One of our readers recently asked us about a network marketing company called Shaklee. Here at The Finance Guy, we believe that you can't make money with MLM, but we still wanted to have a closer look. We decided to conduct a detailed review of Shaklee to find out how it works and if members are making money.
Shaklee has been selling their products through multi-level marketing since 1956. Now over 60 years old, the company has over 1.2 million members in 8 countries. They have grown to become a global company.
Shaklee makes a wide range of more than 200 products which include health, nutrition, weight loss, cosmetics and home cleaning. One thing we liked right away, is that the cleaning products are all environmentally friendly and biodegradable. Being eco-friendly is something we believe in.
What is the Shaklee Business Opportunity
We looked at the Living Well With Shaklee brochure, which is designed to explain to prospective recruits, how the can make money with Shaklee. The document starts by explaining how lots of small improvements will have a cumulative effect. In other words, life will get a lot better from all the small changes. They call this 'The Shaklee Effect'.
We've always said that reaching goals is about taking steps in the right direction. We are not sure how the Shaklee effect is in any way new or different. The brochure goes on to describe how you can apply this concept to improve your health, create more spare time, or become financially free.
There are three ways to experience the 'Shaklee Effect', which are 'use', 'share' and build'. When you use the products, you will experience the health benefits. When you share the products (by selling them to others), you can earn retail commission. When you build your Shaklee team (by recruiting others), then you will qualify for commission from their sales, as well as for other incentives.
How Do You Earn Money With Shaklee
To find out how members can make money, we looked at the Shaklee Dream Plan. This is there version of what most MLMs call a compensation plan, but it was redesigned and renamed in 2010. After reading through the 20 pages we think Shaklee looks just like any network marketing company.
There are 9 ways to make income with Shaklee, including retail profits. If you manage to sponsor enough new recruits within your first three months, you might earn one or more 'Power Bonus'. If you sell enough of specific products, you might qualify for a 'Gold Bonus'. If you achieve higher ranks within a short time, you might get a 'FastTRACK Bonus'. Like all MLMs, Shaklee wants you to start buying lots of product and sponsoring new recruits as quickly as possible.
Once you've started building a team, you will become eligible to earn Personal Group Bonuses. Each product sold by Shaklee has a point value assigned to it. In order to qualify for commission, you need to personally order at least 100 points worth of product per month. This can be either for personal use or for retail sales. We estimate that you'd need to spend around US $150 per month to stay active
To earn a commission in any month, you need a total group volume of at least 250 points (with at least 100 being purchased by you). At this level you will earn a 4% commission. As your team grows, you will be entitled to higher levels of commission. Your rank with Shaklee will also rise as your PGV (Personal Group Volume) grows. The commissions payable and ranks achieved are shown in the table below:
If you reach the rank of Director, you can earn the maximum 20% Personal Group Bonus. It is important to note that if someone in your team reaches the rank of director or above, their points will no longer contribute to your PGV. Not to worry though because there are still ways to keep earning from them.
Once you reach director, you have obtained the status as a 'leader with Shaklee'. There are 10 additional leadership ranks after director, which you can achieve with Shaklee, starting with 'Senior Director' and ranging all the way up to 'Presidential Master Coordinator'. In 2016, US Shaklee Leaders earned between $4,155 and $955,006 in annual commission payments.
The Shaklee leadership ranks are:
Senior Executive Coordinator
Senior Key Coordinator
Senior Master Coordinator
Presidential Master Coordinator
If you become a leader, (with one of the 11 leadership ranks), you will start qualifying for 'Leadership Bonuses'. This means that while you don't earn your 20% PGV from fellow leaders in your team, you will earn up to 6% of their entire group volume per month in leadership bonuses. It doesn't end there, you will also earn leadership bonuses from any leaders they sponsor. The Shaklee dream plan pays leadership bonuses up to 6 generations deep.
We found a presentation of the Shaklee business opportunity, posted by an existing Shaklee member. We used the explanation of the leadership bonuses shown in this presentation to create the table below:
Your earnings with Shaklee don't have to end at 6 levels of passive income! Once you have reached the rank of Senior Coordinator, you will qualify for the Infinity Bonus. With this monthly incentive, you can earn as much as 8% commission from the business of every sales leader in your down line. There is no limit on this bonus, it is paid on infinite levels
If 20% PGV bonuses, 6% Leadership bonuses and 8% Infinity bonuses don't sound good enough, then there's still more. As well as all the cash payments, you can also qualify for luxury holidays and cars all paid for by Shaklee.
Will You Make Money With Shaklee
It is possible to make money, but we believe that it's very unlikely that you'll turn a profit with Shaklee. While it is possible to make good money once you reach the higher leadership ranks, but Shaklee has not disclosed how many members reach this level. We suspect that like most MLMs, only a very small percentage of members will ever achieve significant levels of income.
For starters we look at all the money being paid by the dream plan. When you buy products from Shaklee, 20% of what you pay will go to the first director in your upline (and there may be others layers who get their respective PGV too). Then 34% will go toward paying the top level leader and infinity bonuses. 54 cents from every dollar you spend with Shaklee will go to leaders in your upline.
From the remaining 46 cents per dollar, Shaklee has to pay for producing and shipping their products, price in their own profits, sending leaders on holidays, paying for leaders cars, and in the event you qualify, pay you some PGV bonuses too. All these payments are included in the price they charge you for products. This leads us to believe that Shaklee products are expensive when compared to similar products offered by competitors
We decided to evaluate the Shaklee business opportunity using Dr Jon Tayolors 5 Step MLM evaluation. This test is designed to find out if new recruits are likely to make any money. We found that Shaklee raised all five red flags in this assessment. We will look at each of the red flags and why we believe they are a concern in more detail below
Red Flag 1 - Constant Recruitment of New Members
When you join Shaklee, you will be encouraged to recruit friends and family right away. The FASTTrack bonuses are designed to help get you recruiting immediately. To make money in Shaklee, or any MLM, you will need to convince people you know to buy the products. Not all of them will agree, and some will be offended. Inevitably, some of your relationships with these people will be damaged.
Another problem we have with the concept of endless member growth, is that in reality it simply doesn't work. It's like a perpetual motion machine, it sounds good in stories but in reality it is far from being a possibility. No matter how good a system is, it will eventually reach the point of saturation. As the number of participants grows, it will become increasingly unlikely that new members will ever turn a profit.
Dr Taylor found that 99% of participants in any endless recruitment chain, will lose money
Red Flag 2 - Promotion Through Recruitment
In order to reach the levels of Shaklee where it is possible to earn a good income, you will need to convince others to join below you, at lower ranks. This means that you can only succeed if there are enough people below you spending money on product. Many of these people will never turn a profit, some may even experience financial distress. In order to succeed in MLM, you will put others in financial difficulty.
Another problem pointed out by Dr Taylor, is that this creates what we call 'synthetic demand' for the products. You've probably never seen the products promoted without the business opportunity. Members are not trying to sell products to the retail market, they are focused on growing their downlines. If you've been introduced to Shaklee, or any MLM, was it to show you the products, or to show you the business opportunity?
Without retail consumers, the only source of profit becomes your downline. The Shaklee Dream Plan appears to be quite generous, but the money to pay for all these incentives, comes from other members. We calculated that more than 54% of funds paid by new Shaklee members is paid to their upline.
To us, the dream plan looks like a zero sum game, you can only make money if someone below you is losing it! The Shaklee Dream plan states that 'top Business Leaders make the lion’s share of their income from Leadership and Infinity Bonuses' In other words, most of their money comes directly from Shaklee members in their downline.
Red Flag 3 - Pay to Play
In order to qualify for any incentive payments from the Shaklee Dream plan, you will need to personally purchase at least 100 points worth of product per month. We had a brief look at the Shaklee Shop, and believe that this would cost around $150 per month. If you skip a month, you run the risk of forfeiting any accumulated points which may have converted into commission in the future.
They will refer to this as your personal consumption, but we do not agree. Unless you are already buying and using these products on a monthly basis, then whatever you buy will be an additional expense. You should also ask yourself, are you buying the products because you want to use them, or because you want to qualify for the incentive program?
Dr Taylor warns that pay to play can lead to hyper-consumption resulting in members buying more product than they can consume or sell. Eventually products start to get stockpiled as members fill their storage areas with unopened boxes of hopes and dreams.
Red Flag 4 - Most of the Rewards go to your upline
As a new member to Shaklee, your best option for making money is from retail sales. The dream plan states that you can make up to 36% in retail price differential, but this is less than the 54% minimum which is going to your upline in the form of incentive payments, car payments and prepaid holidays.
In order to make a retail profit, you would have to charge your customers a price which includes all your upline incentives and your own profit. This would make them very expensive compared to other products on the market. A common theme with most MLMs is that members see recruitment as the best option for making a money. Unfortunately this results very little money coming from outside your network.
Dr Taylor notes that the compensation plans of most MLMs results in extreme inequality of payouts, with a small number of members making money at the top, while the majority (he found to be 99.6%) lose money.
Red Flag 5 - More than 5 levels in the payout plan
Dr Taylor says 'Excessive levels in a downline is another sign participants are expected to sell primarily to their downline, rather than to the general public.This makes it an exploitative money transfer scheme, or product-based pyramid scheme'.
As we noted previously, Shaklee pays leadership bonuses up to 6 levels deep, and pays infinity bonuses... to infinite levels. These incentives have to be included in the price they charge members for their products. New members are paying higher prices so that their upline can go on holidays, drive new cars, and earn bonuses
Based on our evaluation of Shaklee, new members will struggle to make any money. Dr Taylor has personally evaluated several MLMs and has provided a list of those with 4 or more red flags. Shaklee is on his red flag list.
Is Shaklee an Illegal Pyramid Scam
Despite their close resemblance to pyramid schemes, multi-level marketing systems are legal as long as they are promoting a product or service. Furthermore we do not believe that Shaklee members are trying to scam new recruits into joining. It's more likely they themselves actually believe the hype and think that recruiting you is one of their steps to financial freedom.
The MLM business model is not illegal, but that does not mean that it's ethical. Like all businesses, network marketing companies turn a profit by selling goods and services. Unlike other businesses, MLMs charge a higher price for the added hopes and dreams of passive income and endless wealth.
Should You Join Shaklee
If your only reason for joining is to make extra money or start your own business, then we recommend that you thoroughly research all your options before taking any action. It is possible (yet unlikely), that you will make money from Shaklee, but it is also quite likely that you could have put the same time and effort into something else and made even more money.
If you are interested in benefits offered by the products, then we recommend that you start off as a customer. Buy the products and use them for a while. See if you are willing to spend $150 a month on Shaklee products when there is no financial benefit. If you genuinely like the products and are experiencing non-financial benefits, then this will be something you might want to share with others. In this case it might be worth recruiting a few friends, but don't be surprised if they are not open to the idea.
As always we welcome your feedback in the comments section below. We'd love to hear your thoughts and opinions especially if you can share some experiences you've had with Shaklee
For more posts like this, look at our list of mlm reviews.