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Simple Pyramid Test For Herbalife

|Includes: Herbalife Ltd. (HLF)

You are a distributor at Herbalife. You are looking to grow your business and you are thinking about your sales and recruiting strategy. What should you care about? If Herbalife is a pyramid you should care more about recruiting than you do about sales. Do you?

It seems to me there is a simple test to determine this. Say you could recruit one distributor that could sell a lot of product OR you could recruit two distributors each of which would have poor sales. In fact, the two low-sales distributors combined would have sales lower than the one high-sales distributor. Which option would you choose?

Well, since you get paid based on the sales of Herbalife products you would clearly prefer to recruit the one high-sales distributor. You will make more money that way.

It is clear from this very simple example that you are not driven by recruitment but product sales. Hence, Herbalife is not a pyramid scheme.

Disclosure: I am long HLF.