Losing Money in Herbalife

I talk frequently about how almost everyone loses money in multi-level marketing schemes. Companies like Mary Kay, Herbalife, Amway, and Avon want you to believe that money is being made from retailing the products. They say they are not pyramid schemes because they have legitimate products that can be sold for a profit.

Unfortunately, almost no one profits from MLMs, and certainly not from the sale of MLM products. Why? Because there is only a tiny market for bona fide retail sales. Very little actual retailing of products occurs. The vast majority of the “product sales” are from the MLMs to their distributors, rather than third-party consumers.

But the companies have a vested interest in getting consumers to believe their lies. If consumers didn’t believe the products were being retailed, they’d never sign up as distributors. Oh sure, some retailing goes on. But it is a very small amount, and is usually not at full retail price. Mary Kay says it’s simple: Buy a product for $1 and sell it for $2. You’ve doubled your money! But it’s nearly impossible to sell at full retail pricing, especially when tens of thousands of products are being dumped on eBay at or below wholesale pricing.

But how much do MLM distributors really lose? Some lose hundreds of dollars, while many lose thousands of dollars. Today our beloved Salty Droid posted a document I’ve never seen before. It documents the losses of more than 2,600 victims who participated in a settlement of a class action suit against Herbalife International. The claimed losses total almost $20 million, and this is only the losses related to a “Newest Way to Wealth” promotion scheme (materials, videos, audio tapes, and telephone conferences purchased by the distributors), and doesn’t appear to even include other losses (such as fees paid to Herbalife, products purchased but not able to be sold to customer, other “business” expenses incurred as a distributor).

SaltyDroid sums up the situation nicely:

Only the owner of the MLM makes fat monies. A select group of distributors :: often selected before the launch of the scam {as is happening right now with Rippln} … will be designated to have flashy cash flows so they can shill their massive success to the masses … but they’ll only be netting decent money {think lawyer or doctor type wages} because of the high cost associated with lead production. This mostly closed group of top distributors are then allowed {although usually not formally} to sell “this is how you can succeed at MLM like me” frauducts to the people in their downline.

Selling “how to succeed” frauducts that cost many multiples of the underlying MLM front product :: is how most {if not all} top-level distributors ultimately do succeed at bringing home the fat monies. The lawsuit explained it like this …

[T]he use of Lead Generation Systems was consciously intended by Herbalife and its senior distributors (a) to permit senior distributors to use more aggressive promotional materials and methods than those previously utilized and approved by Herbalife, (b) to provide Herbalife with a plausible defense (i.e., the “over zealous distributor” defense) in the event of regulatory problems with the distributor-generated promotional materials, and (c) to enable senior distributors to supplement their income through the sale of promotional materials to their downlines, and thereby provide an additional incentive for senior distributors to remain with Herbalife.

Scroll through the list of victims, and see how many lost thousands of dollars to the Herbalife promotional scheme. Be aghast at how many lost tens of thousands of dollars. And don’t ever tell me that multi-level marketing is the way to financial freedom.

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Comments (6)

  • Wyrd

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    Good post.

    Reply

  • Ann Davis

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    Therefore, if someone with an MLM claimed to be making $40,000 a month and they did NOT join in the very beginning……we could guess it is unlikely?

    Reply

  • Tracy Coenen

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    It is not impossible, but very unlikely. Remember this: false earnings claims are rampant in MLM.

    Even more important: Even if the person IS bringing in $40k per month, it is because his downline is LOSING even more than that each month. This is not a business. This is a money transfer. It comes out of the downline’s pocket and goes into his.

    Reply

  • Joanne

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    Ann’s comment above may well be referring to recently published product advertising claims about Mckmama making *$40,000* a month with Xyngular … so I would assume the possessive pronoun “his” in your reply could translate to “HER” in this case!!

    Reply

  • Tracy Coenen

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    Joanne – Jennifer McKinney (Mckmama) claimed to be making $30k per month. Most likely she made that ONCE. If you carefully listen to these claims, you will see that they IMPLY that they make that amount every month, but the words indicate that they really got ONE check for that amount.

    I think JM is making a lot of money from Xyng, but here are the concerns:
    1. It is not consistent
    2. She makes no mention of her business expenses that have to be paid out of that money. And the expenses are substantial when you are that high up in the pyramid.
    3. She is likely spending a LOT of money on products. She is probably “buying production” every month to hit certain thresholds to qualify for commissions. That’s nice that she gets extra commission, but a lot of that extra money is just plowed back into product purchases.
    4. Proof that she’s buying a lot of products???? The fact that she’s always advertising free boxes for people who do this or that. The fact that she is selling and shipping products. There is NO NEED for a distributor to ship products to people. Customers order directly from the company and the distributor gets credit for the sale. The only reason for a distributor to sell directly and ship products is because she has a stockpile of products she’s trying to get rid of.

    Reply

  • peter

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    Hi Tracy,

    nice blog about herbalife fraudes,

    Let me tell you how i came in contact with herbalife..actually i had a relationship with a woman who was a member of a presidents team (she and her ex husband build it in about 10 years of herbalife)
    what i saw was not that nice … they were actually just recruiters all their friends ,family were pulled into herbalife. And of course the presidents earned about 15 K € a month. On the back of family and friends …afcourse they showed their friends the nice home, the pool,the cars and the nice travels al over the world.
    actualy herbalife has all the features of a sect.
    I sure hope that testaankoop (Belgian consumer organisation) who won the lawsuite (but herbalife did go in appeal) will be able to stop these fraude but those things takes years
    for the record the relationship did go down because i didn’t wanted to get involved with herbalife

    Reply

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