You may have already seen those mysterious flyers and placards which dot neighborhood roadways, announcing “Work From Home”, or “Lose 30 lbs Now, Ask Me How!” Some states (like Maryland) seem to be permeated with those offers, which are impressed onto every available electrical pole or even fire hydrant.
One thing you may not have noticed is that the phone numbers or Web Sites leading to the offers themselves are all the same. Where do they lead, exactly? To a company called HerbaLife.
I briefly toyed with the idea of starting a HerbaLife business back in my younger, more innocent years- before the over-insistent, increasingly desperate HerbaLife saleswoman drove me away from the company. I also have a friend who sold HerbaLife products for about a year before quitting. This experience, plus my friend’s story, made me ever more curious about company and the real nature of its business. I did a little research and here is what I found out:
Founded in 1980 by Mark Hughes (who, incidentally, was found dead at age 44 of a probable drug overdose), HerbaLife is now in its 28th year of business. The company claims over 1.8 million distributors in at least 66 countries. It’s even listed on the New York Stock Exchange (NYSE: HLF). The company claims annual gross sales in the area of $3.5 billion (for fiscal year 2007).
What products does HerbaLife sell? As its name suggests, HerbaLife specializes in selling various nutritional and vitamin supplements. One can purchase protein shake mixes, minerals, herbs, weight loss products, power bars, and the like. However, one can’t just buy the products; one has to become a distributor of them. What exactly does that mean?
The company operates on a basic multi-level marketing (MLM) plan, meaning that private individuals become distributors (sellers) of the product and then promote others to become distributors under them. Depending upon just how many sub-distributors one has, profits increase accordingly. In other words, as you gain more sellers under yourself you rise up the ranks, garnering in more and more residual income from those below you who are doing more and more of the grunt-work.
It costs around $220 to join up and become an HerbaLife distributor- the aforementioned money pays for your enrollment fee, your introductory pack of product, as well as some product for yourself (distributors are encouraged to partake of the company’s product as well as sell it).
HerbaLife promises unbelievable earnings from the sale of its products, as much as $1500 per week for working part-time and $5500 per week for full-time work. However, what the company does not tell you is that only 1% of its distributors make 85% of the company’s gross sales (and likewise its profits). The remaining 99% of the distributors are fighting to make the leftover 15% of gross sales.
What does that mean? Let’s do some math: when you have 1,782,000 distributors (99% of 1.8 million) fighting over a measly half billion dollars (actually $525,000,000, or 15% of 3.5 billion), you get a grand total of $294 in annual sales per person! That’s not pure profit either because it does not take into account the amount of money required to invest in the business and buy the product.
Sure, you might get lucky and land yourself in the 85% gross sales area. But that’s a pretty big gamble to make with $220.
Then there is the time and additional money investment. HerbaLife distributors are “encouraged” to attend weekly or even twice-weekly meetings with HerbaLife higher-ups in order to buy still more product and to receive “encouragement” along with marketing strategies.
Even given these already negative points to HerbaLife, there are three additional problems with the company and/or its product:
1. Market over-saturation. Why pay $30 for a bottle of HerbaLife vitamin pills when your local grocery store is running a $5.99 special on multivitamins? Now, maybe HerbaLife has better quality pills and supplements compared to big name stores, but even a trip to your local Whole Foods store will undoubtedly give you a better price on all natural, high-quality supplements. Unfortunately, HerbaLife never assesses local market conditions when recruiting new members. The subject of whether these health products will even sell in a certain township or city is never brought up, despite the weekly “pep-talk” meetings.
2. Greed. The distributor that I dealt with when considering my own apprenticeship in the HerbaLife empire left me with the indelible taste of corporate greed that I did not like. However, you can’t really blame the distributor. After all, she had a deep-seated interest in signing me on to become a distributor: to make back her initial investment! In the push to make back their money, many distributors don’t even consider whether their would-be apprentices will manage to sell the product, dooming them to the same fate of outside recruitment. This easily spirals into a vicious pyramid scheme of distributors selling distributors, yet with no actual product being sold. This also brings up the question of how much of the $3.5 billion company sales figure is made up of sold distributors, not sold product.
3. Bad publicity. HerbaLife gets a lot of heat from the press and other news organizations for being a pyramid scheme. Hundreds, if not thousands, of dissatisfied ex-distributors are making their cases for the company being nothing but a big scam. With such bad press, it is little wonder that folks everywhere are sweating to unload their product even at cost; as of this article posting, Ebay reports at least 1300 listings for cheap HerbaLife products.
In conclusion, while you can choose to take a chance on HerbaLife and its brand of health products, your money might be better spent looking at more solid business models- like the lottery! Hey, $220 can buy you quite a few lottery tickets...
