Is Herbalife A Pyramid Scheme? [2022 MLM Review]

Herbalife is a company that sells dietary supplements through a multi-level marketing model. It has been around since 1980 and you may have heard of it from someone who you know that was encouraging you to join the company or buy products from.

As a multi-level marketing operation, it is well known for encouraging people to become distributors to expand its network of sellers and make more money. It also sells some of its products at a higher price.

In this Herbalife review, we won’t focus too much on the products themselves, rather we will take a closer look at the business model to help you determine whether it is something you’d like to try.

Before I start…

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What Is Herbalife?

Herbalife is an MLM company that was started in 1980 by Mark R. Hughes.

Hughes launched it as a direct selling company. A direct-selling company sells its products directly to its customers through salespeople.

Herbalife Nutrition Review

They don’t sell in a fixed retail location and you won’t find its nutritional supplements and protein shakes in a store.

In this model, if you want to buy Herbalife products, you must do so through a Herbalife distributor. To learn more about the products and their prices, you can can visit the official website.

Note that you cannot buy directly from the website either as you will be directed here:

Is Herbalife A Pyramid Scheme? [2022 MLM Review] 13It is a successful company because in 2019, its global net sales were at $4.88 billion. Herbalife Ltd. is a public company — Mark Hughes had tried to take the company private but failed to do so.

There are up to 3.7 million Herbalife distributors scattered across 90 countries. There are subsidiaries like Herbalife International India Private Ltd, Herbalife International of Europe Inc, among others.

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How Herbalife’s Multi Level Marketing Business Works

When you become a Herbalife Distributor or member, you have to buy its products and then either use them or sell them. You can use and sell if you like.

If you don’t have a distributor (you don’t know of any distributor), you can find one on the website. Once you have signed up and bought the products, you will be paid according to how much you sell.

Besides making money from directly selling Herbalife Products, you will also get paid a commission from the sales by the new members you recruit to your downline.

If you don’t want to become a Distributor and are only interested in buying the products at a discount, you can join as a Preferred Member. You will pay $34.95 to become a member who is only a consumer (you do not sell the products).

As a Preferred Member, you can later become a Distributor by buying the Conversion Pack at $59.95 and completing the required training.

This amount is lower than what they charge you when you buy the Distributor Kit as a fresh recruit.

How to Become a Herbalife Independent Distributor

If you are passionate about the products or just want to make some money on the side, you can “start your business” by joining the Independent Distributor community.

You will get training, support, and access to products at a discount. Herbalife only sells through its network of independent distributors.

To join the network, open the official website and navigate to “start your business.” Find the page that looks like this:

Is Herbalife A Pyramid Scheme? [2022 MLM Review] 14

If you know an independent distributor, you should choose “find someone I know.” However, if you don’t someone who sells these products, choose “introduce me.”

When you connect with an independent distributor, they will get in touch with you and help you set up your business.

You’ll have to share your details and sign the online contract. The next step is to order your international Business Pack that has the tools and literature you need to get up and running.

Is Herbalife A Pyramid Scheme? [2022 MLM Review] 15

The International Business Pack costs $94.10 but you can buy a more comprehensive starter kit called “International Business Pack – Super Starter” for $124.10. Here’s what you will find in the kit:

  • Herbalife Nutrition Messenger Bag
  • Business Opportunity Booklet
  • Herbalife Nutrition Sports Bottle
  • Distributor Guide
  • Herbalife Nutrition Buttons
  • Tools for Your Business Booklet
  • Herbalife Nutrition Product Catalog
  • First 90 Days Checklist

When you sign up for this, you will become a mentor who helps customers live healthier lives.

If you want to sell the product online, you can do so with the blessing of the company. They may even help you set up your online storefront.

What about cancellations? If you no longer want to be a distributor, you can cancel your membership within the first 12 months.

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Herbalife compensation plan

Herbalife has a compensation plan that spells out how much commission you earn from your sales and the sales from your downline. Here is a snippet of The Herbalife Marketing Plan:

Is Herbalife A Pyramid Scheme? [2022 MLM Review] 16You earn volume points when you or your recruits (and their recruits) order products. The more you and your downline buy, the more volume points you earn.

When you reach certain volume targets, you move on to the next level where you earn more money from your downline.

Is Herbalife A Pyramid Scheme? [2022 MLM Review] 17

Note that the commission you make from direct sales will remain the same irrespective of your level.

This is meant to encourage you to recruit as many people as you can, which is typical of MLM companies.

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Can You Make Money Selling Herbalife Products?

In order to earn a living, you have to sell a lot of Herbalife protein shakes and other products.

This is one of the main complaints people have about other MLM companies that have a similar structure to Herbalife, like Amway and Optavia.

The amount of money you will make is determined by how much of the product you can purchase from your distributor. This means that you need a lot of capital if you want to earn a decent amount of money.

How much does the average Herbalife distributor make?

According to Herbalife’s statistics, the average distributor working part-time typically earns $201 per month in their first year before expenses.

According to 2020 data, out of 191,000 distributors based in the US, 180,000 made money. Only half that number of people earned money in a typical month.

Before, expenses, here is what they made in a typical month (taken from the Statement Average Gross Compensation).

Is Herbalife A Pyramid Scheme? [2022 MLM Review] 18

It is not wise to buy too much of the product before you have cornered the market because you may find it hard to offload it. Note that you can return the products within 12 months if you don’t open them (from the time you purchase).

For these reasons, you will find that many people use Herbalife as a side hustle that supplements other sources rather than be their main source of income.

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Herbalife Products

As I mentioned earlier, we won’t delve into the products as much because that’s outside the scope of the article. Instead, we will take a brief look at the kinds of products Herbalife sells.

The products are split into five groups:

  • Core Nutrition: These meal replacements have the core macronutrients and micronutrients you need to live a healthy life.
  • Healthy Weight: These products are designed to enhance your weight-loss journey and manage your weight once you have hit your target.
  • Specialized Nutrition: These products provide the right balance of essential nutrients because they target specific needs by certain groups. There are products for men’s health, sleep and relaxation, heart health, digestive health, women’s health, children, the elderly, and the immune system.
  • Energy and Fitness: These products enable you to beat the afternoon slump or give you more energy during your workout to support a healthy and active lifestyle. There are drinks and shakes as well as energetic and hydrating teas to give you that boost.
  • Skin and Hair Care: The skin and hair care products contain vitamins or botanicals that nourish your skin and hair to keep you looking good. They also enhance long-term health of your skin and hair.

Herbalife’s most popular products are its protein shakes, protein bars, vitamins, aloes, teas, sports hydration, personal care, and energy products.

Can You Lose Weight by using these products?

Yes, you can lose weight by using Herbalife products because they enable you to form strong, healthy habits, making it easier to follow a strict dietary plan.

Why? Because these meal replacements ensure that you consume less calories than you would if you ate your regular meal. They also keep you feeling full.

That being said, these products are not so different from other meal replacements in the market like [INSERT]

Herbalife has made product claims of it being effective at weight management in the long term. There haven’t been studies done to verify this.

Herbalife also encourages its members to create nutrition clubs where they can sell or buy more of their products and discuss healthy lifestyles. At a nutrition club, people try out the products and try to recruit other low-income distributors.

These groups are meant to grow the company’s business by showcasing its products to non-members to turn them into members or distributors.

Herbalife nutrition clubs also encourage people to eat healthy because most of the people who join were more likely to eat fast food.

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Is Herbalife Legit?

Herbalife is a legit MLM operation. However, if you ask some people, they’ll tell you that it is a scam that is bordering on being a pyramid scheme (which is illegal).

The important thing here is to determine whether it is an illegal pyramid scheme or a legit multi-level marketing business.

How do we distinguish between the two?

Let’s understand what each of these terms mean:

What is a Pyramid Scheme?

A Pyramid scheme is an illegal operation where you make money by recruiting other people. When new recruits join, they pay for the membership.

When the first members recruit new investors, they in turn recruit more investors, and so on, resulting in a pyramid-shaped hierarchical structure. The lower you go down the ranks the more the investors there are.

The easiest way to spot a pyramid scheme is to check whether they sell products or services. If they don’t sell a product, you have yourself a pyramid scheme.

However, there are some pyramid schemes that sell products. Such pyramid schemes may sell a mediocre product to give law enforcement agencies the impression that they are legitimate when, in fact, they are only focusing on recruiting people. In such a set up, participants make more money from recruiting others than from the sale of products.

I’ve seen examples of such operations like Moonminers and Viper Cache where they sell some bogus product or “training” but they are more concerned with the fee you pay to become a member.

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What is an MLM?

An MLM is a legal business selling products directly to people without retail stores. As I mentioned earlier, this practice is called direct selling.

When you encounter such a business and would like to buy one of their products, you can only buy that product from “distributors.” A good example of this is Scentsy.

Distributors sell to preferred members as well as recruit and train other distributors. They earn commissions from their downline sales (in addition to their own sales).

Due to this recruitment structure, such businesses have a striking resemblance to pyramid schemes and this often confuses many people.

That being said, some MLM companies can be pyramid schemes.

If you look at it that way, Herbalife is an MLM.

Differences between a Legal MLM and a Pyramid Scheme

The key difference between the two business models is that a legit MLM scheme focuses on quality products or services while a pyramid scheme sells mediocre products to distract authorities from its core business: collecting money from investors as “membership fees.”

Therefore, in your typical pyramid scheme, you have to pay a fee for the right to sell those products (if there are any) and to recruit new members. The money you earn in this scheme has little to do with product sales.

If a pyramid scheme is selling something, it is usually a bad product that you can never return. An MLM, on the other hand, will allow you to return unsold products and they will either buy them back at full price or at a fraction of the original cost. Some even cater for the shipping cost.

Most MLMs will require you to buy a certain amount of products or “tools” when you are starting. They don’t ask for “membership fees.”

A pyramid scheme is doomed to fail because after running the scheme for a while, the supply of new recruits dries up. At this point, the people who started the scheme wind the whole thing up and abscond with the money they will have gathered but not distributed.

Is Herbalife A Pyramid Scheme? No, it is not.

MLMs by comparison can be established companies that last for many years or decades because although they recruit people to become distributors, they sell genuinely solid products or services. For example, Herbalife has been around for close to 40 years.

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Herbalife Controversies

Although Herbalife is operating legally, it has had to endure its fair share of controversies and bad press.

The main problem some Herbalife recruits have with Herbalife is that it puts up unrealistic promotional materials that sell atypical examples thus setting people up for failure when they learn just how difficult it is to make money in an MLM.

In 2013, there were allegations that the company had been involved in illegal activities in Venezuela and Mexico, but nothing came of them.

John Oliver did a segment on his show trying to expose the business model as a pyramid scheme that rips people off. He was pointing to the fact that the company has been growing within the Latino community and showed videos of people talking about how bad the company is.

The company was deemed illegal in Belgium after it failed to show its retail sales in the country.

Bill Ackman vs. Herbalife

Perhaps the most publicized of these stories was when billionaire Bill Ackman, head of the hedge fund Pershing Square capital management, shorted Herbalife stock.

This was in response to a David Einhorn (a hedge fund manager) interview of Herbalife’s president, Des Walsh. David had asked the company’s president how many sales Herbalife had made outside the distributor’s network and he said that the company doesn’t track that.

He bet $1 billion against the company, a move that enraged Herbalife’s CEO, Michael Johnson.

Michael Johnson said that Bill Ackman had made false statements about Herbalife that were misleading. Carl Icahn, another billionaire investor, piled on and accused Ackman of making up false statements.

It was later revealed that Bill Ackman had been lobbying hard against Herbalife and had even funded anti-Herbalife advocacy groups. He was calling it a criminal operation, a claim that Herbalife’s chief financial officer, John DeSimone refuted.

In 2017, Bill Ackman’s hedge fund, Pershing Square, closed its short position in Herbalife. The company’s stock price has risen in the past few years.

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Brushes with the FTC

Herbalife officials revealed that the company was under investigation by the Federal Trade Commission (FTC). In 2016, it reached a settlement of $200 Million with the Federal Trade Commission and was forced to restructure its business structure.

Herbalife was also forced to remove plant sources of ephedrine from its products after some states banned supplements with such herbs.

Has Herbalife been drama-free after the FTC settlement?

No, it hasn’t. Herbalife was recently sued for bribing Chinese officials multiple times. They settled with the US government for $123 million.

They also paid the SEC $20 million for misleading investors about its China business model.

Pros of Herbalife

  • The meal replacement shakes are easy to prepare, which makes them convenient for busy people who want to lose weight without worrying about elaborate, time-consuming meal preparations.
  • You can lose weight on Herbalife meal replacements because they minimize the number of calories you consume per day. Their long-term efficacy is still unknown.
  • They have communities to support you on your weight loss journey.
  • Herbalife offers a variety of products for people with different needs.

Cons of Herbalife

  • Making money selling Herbalife products is not easy. To make money, you have to be good at sales and at recruiting new members, both very difficult to pull off for the average person. You’ve also got to encourage your recruits to be great at sales because their sales numbers affect your bottom line.
  • Herbalife uses highly-processed ingredients in their meal replacement shakes. These are not good for you in the long run.
  • These shakes are not suited to people who are doing something that requires a lot of energy because they are not calorie-dense.
  • The meal replacements are actually not that cheap. For example, 30 servings cost $40 and you may drink two servings per day. Also remember that some of the foods you eat alongside these meal placements are an additional cost.

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Conclusion

Herbalife MLM is a company that sells meal replacement shakes and other products to people who want to manage their weight. It doesn’t sell its products in a regular store and the only way you can purchase from them is through the independent distributors.

In the 40 years it has been around, Herbalife has been involved in controversies that have resulted in hundreds of millions of dollars in settlements.

People who dislike Herbalife see it as an MLM that is borderline pyramid scheme because of its business practices. There is a gray area between a legal and an illegal business and those people believe that it engages in questionable practices.

It is a legal company that has been forced to change the way it operates to avoid misleading people who may be vulnerable.

There are many MLM’s in the world and many business world that you can join that will allow you to earn money. However, do not join one with unrealistic expectations because you will be disappointed.

Before you leave

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