Please read part 1 of 6 before reading part 2 below.
The Herbalife Compensation Plan & Limited Incentives for Retail Sales
21. Herbalife gives potential purchasers who simply want to “enjoy the products” the option to purchase products at a 25% discount to suggested retail price (SRP). Up until a rule change in 2014, Herbalife products were readily available on independent distributor websites for ~40% discount to adjusted SRP (Who Wants to be a Millionaire? pg. 106). This rule change has not altered the primary reason new recruits join Herbalife (i.e. to pursue the business opportunity), because the products are still available on eBay and other online marketplaces for prices lower than the discounted wholesale prices that Herbalife’s most junior distributors are paying for products (Who Wants to be a Millionaire? pgs. 107-108). If the retail demand is genuine then arbitrage would cause prices to be nearly equivalent.
Source: page 19 of Pershing Square presentation Side-by-Side: A Comparison of Vemma and Herbalife
22. Paragraph 22 of Dr. Bosley’s declaration discusses the purchase of Vemma's $499.95 Affiliate Pack which I believe to be comparable to Herbalife distributors inventory loading to achieve Supervisor status. In just one of many examples Chairman’s Club member Alan Lorenz urges you to “get to supervisor by the end of the month, get your people to supervisor” in this video.
Source: Page 18 of Pershing Square's presentation Side-by-Side: A Comparison of Vemma and Herbalife
23. & 24. Paragraphs 23 and 24 of Dr. Bosley's declaration discusses Vemma’s auto-delivery program which I believe is comparable to Herbalife distributors inventory loading to maintain supervisor status. Inventory loading isn’t just garages full of products as this video demonstrates. John Tartol states “The more product you take, the more money you make.”
Source: Page 20 of Pershing Square's presentation Side-by-Side: A Comparison of Vemma and Herbalife
25. Herbalife's Compensation Plan has six ways to “get paid.” These include retail profit, wholesale commissions, royalty overrides, monthly production bonus, vacations/promotions, and the annual Mark Hughes bonus as summarized by Pershing Square in slide 81 of their presentation “Who Wants to be a Millionaire?” I will describe each of these forms of compensation below.
Source: Page 81 of Pershing Square's presentation Who Wants to be a Millionaire?
26 thru 37. As seen in slide 81, nearly all forms of financial compensation from Herbalife require a distributor to be at the Supervisor level or higher. As described in paragraph 21, even retail profit is largely unavailable to junior distributors because they receive a 25% to 42% discount while senior distributors receive a 50% discount to SRP. In pursuit of the recruiting rewards, senior distributors to dump product far below SRP and leave little to no retail profit margin for junior distributors.
The key determinant of most distributor’s income is the accumulation of volume points by ordering product from Herbalife (without regard to retail demand) and recruiting others to do the same.
Sales leader must generate ~$2600 of Personal Volume per year to maintain their downlines and Sales Leader status (Who Wants to be Millionaire pgs. 72, 166)
To qualify for maximum commissions and bonuses, Sales Leaders must generate ~$1,600 to ~$3,200 or Personal Volume each month (Who Wants to be Millionaire pgs. 72, 166).
Herbalife claims that 73% of all retail sales dollars go right back to the distributors. However, this calculation is made from a fictitious Suggested Retail Price that is unrelated to market demand.
In Herbalife v. Ford, District Judge Gary A. Feess stated “Herbalife’s entire business model appears to incentivize primarily the payment of compensation that is ‘facially unrelated to the sale of the product to the ultimate users’ because it is paid based on the suggested retail price of the amount ordered from [Herbalife], rather than based on actual sales to consumers.”
Continue to Part 3 of 6
Continue to Part 3 of 6