herbalife.
Herbalife uses network marketing to promote their line of nutritional products. Like all multi-level marketing companies, Herbalife offers a business opportunity to anyone who is willing to give it a try. The idea is you use the products and tell other people to use them too, once your friends start telling their friends, you'll be earning enough income to be financially free. Sounds pretty simple, but at The Finance Guy, we believe that you should not join Herbalife because making money with mlm is very difficult.
Why Do Herbalife Members Want to Recruit You?
Like all direct marketing companies, the key to financial success in Herbalife, is in building what they call a 'down line'. The strategy is to invite anyone and everyone you know to join under you as a Herbalife distributor. The more you recruit, the bigger your team gets, which theoretically results in you earning more money. In theory, all you have to do is tell a few friends, and have them tell their friends. In reality, making money with Herbalife, is extremely difficult
Making a profit from Herbalife is far more complicated than simply inviting a few friends to become distributors. Herbalife, distributors need to remain active by generating their minimum quota of annual Volume Points (VP). Each Herbalife product has a VP value, so the more Herbalife products you and your down line purchase the higher up the chain you will rise. Buying more product also qualifies you for larger discounts on the prices. (the top discount is 50% off the recommended retail price). To remain active, you have to buy a minimum quota of Herbalife product. If you fail to generate VP, then you become 'inactive', and forfeit any future commission your team might have generated for you.
The presentation I attended claimed that this is a business for everyone because 'you don't have to be a salesperson to be successful in Herbalife'. If the distributors aren't salespeople, then what are they doing with all that Herbalife product they have to buy just to qualify for commission? To make money with Herbalife, you will have to buy a lot of Herbalife products, and convince everyone in your down line to do the same.
How is Herbalife Promoted to New Members
If you attend a presentation, as I did, Herbalife distributors will tell you that they are offering you an opportunity for financial freedom. They will focus on dream building, telling you to imagine a future of luxury and financial affluence. They'll claim that in a few years you can have enough 'residual income' to finance your wildest fantasies. What they forgot to mention is that all the money for this dream lifestyle, comes directly from the people recruited in their down line.
The person who recruits you, and quite a few people above them in their 'up line' will enthusiastically tell you the importance joining right away, and buying your Herbalife Member Pack (HMP). They will tell you that to become financially free, you need to understand 'duplicating' and 'being a product of the product'. This is their way of telling you that you need to spend money on Herbalife products, and you need to do it right away. They conveniently don't mention that: If you don't spend money, they don't make money.
Not all Herbalife distributors will invite you to attend a promotional presentation, some will offer to visit you at home to 'show you the opportunity'. Some Herbalife distributors, won't even meet you in person, they prefer using the internet to recruit new members to their teams. We looked at website created by Herbalife members Willem and Sune Kilian, of Team EZHealthBiz, (Team EZHealth), which purports that 'you can make money with Herbalife'. To get an idea of how Heralife is promoted by existing members, we decided to compare the claims on their site with our own streetonomic look at Herbalife:
Is Direct Marketing Better Than Traditional Marketing
Team EZHealth claims that it is 'well known', that people using Herbalife products are getting 'amazing results'. They then show you a few photos of famous athletes, before telling you that you can't buy Herbalife in shops. If you want 'amazing results', and want to be more like the athletes in the photos, then the only way is to join Herbalife, and buy lots of product!
This is a strategy common to most multi-level marketing companies. They show you a product you've never seen before, then claim that the products are better than anything sold in shops because someone famous agreed to receive money so the company could use their photo. Then they'll explain that the company chose direct marketing as the most effective way to deliver products to their consumers because it 'cuts out the middle man'.
We could not find any research to substantiate the quality of Herbalife products. We did however find a post by ancestral nutrition, which is run by a certified nutrition consultant, who completed an unbiased review of Herbalife products. Based on the ingredients in Herbalife products, Ancestral Nutrition described Herbalife products as 'not healthy', 'contain MSG' and 'support genetic modification of food'. Would you buy a product if it sponsors some athletes but a professional in the nutrition industry found it to be: not healthy, containing MSG and genetically modified
Why is Herbalife Not Available in Shops?
This question is not addressed by team EZHealth, but in the handful of MLM presentations we have seen in the past, they generally claim that it is 'cheaper to sell directly to customers'. We believe that selling directly to customers is not cheaper than using traditional shops. While there may be savings on advertising costs, nobody will buy what they don't know about. Companies pay for advertising and promotions because they work! The only way you hear about MLM products, is from MLM members, we do not believe this is an effective promotional strategy.
Promotions aren't the only area where direct marketing falls short, there is also the problem of logistics. Recruitment events for multi-level marketing companies usually claim that it is 'cheaper to sell directly to customers'. This is another unproven claim made by several MLM companies. The presentations claim that sending out over a million small packages to houses all over the world is cheaper than sending less than 10,000 crates to large supermarkets who could distribute products internationally. The claims made by MLMs does not make logistical sense
Do All Herbalife Distributors get a Discount?
Another misconception common to the MLM industry, is that signing up entitles you to a discount. EZHealth claims that 'only registered Herbalife members, may purchase Herbalife products from Herbalife'. They go on to claim that 'the minimum discount is 25%'. We believe that this is an aritificial discount. If the only way to buy Herbalife, is to be a member, then nobody pays more than the 25% discount. However time and freedom found that even after the alleged discount, Herbalife products are more expensive than their compeitors. If nobody pays more, are you getting a discount?
Does Herbalife Pay Most of Their Turnover to Distributors?
According to EZHealthBiz, Herbalife pays 73% of their turnover back to distributors. As a publicly listed company, Herbalife (HLF: NYSE), is required to release their financial data to the public. We looked at the Herbalife finacial statments and found that in 2014, Herbalife paid 29.67% of turnover to distributors and in 2015, they paid 28% of turnover to distributors. Maybe EZHealthBiz ends up with a return of 73% on their own purchases, but on average, Herbalife is paying far less than that
We are not saying that EZHealthBiz is lying, but in their own post about the Herbalife compensation plan, they only mention a maximum payout of 50% (if you are a supervisor and have new recruits paying Herbalife full price). But that can only really be 33% because the first 25% discount is artificial as nobody pays Herbalife full price.
In our research, we found no proof that Herbalife is paying 73% of their turnover to distributors. We did however find 73% in the Australian 2015 Herbalife Statement of Average Gross Compensation, which claimed that a survey found that '73% of former US Herbalife members', joined Herbalife so that they could buy the products cheaply. If they did want to gain access to cheap Herbalife products, then we have to ask 'why are they former members'? Maybe buying from Herbalife wasn't so cheap after all.
Can You Make Money With Herbalife?
According to the Kilians, making money with Herbalife is simple. All you have to do is join Team EZHealthBiz, buy Herbalife products, and then tell all your friends and family to do the same. In our own research we found that it is very difficult to make money with MLM. We decided to take a closer look, to find out if Herbalife distributors are following this alleged pathway to passive profit.
According to the Herbalife sales and marketing plan, there are 7 possible ways for distributors to earn income from Herbalife. These include finding your own customers and selling product at a retail profit, as well as qualifying for all sorts of incentives once you've purchased enough Herbalife products. We believe that the retail margin is the only way new distributors can make money from Herbalife.
We looked at the Herbalife 2016 Statement of Average Gross Compensation for USA, which showed that in America, more than 6 out of 7 Herbalife members, did not sponsor any new recruits, and did not receive any incentive payments at all from Herbalife in 2015. That means 86% of Herbalife distributors made no revenue other than the retail margin. Herbalife does not monitor or record retail profits made by members, so it is unknown whether or not these members made any money at all.
How Much are Active Herbalife Members Earning?
According to their income disclosure statement, 98.6% of all Herbalife distributors in USA, were paid less than $5,000 during the year 2015. Does this mean that something is wrong with Herbalife, or is it just hard to make money with Herbalife in America? To find out we also looked at the Australian Herbalife Statement of Compensation, which shows a similar picture. In Australia 2015 was also not a good year, 98.5% of Herbalife Distributors earned less than $2,500 for the year
Can You Build a Down Line with Herbalife?
If you want to be part of the 1.5% of Herbalife distributors who earn more than $100 a week in commissions, then you need to recruit aggressively and build a large down line. But your job doesn't end at building the down line. You also have to maintain it. Like most MLMs, Herbalife has a very high churn rate. So you will have to recruit new members to replace the ones who quit every year
We looked at the the 2015 Herbalife Annual Report, which states that 48.5% of Herbalife members quit the business in 2015. Herbalife was happy with this figure because the total number of distributors grew by just over 5%, which was a 'record result'. This means that only 1 in 20 distributors grew their down line in 2015, and this was a record result! If you try to build a business with Herbalife, then you should expect half your down line will quit every year, and your team will grow at less than 5% per year.
Should you Join Herbalife?
If you are looking for an opportunity to make some extra money, then Herbalife is probably not going to work out so well for you. While their presentations may claim that they offer the secrets to a future of financial freedom, their own data shows that less than 2% of Herbalife Distributors are paid more than $100 per week, and this does not include the time, effort and expenses they incurred buying Herbalife products attending Herbalife meetings, and promoting the opportunity
While there may be 7 ways to earn income from Herbalife, we found that retail profits are not reported. To be eligible for the other 6 streams of revenue, distributors have to buy a minimum amount of Herbalife products every year. We calculated that, for most of them the cost of these products outweighs any commission they were paid. The numbers show us that unless there are retail profits, then over 98% of Herbalife distributors are losing money.
If like 73% of Herbalife members, you want to join just to get access to cheaper products, then we suggest you shop around first, and seek advice from a nutritional expert. Don't sign up just to try the products at a discount. You should not join Herbalife unless you are already using their products.
Our final say
It is possible to make money from Herbalife, but it's very unlikely. As we have seen from their own numbers, only a very small number of members will make a significant income. After expenses, the majority of members are losing money every year. We are not saying that the people who promote Herbalife as a path to financial freedom are intentionally trying to mislead you, but the data shows that people are not making money in Herbalife. This could explain why almost half the members quit Herbalife every year
As always we welcome your feedback, and would love to hear from you in the comments section. Specially if you can share your own Herbalife stories with us