is herbalife a ponzi scheme

Is Herbalife a Ponzi Scheme? – Nutrition and Weight Loss

People have become more and more focused on healthy living, balanced diets, and other things that have to do with health and wellness. No wonder there are so many companies that are creating and marketing wellness products, weight loss supplements, and anything that they can sell to people under the guise of building a healthier community. One of the largest global nutrition companies is Herbalife.

Despite the high competition in the health and nutrition market, Herbalife has definitely made a name for themselves and a huge profit over their decades of experience. In 2013, they raked in an annual profit of $4.8 billion; in 2015,$4.47 billion; and in 2018, $4.9 billion. This multi-billion dollar company has spread to over 90 different countries, continuing to share their health products with millions of people through their vast line of independent distributors.

Oh yeah, Herbalife does not sell their products in stores.

Instead, Herbalife is a Multi-level marketing company that directly sells their products via their Herbalife Nutrition Independent Distributors, who continue to “help people lead healthy, active lives.”

Most Pyramid Schemes have been known to mask themselves as MLMs, since - let’s face it: it’s hard to really tell the difference between an MLM and a Pyramid Scheme. There have been so many MLMs that have been accused of actually operating as Pyramid Schemes instead of being a legitimate business; Herbalife is definitely no exception.

However, the Federal Trade Commission (FTC) cleared Herbalife’s name in 2016,  when they determined that the “nutritional supplement marketer is not a pyramid scheme.”

Herbalife isn’t a Pyramid Scheme - but is it a Ponzi Scheme?

In order to find out, we’ll go over the company, their products, distributor compensation, stock market activity, and define what really makes a Ponzi Scheme.

What is Herbalife?

herbalife
  • Company Name: Herbalife 
  • Founder: Mark Hughes 
  • Founded: 1980
  • Website URL: 
  • Type: MLM Company (Health & Nutrition)

Most people have probably heard about Herbalife. It’s been a long-standing company, started in 1980, that has sold nutritional products, such as multivitamins, protein shakes, meal replacement shakes, and other fitness drinks such as teas. Essentially, they are a global nutrition company. Their mission is to “improve the nutritional habits around the world with great-tasting, science-backed nutrition products that help people get the right balance of healthy nutrition.”

They market their products through their independent Herbalife Nutrition distributors. They also conduct Nutrition clubs, of which there are over 90,000 worldwide, where people can develop “healthy habits” through their products.

Simply put, they are a large global MLM company in the health industry.

Here’s how the company actually started.

History

Mark Hughes started Herbalife in 1980. Looking into the origin story of Herbalife is quite inspiring. Mark’s mother, Joanne, died from an overdose of diet pills, after years of constantly switching between the latest diet fads of the time. Thus, Hughes wanted to develop a herbal and botanical product aimed to help people lose weight without the added side effects of the synthetic drugs and chemicals that caused his mother’s demise. 

His efforts were commendable. But, how did he do it?

Hughes was no chemist or botanist. He was actually a highschool drop-out who was sent to a private home for emotionally disturbed and troubled teenagers.

No, they did not teach them how to create herbs and botanical products in that home.

Instead, that was where Hughes developed his salesmanship by selling door-to-door raffle tickets for their school. Mark Hughes was a good salesman on the get go. Well, he did grow up to own a multibillion dollar company.

Before he actually started Herbalife, Hughes started doing sales for the Slender Now diet plan from Seyforth Laboratories. This was back in 1976. He eventually became a top earner before the whole operation collapsed. He quickly moved on to selling the Golden Youth diet products and exercise equipment. And just a few years after, he started his own company - Herbalife.

Bad Connections: Richard Marconi, Lawrence Thompson, Larry Stephen-Huff

Hughes began to work with Richard Marconi in developing the new Herbalife line of diet products. Marconi was actually a former manufacturer of the old Slender Now line of products. 

Remember what happened to Slender Now? The company collapsed.

But never mind that, here is something else about Marconi. Initially, Marconi claimed to have a PhD in Nutrition. Well, his doctorate degree was actually ordered via mail from a correspondence school. 

He had the certificate and all - so maybe it still counts?

Despite this reveal, Marconi still continued to work with Herbalife.

Someone else who joined the team was Lawrence Thompson, who Hughes met while he worked with Golden Youth. Before working with Golden Youth, however, Thompson worked with Bestline Products, which was found to violate California’s pyramid scheme laws in 1973. Bestline ended up paying a fine of $1.5 million.

Thompson later brought in a Herbalife distributor by the name of Larry Stephen-Huff. Like the last 2 people mentioned, Larry also did not have the best reputation. He was part of Holiday Magic Inc., which was a company that Forbes labeled as “the father of all pyramid schemes.” Suffice to say, Holiday Magic Inc. was caught after defrauding distributors for over $250 million in 1973.

Well, despite their bad history, Marconi, Thompson, and Stephen-Huff, were able to get a fresh start with Herbalife.

After Mark Hughes started the company, they received several complaints from the FDA and the DOJ of Canada because of their false medical claims. They did well for a while after they modified their formulas and redid marketing, but experienced major losses after being sued by the California Attorney General still because of their false product claims. 

To cope with their losses, they rebranded and became part of the NASDAQ stock market. Later on, Hughes tried to buy out the company to make it private again. Unfortunately he failed to do so and later died from an alcohol and drug overdose. After his death, Herbalife was acquired by 2 large private companies, making the corporation privately owned again. Only to be reoffered as an IPO to the NYSE and then have the shares rebought again. 

Essentially, the company has gone through a complex change of hands, from private to public to being part of a larger corporation. This has not, however, changed the way in which Herbalife has continued to market and sell their products. They still rely on direct selling through their multi-level marketing structure.

And through the years, Herbalife has stayed true to their healthy and nutrition-based product line.

Products

Herbalife has a lot of products. Their Core Products include their Formula 1, 2, and 3, which is a nutritional shake mix, multivitamin, and antioxidant respectively. Other product categories are their Healthy Weight, Specialized Nutrition, Energy and Fitness, and Skin & Hair Care Products. Each category has a mix of powdered shake mixes, health bars, tablets and capsules. The last category of the Herbalife Skin & Hair Care line also features shampoos, conditioners, cleansers, and moisturizers.

Herbalife provides a lot of details on each of their products; giving detailed descriptions and details on each item while also carefully outlining all the benefits and uses in their product catalog.

Going through their 64-page product catalog, you’ll feel greatly informed and maybe even inspired to live healthier. A lot of the information they provide is actually good for you. And while the first step to health and wellness is definitely through information, it has to be followed up the right practices and diet. 

In that case, do Herbalife products actually live up to their claims?

Well, considering that they’ve been sued and penalized for constantly giving off false medical claims, many people are definitely doubtful about the actual efficacy of Herbalife products. But, giving them the benefit of a doubt, here’s what I found out about the Herbalife Products,

One of the main hooks of Herbalife is their weight loss program. In order to join the program, getting in touch with a Herbalife Independent Distributor is the first step. Apparently, their distributors are trained enough in terms of health and nutrition and they can help you determine which weight loss program will work best for you.

A lot of people actually swear by their programs. One thing I noticed is that Herbalife shows off a lot of “Before” and “After” pictures, especially if you join one of their Nutrition Clubs. Testimonies are definitely one of the main things you’ll find in every other weight loss program, however, these are not always reliable. Aside from the actual Herbalife weight loss programs, many people also incorporate other things into their lifestyle to really lose weight. This is why it can be so difficult to really commend just a diet plan when someone loses weight.

More often, people who start to really focus on dieting, end up exercising more, drinking more water, sleeping more, or doing a lot of other things to help their bodies shed off the extra pounds. These are definitely some of the things that Herbalife recommends their consumers to do while they take their products. They do want to promote a healthier lifestyle. In that aspect, they are actually quite successful. However, in terms of the efficacy of their actual products, there are actually no proven effects supporting all their claims. Hence, the many lawsuits put against them in the many years.

But there are still many people who lose weight through their weight loss plans. Herbalife actually provides 3 different plans to choose from. First is their Quickstart program which includes their meal replacement shake, powdered tea drink, multivitamin/mineral, and a metabolism boosting supplement. 

The second program is known as the Advanced Program which includes all the above items in the previous program, with 2 more supplements that are made to increase energy and increase fluid retention. The last program, known as the Ultimate Program, provides everything that you get from the Advanced Program with 2 more supplements; one for blood sugar management and another to improve digestion.

The price range for these programs range from around $100 - $250 per month.

How long do you need to do their diet plans?

Well, until you see results. 

And oftentimes, people either follow the diet plan rigorously or end up quitting after a month or two. The diet plan may seem easy, but it is actually quite difficult for some people to really continue. The main goal of their diet plan is for people to replace two daily meals with their meal replacement shakes. 

That means you’ll be taking in a nutrition shake twice a day and eat an actual meal only once. There’s no wonder why people actually lose weight. Despite what Herbalife claims, their meal replacement shakes provide only around 170 calories. On average, women have to eat around 2000 calories a day to maintain weight and 1500 calories to lose weight. Eating less calories seems like a sure fire way to lose weight fast but it is definitely not a sustainable nor a healthy way to do so. 

Although Herbalife does recommend people to take smaller and more frequent meals throughout the day, and mix in some fruits and vegetable snacks, as well as drinking a lot of water. By doing these recommendations alone - eating less, eating more vegetables and fruits, and drinking more water, you can probably lose a few pounds without having to pay around $200 a month for their overpriced shakes and supplements.

When considering how effective the Herbalife products are, their actual statistics on weight loss can’t be held as reliable testimonies because most of the people who actually did lose weight followed a myriad of long proven health practices that will lead to weight loss. 

Aside from the low calorie intake from their shakes which are just not enough to sufficiently replace a meal, 40% of those calories come from fructose, a sugar. The Herbalife shakes are also highly processed.

Overall, however, some people have found success in their weight loss journey through Herbalife. However, there is still a lot of emphasis on the other practices that the company promotes to help these people actually lose weight, aside from consuming the products alone. 

In addition to that, the Herbalife plan may be an effective quick fix if you need to lose weight, but it is a difficult and expensive program to maintain. There are actually a lot of other supplements, protein and meal replacement shakes, and other nutrition products that do the same thing and are offered at a much more affordable cost.

herbalife products

How Does Herbalife Work?

Herbalife works through a multi-level marketing network where distributors recruit other distributors, essentially creating a downline where people continue to market and sell the Herbalife products for a commission. The more people on your downline, the higher your commission rates, and the higher income you’ll supposedly be earning. As an MLM, Herbalife has also been questioned to be a Pyramid Scheme, and while the company has been legitimately selling and marketing their products for a few decades since 1980, they do exhibit a lot of the red flags that signal a pyramid scheme in the works.

As I mentioned earlier, the FTC already said that Herbalife is not a Pyramid Scheme. 

But is it a Ponzi Scheme?

What is a Ponzi Scheme?

Ponzi schemes are different from Pyramid Schemes. Ponzi schemes are actually investment scams that involve taking in more investors to pay off older investors, with the fraudulent front of being an actual investment. When, in reality, the people heading these schemes are just moving the money around. 

One of the main differences between a Ponzi Scheme and a Pyramid Scheme is that a Pyramid Scheme try to get other people to join them or "buy in" to their business opportunity with the promise of a chance to earn a high income. MLMs are often seen as Pyramid Schemes because MLMs operate in a similar way where people pay an initial fee to start marketing their products. However, when an MLM starts to put too much focus on the recruitment of new distributors instead of the actual sale of a product, this is often a sure sign that it is a Pyramid Scheme instead of a legitimate MLM company.

Because of the structure of most MLMs, many people see MLMs as Pyramid Schemes. However, there are many legitimate MLMs that are not Pyramid Schemes.

On the other hand, Ponzi Schemes work on a system where new investors come in, pay an initial investment, but don’t actually invest in a specific business venture. Instead, their money is used to pay off the old investors. New investors just have to wait their turn until all the investors before them have been paid off. This kind of scheme breaks down when no new investors are found, leaving the latest batch of people to put in their money with major losses.

The major difference between a Pyramid Scheme and a Ponzi Scheme is this:

In a Pyramid Scheme, the participants are aware that they are earning money from their new recruits.

In a Ponzi Scheme, participants or "investors" believe that their profits are from actual investments and not from new investors. 

A major telltale sign of a Ponzi scheme are those investments that promise high returns and no risk. For any investor, this pairing is something that sounds too good to be true. In reality, a Ponzi scheme is not only fraudulent, it is also illegal. 

While early investors in a Ponzi scheme are able to earn from their investments, a “profit” can only be made when other people pay into the scam. Eventually, more and more people will have invested, especially when the people they know have made huge profits from previously joining in. 

But, as with Pyramid schemes, there is a limit to the number of people you can actually recruit as new investors for a Ponzi scheme. Which makes it a very unsustainable investment scheme.

Another sign of a Ponzi Scheme is when investors are unable to pull out their investments. In traditional stock investments, people can pull out their money whenever they want to, but this will be subject to the actual value of their shares when they withdraw their investments. A Ponzi Scheme investment, however, is not able to give people their money back simply because their money is no longer there. They’ve already paid it to the previous investors.

Is Herbalife a Ponzi Scheme?

Since it’s conception in 1980, Herbalife has consistently been a growing business despite the setbacks, lawsuits, and other challenges they’ve faced. While still under a lot of scrutiny for their business model and actual effects of their products, the company shows no signs of being a Ponzi Scheme. Even as an investment prospect, Herbalife has been put into legitimate stock markets, such as NASDAQ and the NYSE, where investments are assessed. 

In the simplest sense, Herbalife is definitely not a Ponzi Scheme.

But, is it a worthy investment to join Herbalife by becoming an independent distributor?

Here’s the actual compensation plan and earning potential of Herbalife Independent Distributors. 

Earning Potential

In the Herbalife Marketing Plan, they outline the methods in which Independent Distributors are able to earn through their company. The main methods through which people can earn are Retail Profit, Wholesale Profit, Royalty Overrides, Monthly Production Bonus, Annual Bonus (Mark Hughes Bonus), Promotions.

Distributors earn more as they climb up the ladder in the Herbalife Marketing plan. Retail Profit compensation starts at 25% for new distributors, with an increase up to 50% for Supervisors. Between these 2 ranks, distributors have to become Senior Consultants, Qualified Producers, and Qualifying Supervisors. 

In order to climb up, you’ll have to increase both Personal Purchase Volume (PPV) and Downline Volume (DLV). The former through purchasing or selling more Herbalife products directly while the latter through recruiting more people to join your downline. It basically works in mostly the same way as other MLMs. The higher your rank, you can then order wholesale stocks and use your higher discounted rate to earn through your downline.

Royalty Overrides are another major source of income, which distributors are eligible for when they achieve Supervisor status. In order to become a Supervisor, you have to achieve a high amount of volume points which means you must have already ordered over $3000 worth of Herbalife products. On top of that, Supervisors must have also recruited other people and helped them rank up to Supervisor as well before being able to receive Royalty Overrides. These refer to the additional royalties that Supervisors earn from the first three levels of their downline. 

herbalife royalties
[source: factsaboutherbalife.com]


All the other ways of earning are dependent on a more complex set of metrics, which if achieved will result in bonuses and additional income. 

Herbalife presents a very enticing marketing plan, giving their distributors really high discounted rates from which they can earn a big profit. On top of that, the company also claims to pay out up to 73% of their revenue to their distributors.

However, when you really go into the financials, here’s what you’ll find.

In order to become a distributor with Herbalife, you have to purchase their initial distributorship kit, which can either be a Business pack or International Business Pack - Super Starter; which can cost $95 for the former and $125 for the latter.

You’ll probably be able to earn that back in a month’s time, right?

In 2015, out of 545,160 distributors, 10.6% earned nothing throughout the fiscal year. That is 57,786 people who did not earn anything from joining Herbalife. A majority of the group (62%) only earned $303; that is about 338,000 people. 16.9% earned $2,200; 3.9% earned $7,130, and only 3% earned $15,445 - which is only just $1,200 a month.

In order to get into that top 3, you have to be the best at sales and recruiting people. In order to earn a decent living through Herbalife, getting people into your downline is definitely the key. 

And one more thing, the income stated above is the gross profits of each distributor. Any business expenses, such as travel fees, material costs, and others, have not been deducted. In fact, the people who earned nothing haven’t just lost their initial investment, they have also probably spent a lot more in terms of promoting the products.

Like many other MLMs, joining Herbalife is a challenge. It might seem like a good business opportunity where people will be able to control their time. But, when it comes down to it, being part of a MLM can be more strenuous than having an actual job. The benefit of working with another company, however, is that you still get paid at the end of the day. With Herbalife, and every other MLM, you only get paid if you make a sale.

Complaints/User Reviews

Here’s what other people had to say about joining Herbalife:

“People with personal goals of improving or maintaining a healthy, active lifestyle, gather everyday in my Herbalife Nutrition Club. Most just want to enjoy the nutrition Herbalife is providing but as the goes by during their everyday session, they unconsciously become bonded and form a group of friends who look forward to meeting each other everyday carrying the same personal goal to proper health and wellness. As a Herbalife Independent Distributor, I would not choose any other place than see them have fun, make friends and improve their healthy active lifestyle together.”

So, there are some benefits to working with Herbalife. Those who join become part of a healthy and active community. The Herbalife Nutrition Clubs are also quite popular, with more than 90,000 clubs currently active throughout the world.

“Terrible place that takes advantage of its people and it’s customers. Anything would be a better option for employment.”

Let’s face it, Herbalife is a for profit company that has had several complaints lodged against them. From faulty product claims to using an MLM structure that does not provide basic health benefits or even minimum wage pay to the people promoting, marketing and selling their products, there are many ways in which Herbalife can improve their customer and employee services.

“This is solely based on your ability to sell products. If you're good at selling and enjoy a healthy lifestyle.keep a positive outlook with a social media base then this is for you. It is completely based on your ability.”

Being successful in a MLM really boils down to your salesmanship, the more sales and recruits you get in, the more money you earn. But if you don’t get anyone into the company, then you basically join the 10% who earn nothing.

Pros

  • Well-known Company Name and Brand
  • Long-standing Nutrition Company
  • Detailed Nutrition and Weight Loss Package

Cons

  • Extremely Difficult Earning Opportunity due to Pyramid Structure
  • Complicated Compensation Plan
  • Expensive Nutrition Products

Is Herbalife Legit?

As a company, Herbalife has existed since 1980 and has done pretty well so far - earning nearly $5 billion worth in annual revenues. Despite the many lawsuits and charges against the company, Herbalife has either successfully settled or was acquitted. In turn, they’ve also made the necessary modifications in order to continue the business. The main problems that put to question the legitimacy of the company are their products and the business model.

The company has overhyped the actual benefits that consumers get from their products. While their protein shakes and nutritional supplements are made of some healthy ingredients, there have been no actual tests to prove their efficacy. Luckily, over the years, Herbalife has educated and developed a team of supporters who have built a good reputation around the Herbalife brand.

By adopting an MLM business model, however, Herbalife has grouped themselves with other companies that have been questioned for being a pyramid scheme. One thing is clear though: Herbalife is an MLM but it is neither a Pyramid Scheme nor a Ponzi Scheme. 

Conclusion: Worth Joining?

Herbalife has been in the market for quite a while, supplying healthy and nutrition-based products to the growing health-conscious market. They’ve definitely made their mark. Unfortunately, there are both camps of skeptics and supporters of the brand. As a distributor, most people have probably already heard of it and even tried it. 

While some people might actually like the products, looking into the contents of Herbalife products and comparing these alongside other nutrition supplements and diet plans, might dissuade many people away from the product. Even the high costs of the items will get others to think twice about purchasing from the brand. 

Thus, joining Herbalife might be something you’d consider if you’re the type of person with great social skills and an existing passion for health and fitness. But, there are still many other companies offering better and more affordable products, with possibly better earning potential.

If you’re just looking for any way to make money, I know of a great money making opportunity that might interest you. Don’t worry, you won’t need to sell any weight loss plans to earn here.

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Caim Hermoso

I hope you found this information helpful! I'm Caim, a writer for this website looking to help people find legit opportunities and avoid scams. Feel free to leave any questions or comments down below and I'll get back to you as soon as I can.

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