I have researched multi-level marketing companies for nearly a decade. During that time, I came to the conclusion that the vast majority of participants fail. What does that mean? 99% or more lose money. Since the participants are largely getting in because of the “business opportunity” to “earn unlimited income” and find “financial freedom,” failing to turn a profit is indeed a failure.
A few weeks ago, a wonderful article on Herbalife was published on Seeking Alpha. It started out by discussing hedge fund manager John Hempton’s blind (and incorrect) defense of the Herbalife business model. In essence, he claims that since meal replacement shakes are sold, this is a legitimate business opportunity.
This is the defense that every MLM company uses. “We have a product. People buy it. Therefore we are not a pyramid scheme.”
Sadly, the product is merely the “front” for the scam. The product is required to make the “opportunity” look legitimate. It is plausible to the average consumer. Buy a product for X, sell it for more than X, and you have made a profit! What the MLM companies won’t tell you is that very little retailing to third party customers happen. Distributors purchase large amounts of product, mostly for personal consumption or to meet minimums required to qualify for commissions. But sales to actual third party customers are low, and that is why most participants lose money.
The best part of the Seeking Alpha article was this graphic (click to enlarge):
According to this graphic, between 2007 and 2014, Herbalife recruited 9.4 million distributors. That sounds great…. until you consider that 7.4 distributors quit during that same time period.
Why do you suppose those people quit? Was it because they were successful? Was it because they were making money? Or was it because they were losing money and realized that this “business opportunity” is worthless?
Multi-level marketing companies never talk about their churn rates, because they tell the truth about these scams. During this period, Herbalife had:
- 11.1 million people participating (1.7 million at the end of 2007 plus 9.4 million recruited)
- 7.4 million people quit
- 66.7% of participants quitting (7.4 million divided by 11.1 million)
Of course, MLM defenders will cite failure rates among typical small business owners. The most common statistic I see is that 80% of small business owners fail… except that statistic is fictitious. There is no substance to it. It is completely made up, but often quoted.
The truth is that failure rates in MLM are much higher than in normal businesses. Why? Because of the futility of it all. MLMs are legalized scams in which almost everyone will fail. It’s only a matter of time before the distributors give up. It is not because they didn’t try hard enough, or do the right things, or stay in the “business” long enough. They are almost guaranteed to lose money, and eventually they quit.
This, my friends, is the essence of why Herbalife (and every single MLM) sucks.
I can’t believe this company still exists, but just the other day driving around Sacramento I saw a car with a distributor sticker. I know people are desperate and will shill just about anything to make a dime, but these kind of things ALWAYS cost the poor souls more than most of them will ever make. I was randomly checking to see if you were still around. My old blog was written about on here once upon a time.
Good article. What you say it true. MLM defenders will state that they sell products. But in Herbalife’s case, they do not even track retail sales because they felt it is not important. The entire opportunity is a scam and I also believe that Amway is no different when you take away the façade. I hope the FTC takes the side of the consumer for once and shuts down the scam. If not, in the future, we will hear about how Herbalife set the example of a legitimate MLM etc, etc. All the same garbage we hear about Amway.
I am reading this article with interest and don’t know what to think. I am currently with [SCAMMY MLM], and despite 4 plus years of struggling, I have really not made much headway. I do love their products and use them, and did before I ever became a coach, their term for the rep. And to all appearances, there are many who are doing very well, but I am sure that they have huge downlines. I was thinking of focusing on retail since I seem to be horrible at recruiting and began some research. Hence my landing here. Have you looked at the [SCAMMY MLM] model at all? I would be curious to hear your take. I hate to think I’ve been hoodwinked, but I just don’t know anymore.
Terri – All MLMs are the same crap. And almost all distributors lose money.
So there’s not a single one that passes muster, then? My question would be, how do we explain the seemingly large numbers of people, in my particular business, that appear to be having success? I think that’s what makes it hard is that there are just enough who appear to be making it work very well, that it tends to keep you hanging in there, trying to see if you can do it. I don’t consider myself a stupid person, or particularly gullible, but it does shake my confidence and makes me wonder at my ability to smell a rat. Why, if they are so damaging to so many are they legal? Sorry. Just lots of questions here. 🙂
Terri – The key word is “seemingly.” There are not large numbers having success. More than 99% of people lose money in MLMs, and there is no such thing as a “good” MLM.
Thanks for your replies. I have been slowly coming to this conclusion, but the hard part is — well, where do I start? Feeling duped? Feeling like an idiot? Feeling like I’ve wasted a number of years on something I shouldn’t have. I did just well enough for it to seem like a viable business, but never have been able to expand beyond a certain level and now feel unsure of how to proceed. I’ll figure it out. Thanks for your article and timely responses.
[…] Multi-level marketing companies that advertise shakes and potions designed to help you lose weight and get healthier are generally all guilty of the same offense: Distributors making false health claims. The products are generally terrible for losing weight and maintaining the weight loss. And the health benefits are nothing more than one could get from eating well and taking a simple multivitamin. […]
The problem is Terri, that many people no sooner start using many of these products than they start trying to sell them ,and their two main selling points are how well they’re doing on the products, and how well they’re doing out of he business of selling the products. I have a friend who has been using and distributing one of these weight loss products for a couple of years now (it may or may not be herbilife) and if you were to follow her on Facebook (her main marketing tool) you would believe that she has lost a heap of weight on these amazing products, her skin looks unbelievable, she feels better, has so much energy etc etc etc, and she makes a heap of money working from home for a wonderful company who values her as a person, helps her to develop as a businesswoman and seeks to reward her for all her hard work. I don’t talk to this particular friend all that much, but a while ago I was, and she confided in me that she “wasn’t doing very well with it” read: making no money, and that she just had to “try a bit harder” because so and so (whoever roped her in in the first place) makes “so much money out of it”. Now I don’t know if so and so does make money out of it, possibly she got in early enough to have a massive downline and is very good at constantly roping in new people, or possibly she isn’t and its all part of the smokes and mirrors routine to rope in more believers. But I think you have to seriously consider the possibility that many of these people wi”unlimited income” from this rubbish are really just talking wishful thinking. I’ve never been to one of their interstate/overseas bells and whistles conferences and seminars that this friend attends religiously, but I’m sure a self talk/self actualisation mentality is all part of the sell also.
[…] A prova de que a Herbalife não presta […]
I left herbalife a month ago i am so happy, i lost alot of time and money i am not happy about loosing my friends and looking silly infront of my family members. This was truly an eye opening experience for me. Everytime i see a herbalife distributor i turn the other way! No point in talking to these people since they are trained not to listen and keep them supporting the very same company robbing them of hundreds of dollars. Sad.
Herbalife targets low income people, latinos, illegal immigrants and people who are easy to manipulate. These people believe in anything and they will work, push and push for them because they have been sold the american dream and a real buisiness opportunity.
I live in the state of Washington and i am latina. Former Herbalife distributor.
What about the distributor that have nutrition clubs?