Herbalife affiliates continue to earn on recruits through loophole
Enforcement of Herbalife’s settlement with the FTC is certainly one of the more bizarre episodes of MLM regulation I’ve seen.
As part of the settlement, Herbalife agreed to “restructure” their business. And a big part of the restructuring was only paying commissions on actual retail sales going forward.
Considering retail sales volume was negligible to the point the FTC felt confident suing the company prior to the settlement, surely post-settlement Herbalife’s US MLM operations would be in trouble?
Post enforcement of the settlement last May, Herbalife’s US revenue has fallen only by single digits quarter on quarter.
Outside of the stock market investor environment, this has led to speculation as to how Herbalife have curbed what should have otherwise been a dramatic decline in sales volume.
I might not have published anything on it myself, but this is certainly something I’ve personally wondered about.
Herbalife’s FTC settlement also saw the appointment of an Independent Compliance Auditor, to ensure adherence to the settlement terms.
In terms of public information, all we’ve been given is a hilariously redacted compliance report dated July, 2017.
Now, through a recent conference call, an explanation for Herbalife’s US sales revenue has surfaced.
Turns out Herbalife’s US affiliates have been fudging their retail sales figures.
Earlier this week Herbalife management informed affiliates that the Independent Compliance Auditor, was making changes to “documented volume” in Nutrition Clubs.
Presumably following an investigation, the Auditor found Nutrition Clubs were being used to fudge commissionable sales volume reported back to Herbalife.
Affiliates were doing this by recording recruited affiliates of other Herbalife affiliates as their own retail customers.
E.g. You and me are both Herbalife affiliates. You recruit John and I recruit Mary.
John and Mary buy Herbalife products to generate sales volume.
Under the FTC settlement I can’t record Mary’s purchases as my own commissionable volume because she’s an affiliate.
Likewise you can’t record John’s purchases for the same reason.
As per the discovered loophole, you record Mary’s purchases as personal retail volume and I do the same for John’s purchases.
Given the personal nature of affiliate recruitment, it’s easy to see how groups of affiliates working together to circumvent the FTC settlement could impact Herbalife’s US sales revenue figures.
And of course prior to being informed by the Compliance Auditor, Herbalife management had no idea this was going on.
In a memo sent to distributors after the call, Herbalife explained:
While we understand that these may be genuine consumptions, sales to another Distributor do not count toward Documented Volume to earn.”
As of May 1st, Herbalife affiliates will no longer be able to use the loophole to record fake retail sales volume.
Whether this will reflect Herbalife’s true retail figures going forward remains to be seen. Who knows what other loopholes affiliates might be using.
Christine Richard of Orion Research claims to have documented Herbalife affiliates buying product from other affiliate’s Nutrition Clubs since September, 2017.
Opines Richard of the May 1st changes;
If distributors can’t count on each other to boost their “documented volume”, then it will no longer make sense for them to run all over town drinking shakes.
If distributors stop being each other’s retail customers, then they are going to start falling short of the documented volume they need to earn commissions and advance in the marketing plan.
Then, the whole Nutrition Club business won’t make much sense anymore.
Despite submitting a number of memos documented evidence of settlement agreement breaches, to date the FTC appears to have done nothing.
Can we get some, y’know… actual enforcement of the Herbalife settlement perhaps?
Oh dear. Guess they’ll have to resort to telling their recruits to put their orders in the name of their mum or their partner like everyone else.
“It’s just a silly rule hun, don’t worry about it”.
So the whole idea of you know “SELLING TO REAL CUSTOMERS” is just a crazy idea?
If they put that much energy into that than trying to exploit loopholes maybe they would have all the proof they need.
The whole concept of “customers” has almost vanished from the entire industry.
All these company’s just tell their reps to go out and sign up other reps, who end up purchasing the products and fuel “sales revenue”.
The industry would be so much better if reps were taught to go out and sell their product or service without having to sign up people into the business as well.
I agree with skye. Retail Sales should bè more profitable than recruit. MLM leads to Ponzi.
I’m surprised they simply didn’t just do a switch similar to another nutrition company (that I’m actually a part of… don’t laugh, great product, and good compliance).
All customers are either “Retail CUstomers, Customers, Preferred Customers or Associates”.
Retail Customers – 100% retail price. Not assigned to any Associate. Can orderly freely from company or any Associate’s business centre at any time.
CUstomers – 10% off retail. Usually setup this way by Associate / PC if the Customer does not want to pay an annual membership fee. Customers have zero requirement for autoship, no positions in comp plan, etc.
Preferred Customers – 25% off retail. Optional Autoship. Annual Membership fee essentially gives discounted pricing (similar to costco/sams club membership). Autoship only reduces price of annual membership. Does NOT participate in compensation plan.
Associate – Opt in. Same pricing levels as PC’s, but HAS to Opt in to comp plan to be able to earn commissions. Not automatic.
85% of purchases are all from Retail / Customer / PC and not associates opting in to comp plan.
Easy seperation of retail / wholesale / autoship / earnings.
Herbalife built its business on pyramid recruitment.
Telling pyramid scammers they have to sell to legitimate retail customers doesn’t go down well.
if the product was worth anything, it would be in regular retailers at substantially less while still turning a profit for the company.
first of all the FTC has limited resources and people to go after ponzi schemes. they can hardly be expected to run around counting retail sales and checking each one thoroughly.
i *suspect* the independent auditor appointed to overlook herbalife’s compliance with the settlement also acted only after being alerted by christine richards? he may have been busy looking the other way till then!
the current political climate is also not one of enforcement or oversight of gray area MLM’s.
in the case of herbalife, christine richards is on a personal mission to follow it’s trail, otherwise nobody would be any wiser to any hanky panky going on within their system.
given that human enterprise is quite inexhaustible, i’m sure herbalife and it’s distributors will find another way around to shimmy up the retail numbers.
IMO, demanding exact retail numbers is not a practical way to regulate MLM.
i mean, how many retail sales can christine richards investigate all by herself?
One can only hope it’s not this one:
Part of the FTC settlement force Distributors to get people’s name, Last name, addresses, and E-mail. This is done in an attempt to document Legit sales.
How does Herbalife knows if those Names and addresses are legitimate?
They could be made up for all I know.
There’s a court-appointed Monitor. I’d imagine at least some random verification is being periodically carried out.