Herbalife, as we all know by now, has been subject to attacks by the famous hedge fund manager Bill Ackman for a long time. According to him,
1) Herbalife was nothing but a pyramid scheme,
2) For that reason, its business could not be sustained,
3) Thus, its share value would go down to “zero” in a short while.
The company Bill Ackman talks about has been in business for 35 years, is now operating in 91 countries and has a yearly sales volume of close to $5 billion.
As a response to Bill Ackman’s accusations, Herbalife has been disclosing its distributor profile and their earnings for the last few years. It is not common for direct selling companies to report such information in much detail which is understandable due to confidentiality reasons. This 2014 report we will review here covers only the distributors in the U.S. but Herbalife issues the same report for many of its markets as well and the general picture is not very different. I believe the general picture is not very different in other direct selling companies, either.
According to Herbalife, a substantial majority (73%) of its distributors in the U.S. have no expectations to make any money. They “primarily join us to receive a discounted price on products they and their families enjoy,” reports the company.
Moreover, 80% of Herbalife’s field organization have not recruited anybody in their lives. This brings us to the fact that only 20% is one way or the other, looking for full-time or part-time income. Those who has no downline figure has significantly come up from 73% (2012 figure), as an interesting fact to note.
The report tells us that 89% of Herbalife distributors in the U.S. did not receive any commissions payments from Herbalife in 2014.
From here, we come to the actual earnings from Herbalife:
• In 2014, 205 Herbalife distributors received payments in excess of $250,000. The average earning in this group is $640,000. This is really something! But this group represents only 0.3% of those with a downline.
• 508 people earned between $100k – $250k. This group is 0.7% of the total.
• 41,393 (58%) of those with a downline made less than $1,000 in 2012. Average income for this group is $299/year.
• In 2014, the Herbalife members with a downline received $5,456 on the average.
Looking at these statistics, I think we can answer two important questions confidently:
1) Is it possible to make really high income through direct selling?
Answer: Yes
2) Is everybody earning a high level of income?
Answer: No
For further reading on this, you might want to have a look at Herbalife’s “Statement of Average Gross Compensation”.
