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2010-7-17 01:41 AM
[size=1em]Forbes 400
If You Believe
Phyllis Berman, 10.11.04
Put your faith in thrift, hard work and Melaleuca’s household products and you can better your lot in life. Also Frank VanderSloot’s.
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[size=1em]Frank L. VanderSloot sells items like Classic Tooth Polish ($3 a tube), Replenex (90 glucosamine pills for $10) and Nicole Miller Timeless Age Defying Serum ($18 a bottle). He doesn’t hit the road himself to ring doorbells. At 56, his sales days are far behind him. He leaves the pitching to an army of part-time hucksters who sell these and 350 other household and “health” products for Melaleuca, his privately held firm in Idaho Falls, Idaho.
[size=1em]Melaleuca is a pyramid selling organization, built along the lines of Herbalife and Amway. Vendors get commissions on the products they sell and also on products sold by vendors they recruit. From a near-standing start 19 years ago, VanderSloot has built his firm up to an expected $620 million in volume this year, roughly half of that to be paid out to the vendors as commissions. A few of them make a very good living off Melaleuca; most do not. Enough of the money lands at the top that VanderSloot’s 50% share of the business, we estimate, is worth $700 million.
[size=1em]“This is not a get-rich-quick scheme,” says the entrepreneur, referring to what his sales force can make, though he insists that the income of a hard-working “marketing executive” can still “make a real difference to a family earning $30,000,” he says.
[size=1em]Such talk sounds patronizing–until you realize that VanderSloot seems to believe his own sermon. Ever since he took over what was then a small and poorly managed company in 1985, he has preached (and practiced) frugality: Live within your means, he frequently tells his sales force, pay off your debts, think twice about that new car. You see it reflected in the 36,000-square-foot headquarters, a two-story concrete affair (and former hardware store) in a strip mall. And, in a departure from many multilevel marketing schemes, VanderSloot is insistent about not burdening new recruits with huge startup costs or a garageful of inventory. Everyone buys a $29 kit, crammed with sales materials for demonstrations as well as VanderSloot’s motivational tips, and signs up to buy a minimum of $45 a month worth of Melaleuca wares–from a $2 Hot Shot, a breath spray, to a $30 bottle of ProVec CV, a grape seed extract that supposedly reduces LDL, the bad cholesterol. (VanderSloot says anyone can opt out of the $45 commitment.) Most of the items have a health or environmental flavor to them, like sunscreen with Vitamin E or phosphate-free detergent.
[size=1em]VanderSloot is pretty up-front about how tough it is for most salespeople to earn any money. And unlike, say, Amway, Melaleuca tells its new recruits that they’re starting out as customers on the bottom of a towering pyramid. There are approximately 150,000 of these participants, buying the soaps and potions for themselves but not yet making any significant sums from their 7% commissions (350,000 people are pure customers). As they move up the rungs, though, they can see some revenue, because they get 7% as well on sales by vendors they have recruited (the chain of commissions extends to seven levels). It appears that there are 30,000 or so serious players near the bottom averaging $1,750 a year in commissions.
[size=1em]The big bucks, of course, go to those who sign a large number of disciples who go on to recruit other vendors. Senior directors, as they’re called, have 650 customers in their network, of whom 25 or so are actively recruiting. Executive directors claim 2,400 or more customers, with perhaps 90 of them on the proselytizing trail. This crew of veterans, of whom there are 359, can expect $186,000 a year in commissions plus $1,000 a month from Melaleuca toward their automobile costs. Leading producers: three presidential directors who got commissions topping $1 million in 2003. VanderSloot thinks five people will scale those heights this year.
[size=1em]Before VanderSloot bought into the company, it subsisted on a handful of products tied to the melaleuca, or “tea tree” of Australia. Discovered in New South Wales in 1922, the melaleuca sprouts leaves that supposedly have antiseptic and analgesic properties. Colleagues at Cox Communications, where VanderSloot was a regional vice president, were so skeptical of his move that as a parting gesture they set up a tree and strung tea bags from it.
[size=1em]VanderSloot soon discovered the company’s putative 80% ownership of the tea trees in Australia was really more on the order of 5%. Moreover, Melaleuca’s claims about the health benefits of oil extracted from the leaves of the trees were a bit shaky. And distributors were griping about being forced to purchase large amounts of inventory that piled up in their garages.
[size=1em]VanderSloot shut down the company, purchased its inventory, trademarks and product recipes and rechristened it Melaleuca. Half his 1,000 distributors quit. Reason: They couldn’t pass along tons of inventory to salespeople below them in their networks, thereby depriving the earlycomers of quick profits. “At the beginning it was just me and some ladies in the office,” he recalls.
[size=1em]To rebuild the business, VanderSloot created an R&D department that evolved into a 20-person staff, including three Ph.D. chemists. The company has racked up nine U.S. patents–from inhibiting adenosine (an enzyme that prevents fat-burning) in an energy bar to the use of benzophenone in a shampoo to protect hair from ultraviolet exposure. VanderSloot insists his salespeople also tout the price advantage of his products. Melaleuca’s detergent, for instance, costs 16 cents per load versus 28 cents for Tide.
[size=1em]http://www.forbes.com/free_forbes/2004/1011/089.html?rl04
If You Believe
Phyllis Berman, 10.11.04
Put your faith in thrift, hard work and Melaleuca’s household products and you can better your lot in life. Also Frank VanderSloot’s.
[size=1em]
 [size=1em]
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[size=1em]Melaleuca is a pyramid selling organization, built along the lines of Herbalife and Amway. Vendors get commissions on the products they sell and also on products sold by vendors they recruit. From a near-standing start 19 years ago, VanderSloot has built his firm up to an expected $620 million in volume this year, roughly half of that to be paid out to the vendors as commissions. A few of them make a very good living off Melaleuca; most do not. Enough of the money lands at the top that VanderSloot’s 50% share of the business, we estimate, is worth $700 million.
[size=1em]“This is not a get-rich-quick scheme,” says the entrepreneur, referring to what his sales force can make, though he insists that the income of a hard-working “marketing executive” can still “make a real difference to a family earning $30,000,” he says.
[size=1em]Such talk sounds patronizing–until you realize that VanderSloot seems to believe his own sermon. Ever since he took over what was then a small and poorly managed company in 1985, he has preached (and practiced) frugality: Live within your means, he frequently tells his sales force, pay off your debts, think twice about that new car. You see it reflected in the 36,000-square-foot headquarters, a two-story concrete affair (and former hardware store) in a strip mall. And, in a departure from many multilevel marketing schemes, VanderSloot is insistent about not burdening new recruits with huge startup costs or a garageful of inventory. Everyone buys a $29 kit, crammed with sales materials for demonstrations as well as VanderSloot’s motivational tips, and signs up to buy a minimum of $45 a month worth of Melaleuca wares–from a $2 Hot Shot, a breath spray, to a $30 bottle of ProVec CV, a grape seed extract that supposedly reduces LDL, the bad cholesterol. (VanderSloot says anyone can opt out of the $45 commitment.) Most of the items have a health or environmental flavor to them, like sunscreen with Vitamin E or phosphate-free detergent.
[size=1em]VanderSloot is pretty up-front about how tough it is for most salespeople to earn any money. And unlike, say, Amway, Melaleuca tells its new recruits that they’re starting out as customers on the bottom of a towering pyramid. There are approximately 150,000 of these participants, buying the soaps and potions for themselves but not yet making any significant sums from their 7% commissions (350,000 people are pure customers). As they move up the rungs, though, they can see some revenue, because they get 7% as well on sales by vendors they have recruited (the chain of commissions extends to seven levels). It appears that there are 30,000 or so serious players near the bottom averaging $1,750 a year in commissions.
[size=1em]The big bucks, of course, go to those who sign a large number of disciples who go on to recruit other vendors. Senior directors, as they’re called, have 650 customers in their network, of whom 25 or so are actively recruiting. Executive directors claim 2,400 or more customers, with perhaps 90 of them on the proselytizing trail. This crew of veterans, of whom there are 359, can expect $186,000 a year in commissions plus $1,000 a month from Melaleuca toward their automobile costs. Leading producers: three presidential directors who got commissions topping $1 million in 2003. VanderSloot thinks five people will scale those heights this year.
[size=1em]Before VanderSloot bought into the company, it subsisted on a handful of products tied to the melaleuca, or “tea tree” of Australia. Discovered in New South Wales in 1922, the melaleuca sprouts leaves that supposedly have antiseptic and analgesic properties. Colleagues at Cox Communications, where VanderSloot was a regional vice president, were so skeptical of his move that as a parting gesture they set up a tree and strung tea bags from it.
[size=1em]VanderSloot soon discovered the company’s putative 80% ownership of the tea trees in Australia was really more on the order of 5%. Moreover, Melaleuca’s claims about the health benefits of oil extracted from the leaves of the trees were a bit shaky. And distributors were griping about being forced to purchase large amounts of inventory that piled up in their garages.
[size=1em]VanderSloot shut down the company, purchased its inventory, trademarks and product recipes and rechristened it Melaleuca. Half his 1,000 distributors quit. Reason: They couldn’t pass along tons of inventory to salespeople below them in their networks, thereby depriving the earlycomers of quick profits. “At the beginning it was just me and some ladies in the office,” he recalls.
[size=1em]To rebuild the business, VanderSloot created an R&D department that evolved into a 20-person staff, including three Ph.D. chemists. The company has racked up nine U.S. patents–from inhibiting adenosine (an enzyme that prevents fat-burning) in an energy bar to the use of benzophenone in a shampoo to protect hair from ultraviolet exposure. VanderSloot insists his salespeople also tout the price advantage of his products. Melaleuca’s detergent, for instance, costs 16 cents per load versus 28 cents for Tide.
[size=1em]http://www.forbes.com/free_forbes/2004/1011/089.html?rl04
