It's been a month since the Herbalife FTC investigation was announced back in March 2014, and as the dust (and the share price) starts to settle, people are naturally asking if it turns out that after all these years Herbalife is a scam after all. It's not.
It's ironic that people are looking at the FTC investigation as proof that Herbalife is a pyramid scheme, when they are the same people that have been shouting about it for so long that it caused the FTC to open the investigation. You scream that there's a monster under your bed for long enough, eventually your parents are going to take a look. Them looking doesn't prove that it's there though, does it?
What Motivated The Herbalife FTC Investigation This Time?
This investigation is also heavily motivated by those that want to manipulate the Herbalife share prices. It's not the first time it happened. Something similar happened in 2012 when more hot air about Herbalife being a scam was announced, followed by a drop in their share price. Of course, the ones who announced it was a scam had already gone short on their shares, meaning they standed to gain massively if the share price went down.
That's what's happened here. Pershing Square has $1 billion riding on Herbalife's share price dropping, and it's not a surprise that it did. They've been accusing Herbalife of scam practices for over a year now, yet it seems they are the scammers in this case.
When you want a stock price to go down so you can make millions, going after a company that gets a lot of negative press is an easy move.
Enough background information.
Is Herbalife A Scam?
The reason I'm writing this post is that I'm perhaps the best person to answer the question of whether or not Herbalife is a scam. After all, I was a member for 5 years, I sold the products, I dreamed of the lifestyle I could create, and I watched the various unethical practices of some of the other distributors. I'd like to point out that the company itself is rarely at fault, but due to the fact it has an open-door policy, plenty of scammers join up, do some scamming, get kicked out of the company, and the company takes the blame.
Is it a scam? No, not at all. Not by a very long shot. Do some people use Herbalife to operate scams? Yes, definitely. They get found out and banned from the company, but that doesn't stop it going on.
People will always accuse this sort of company of being a pyramid scheme. That's not surprising, because pyramid schemes try to mimic the legitimate MLM companies. Amway, Avon, Herbalife, they've all been around since the 1980's or earlier, and while this generation might not accept it, the MLM model has been accepted for a long time. Nobody trusted Franchises when they first came out either, but look at McDonald's now.
So when you see a pyramid scheme like Empower Network, which just makes money off member dues, and the members just make money off recruiting others (illegal), then you look at a legitimate company like Herbalife, where the members make commissions from their down-line's sales and purchases, and often encourage their downline to order a lot of products (and make a commission in the process), it's easy to see blurred distinctions.
The distinctions are there though.
Herbalife isn't a scam, because you only make money from it if you make sales. If you recruit somebody to the company, you earn absolutely nothing. If that person buys products and sells products, the company gives you a commission. The idea then is that you recruit somebody, you teach them how to make sales, they make money, and you get a small commission from the company (not from your downline).
Of course, in order to qualify for the highest commissions, you need to have sold (or purchased) a certain amount of products. This is where the ethics often come in. Many people are “persuaded” to get themselves to the highest commission levels as soon as possible, so they buy their way there, which earns their up-line a commission, and if they never sell the products they bought, they leave themselves with a bad taste in their mouth.
Often, these are the ones who leave and cry foul. Most of the time they are just frustrated that they spent a lot of money and didn't make any profit. It's rarely an actual scam to get them to buy more products.
If you actually understood the Herbalife marketing plan, you'd realize that there's no real financial incentive in getting your downline to move up to the higher commission quickly. You would earn about $400 from this. That's a one off commission, and you probably won't earn anything more from that downline that year (or ever), until they've sold their products and need to buy more.
However, if you just told them to take it slow, and buy products when they need them, or when their customers need some, you could make about $100 or $200 a month every month. See? When people are telling you to buy bulk to move up to the next level, they're actually sacrificing a large chunk of commission.
I'll go more into the marketing plan in another post, but I just wanted to point out to many people that most of the time, they weren't scammed, they just bought into a dream.
High Pressure Sales Techniques?
I hear about this all the time. People saying that they bought into high-pressure sales techniques. For me, this is just most people's excuse for why they failed. I've been to plenty of the meetings. They aren't high pressure, they are just full of hype and spectacle. They show you testimonial after testimonial until you realize that anybody can succeed (either with losing weight, or with making money), and then they show you how easy it is to follow the methods and do the work.
You get so excited, that you buy into the dream, you sign up, and when people suggest you to buy a lot of the products in one go to move up to the next level, you are inclined to say yes.
Later, when you realize you may have wasted your money, you don't want to admit you made a mistake and got hyped up, so you say they used high pressure techniques. They don't put pressure on at all; you just want to believe them so badly.
Why I Left Herbalife
Despite defending the company and vehemently disagreeing that it's a scam, I still left. It wasn't for me. I wasn't able to make regular sales, and found that I was doing A LOT of work in exchange for little payout. This is generally the way MLMs work, and the idea is that after a few years of this, the roles reverse, and you'll be doing less work for larger payout. That's the nature of building a business.
Here's the thing though, for about 4 years in Herbalife, the most I ever earned was $100 or $200 a month. After 6 months working online, I was earning $500 a month, and now do this full-time. Herbalife might not be a scam, but it's also not the best way to make a living. It's difficult to succeed, and unless you are suited to the business, you'll be better off trying something else.
If you are like me, you want to take the time to build a business, but you don't have the stomach to sell things to your friends (or even strangers), then you ought to consider building an online business like me. Affiliate marketing is a great way to earn money online, and it's where I finally found some success.
Remember, Herbalife isn't a scam, but it's also not your best chance.