Herbalife is a global nutritional supplement direct-selling company. It has a network of approximately 4.5 million independent distributors. If you’ve considered joining this company’s sales team, you may be wondering – is Herbalife a pyramid scheme?
At Business2Community, our team of economic experts dive deep into the world of Herbalife and pyramid schemes so you don’t have to. We take a look at the data and statistics, as well as the opinions of real Herbalife distributors, to bring you the information you need to make an informed decision.
Is Herbalife a Pyramid Scheme?
- Herbalife is not legally designated an illegal pyramid scheme by the Federal Trade Commission. However, it did have to pay a $200m fine in 2016 for running a high-pressure multi-level marketing scheme.
- Herbalife is a multi-level marketing company (MLM), that puts a strong emphasis on recruitment as well as selling its products.
- Herbalife has around 4.5 million distributors and 9,000 full-time employees, and was worth $5.1 billion in 2022, dropping to $2.1 billion in 2023.
The Herbalife Business Model
Herbalife is a global company that follows a multi-level marketing business model to sell products that promote healthy lifestyles. It is especially known for its nutritional supplements from Herbalife Nutrition.
Herbalife has not been legally determined to be a pyramid scheme, however, it has faced plenty of legal scrutiny, including from the Department of Justice (DOJ).
Most notably, Herbalife settled a lawsuit with the Federal Trade Commission (FTC) in 2016, admitting wrongdoing and agreeing to restructure its business practices. The FTC alleged that Herbalife and affiliates deceived consumers by grossly exaggerating the amount of money that could be earned selling its products. This kind of recruiting is unfortunately common in the multi-level-marketing and direct selling industry where most sellers lose money.
In addition to restructuring its business, Herbalife also agreed to pay $200 million to the consumers in the complaint.
The company, founded in 1980 by Mark Hughes, operates in over 90 countries. Its products are sold directly to consumers by its distributors, who in addition to making sales, are also supposed to recruit people to become distributors under them to create a downline.
MLMs are notorious for misleading their distributors into believing they can make more money than is possible, as it is difficult to make money through direct selling. This is due to a variety of reasons, one being that these companies have so many salespeople selling their products that the market becomes saturated with them.
Another reason it’s difficult to make money is because distributors often have to spend a lot of money purchasing inventory, hosting selling parties, and paying for training, thus spending more than they make.
How Herbalife Works for Independent Distributors
Individuals who wish to become a Herbalife distributor sign up and then sell the company’s products directly to consumers, as well as recruit more sellers to work below them. This creates a downline, a key characteristic of an MLM. The way a downline works is that the more people that are part of a distributor’s downline, the higher their earning potential from their downline’s commissions.
To join Herbalife, potential distributors must purchase the Herbalife Starter Kit for $94.10 (as of 2023). There is also an annual membership fee of $15, and according to the Herbalife website, marketing and promotion costs, training and development costs, and various legal and compliance costs depending on a distributor’s jurisdiction.
As a distributor, you are encouraged to market products within your social circle, via social media, and during networking events.
Some people have had positive experiences as a Herbalife distributor, saying that it helped them to realize their dreams of entrepreneurship.
Others report that they made no money and it caused stress in their social life because of the emphasis on network marketing. Here is one Redditor’s experience:
How Herbalife Works for Consumers
Consumers purchase Herbalife products directly from Herbalife distributors instead of from typical retail stores. Most of the products sold by Herbalife are related to weight loss and nutrition, including shakes, supplements, and nutrition bars.
You will find plenty of consumers who like Herbalife products, claiming they have helped them reach their nutrition and fitness goals.
@genns_journey Its a whole package! #herbalifenutrition #herbalifebeforeandafter #herbalifenutritioncoach #herbalifecoach #workfromhome #motherhood #wellness
But you’ll also find reviewers, like the nutritionist in this TikTok below, who opine that the ingredients used are neither the highest quality nor the best for you.
@kathrinekofoed Replying to @rileyg2003 why i don’t support or recommend Herbalife as a nutritionist! #nutritionistsoftiktok #nutritionistadvice #wellnesstiktok #herbalifenutrition
Herbalife Lawsuits
- In 2016 the FTC sued Herbalife and its affiliates for making consumers believe they could earn large sums of money by selling Herbalife products. The resulting agreement stipulated that Herbalife had to restructure its business practices and pay $200 million to compensate consumers. The first round of payments went out in January 2017, the second in 2019, and the third in 2023.
- In 2019, Herbalife agreed to pay the Securities and Exchange Commission $20 million in a settlement alleging that it misled investors in China. At that time, CEO Rich Goudis was fired when an audio recording surfaced where he told an employee to ignore expense account limits in China.
- in 2021, Herbalife agreed to pay $123 million in civil and criminal penalties in a deferred prosecution agreement with the Department of Justice (DOJ). Prosecutors in the Southern District of New York alleged that the company attempted to falsify financial records and engaged in corrupt payments to Chinese government officials while aiming to grow the business in China.
- In 2023, Herbalife agreed to a settlement of $12.5 million in a class action lawsuit that accused the company of pressuring its distributors to attend expensive events. The lawsuit alleged that Herbalife mislead distributors about the financial benefits of going to these events. It also cited potential violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). Herbalife didn’t admit wrongdoing, instead, the company says it agreed to settle to avoid prolonged litigation.
Is Herbalife an MLM?
Herbalife does operate as an MLM company, with a business model that clearly aligns with the primary characteristics of MLMs. The company has tried to distance itself from the negative aspects of MLMs, including those that make it sound predatory or like a pyramid scheme.
MLM Characteristics and Herbalife
- Recruitment-based earnings
- Herbalife: While Herbalife distributors don’t make money directly from recruiting, much of their income comes from the income they make from their downline. Distributors earn commissions from the sales of their downline.
- MLM company: In an MLM, distributors are encouraged to recruit others to sell underneath them, making up a downline, and part of their earnings depends on how their downline performs.
- Buying inventory
- Herbalife: Distributors often purchase inventory in bulk from Herbalife for resale. In the 2016 FTC settlement, it declared that Herbalife was required to ensure that the compensation for distributors is based on sales and not just on their inventory purchases. However, there is evidence has cropped up online showing that distributors continue to over-purchase inventory to qualify for bonuses and to move up in the commission hierarchy. The new Sales and Marketing plan is nearly impossible to follow, however, there is a rule called the 2/3 – 1/3 Rule that suggests that you can still make money based on purchasing inventory designated for your personal consumption, potentially encouraging distributors to buy more inventory than they can sell to others (essentially making it similar to a pyramid scheme).
- MLM company: In an MLM, the company sells products to their own sellers – these sellers are often the largest consumers of the company’s products. There is often a sales quota involved, which can lead sellers to purchase more inventory than they can sell to others.
- Network marketing
- Herbalife: Herbalife distributors market products to their personal network, including friends and family members, through direct sales or social media. It also encourages their network to recruit new distributors to sell in their downline.
- MLM company: MLMs encourage their distributors to sell to their personal networks. This can often put a strain on personal relationships since friends and family become wary of constant sales pitches.
- Financial strain
- Herbalife: Reports from former Herbalife sellers like those seen on Reddit often talk about financial losses. They end up needing to buy large quantities of inventory to stay active and qualify for bonuses. Very few make a profit and more lose money.
- MLM company: MLMs frequently have high turnover rates for their sellers due to financial strain. 99% of MLM distributors end up losing money, causing participants to leave after short periods of time.
Is Herbalife Safe and Legit?
Herbalife is a legal and operational business that complies with MLM company regulations. Since the FTC settlement in 2016, it has made further efforts to align with legal requirements. However, it continues to be an MLM, and as with many MLMs, Herbalife presents both opportunities and significant risks to its participants.
If you’re thinking of becoming a distributor for Herbalife then you must understand how the business model works and read the fine print, (preferably with a lawyer or an accountant who can understand the legal jargon). You must also understand the potential risks and challenges involved.
While in this article we’ve mostly spoken about risks to distributors, there are also allegations of health risks from taking Herbalife supplements.
Here are some things you should keep in mind if you are thinking about joining this MLM scheme:
Potential Health Risks
In one study from the Acta Clinica Croatica, Herbalife was associated with severe hepatotoxicity in a previously healthy woman. The patient was taking Herbalife products and her liver damage was thought to be connected to the herbal supplements. Once the patient stopped taking Herbalife products, the damage to her liver resolved.
The Journal of Hepatology also cites two cases where taking Herbalife products that were contaminated with Bacillus subtilis caused severe liver problems.
It Is an MLM
Herbalife has not been legally classified as a pyramid scheme, and technically it continues to operate within legal boundaries. Critics argue that these legal boundaries are meaningless and insufficient, given that MLM companies can harm their sellers just as much as illegal pyramid schemes. Many people join Herbalife as sellers or distributors and they enjoy the flexibility they have in selling wellness products at their own pace. These people do not rely on Herbalife to be a full-time job.
Income Potential is Limited
There are some success stories of people making considerable profits with Herbalife, however, On the Herbalife website, you can find information on how much a distributor makes in a typical month.
In 2023, 116,000 distributors ordered products in the US for resale from Herbalife, and out of those, 106,000 earned money from their sales and the sales of their recruits. In a typical month, 56,000 distributors earned money from their sales and the sales of their recruits.
That may sound promising to some, however, Herbalife discloses that 50% of the first-year distributors, just about 4,000, earned around $200 per month. What’s more, 50% of all other distributors earned about $250 per month.
Time and Financial Investment
Distributors will need to dedicate considerable effort and time to building their business, even though this isn’t meant to be a full-time job. the financial commitment is risky, especially for distributors who are just starting and don’t have a large downline or customer base. The cost of products, marketing materials, and sales meetings can add up, leading to more loss than profit.
Financial Strain
Many former distributors share stories of financial hardship from trying to be profitable in the Herbalife business model. There are personal accounts across the web detailing the challenges of selling products, recruiting others, and meeting sales quotas.
@propanefitness Ex-Herbalife Rep reveals her experience #herbalife #mlm #mlmeme #multilevelmarketing
This short documentary tells the stories of individuals who began selling Herbalife. They reveal how they lost anywhere from $5,000 to $25,000. These problems are often made even worse when sellers go into debt to buy the products, hoping that they can sell them fast enough to pay their debts off. High interest credit cards can be a trap in themselves but when mixed with MLMs the results are often disastrous.
Proceed With Caution, If At All
Herbalife is a legitimate company in that it technically follows the legislation governing MLMs. Some people do find success with the company, but the risks seam to outweigh the potential benefits. The likelihood of making a substation income with Herbalife is extremely low. Before joining, its crucial to thoroughly understand the financial and time commitment and the realities of making a profit. Even Herbalife admits that 50% of its first-year salespeople made only around $200 per month.
Yes, some people do make money with Herbalife, but it should be approached with caution and with full knowledge of potential downfalls.