Founder: Mark Hughes, Chairman and CEO: Michael O. Johnson
Price: $59 to get started + over thousand of dollars of upsells
Overall: (1 / 5)
Date when it started: 1980
Verdict: Pyramid Scheme
You may have heard about the company Herbalife that sells diet products to nearly over 3 million distributors worldwide, it’s a huge business, but it has also created a huge controversy between high profile supporters and detractors.
Herbalife was founded by Mark Hughes back in 1980, and it’s now an american multinational multi-level marketing corporation that develops, markets and sells nutrition supplements, weight management, sports nutrition and personal-care products.
In the mid-1980s, Mark Hughes was sued by the Food and Drug Administration, the California attorney general’s office, and the state Department of Health, over what they said were false health claims about Herbalife products and the various schemes used to market them. Health agencies accused the company of violating labeling standards and using improper sales practices. And In March 1985, the California attorney general and the state Department of Health Services charged Mark Hughes and Herbalife with making “untrue or misleading” product claims, primarily involving the caffeine content of some Herbalife products and operating an “endless chain marketing scheme.” Mark Hughes died at age 44 on May 20, 2000, and now Herbalife is run by CEO Michael O. Johnson.
So why is there so much about Herbalife and allegations about whether it is a pyramid scheme or a legitimate business? Well, let’s find out the truth.
This the “business opportunity” they promote on their website.
In the video it sounds great right? “Help provide an income, happiness and healthy products”. What’s even better and I find it hard to believe is that when their independent distributors make some more bold claims about the company. They make it seem as though it’s so easy to make money with Herbalife because there are so many ways to do so.
Screenshots I found on the web by a Herbalife independent distributor, again making bold claims.
So how can you really earn with this “business opportunity” with Herbalife?
Well, it’s quite complicated with Herbalife. How long would it take for a company to explain to someone how much you get paid and for what? For many companies, it’s pretty straightforward. But, if you are a Herbalife distributor, the answer is very difficult. In fact, a lot of people who have signed up with Herbalife can’t explain how they make money. New recruits often get a lot of misinformation. As Herbalife distributors buy product from the company and get others to do the same, they move up in this complicated plan. As distributors advance, they gain access to product discounts and commissions that are paid when distributors in their downline (those who they’ve recruited and their recruits’ recruits etc.) make purchases from the company. The recruiting distributor, or sponsor, often doesn’t explain how difficult and expensive it is to advance in the plan. Instead, recruits are told that with hard work, they can make a lot of money from Herbalife. Sadly, too often they are not told the most important pieces of information any new recruit should know: that 89% of new recruits will earn nothing from the company and 90% will drop out in the first year.
The reality of the compensation plan of Herbalife.
Distributors tell recruits that there are multiple ways to make money though Herbalife’s “7 stream of income”. The truth is that it’s incredibly difficult to make any money from the 7 streams and distributors who are making money often have massive downlines working beneath them. Herbalife’s plan consists of four discount levels and 11 positions in the marketing plan with several sub-categories within those positions. It’s easy to see why new recruits might be confused.
So what are the “7 streams of income” that you can earn with Herbalife?
1) Selling at a discounted rate but unknown if profitable or to people outside the network
When a person signs up as an Herbalife distributor, she buys Herbalife products from the company at a discount and tries to sell them to friends, family and others at the suggested retail price (SRP), hoping to pocket the difference. The problems start there.
- Herbalife’s products are overpriced versions of similar products available at health and wellness stores at a fraction of the cost, making these products difficult to sell.
- The company doesn’t disclose how many other distributors live in a given area who are trying to sell the same products to the same pool of possible customers. Higher-level distributors who get bigger discounts might be able to sell the product cheaper, making it harder for an entry level distributor to sell any product at all.
- Some distributors sell Herbalife product online at a near 40% discount. Why would anyone buy product at full price if it’s readily available online for much less?
2) Wholesale selling – Recruiting reward
A distributor earns “wholesale profit” by capturing the difference in discount levels between herself and people in her downline. So, the distributor needs to have recruited people and have bought enough product to have moved up at least one level in the system. For example, a distributor who purchases product at a 42% discount to SRP is able to capture the spread between their discount level and that of a downline member, purchasing at a 25% discount. This 17% difference is tracked by Herbalife and paid to the upline distributor by direct deposit or check.
3) Royalties – Recruiting reward
To be eligible for more than just the first two income “streams,” the distributor needs to spend a significant amount of money, about $3,000 for 4000 “volume points” (Herbalife’s universal currency where one volume point is roughly equivalent to one US dollar) to reach the “supervisor” position.
People who have achieved the position of supervisor are eligible to receive “royalties.” But a distributor can only earn these royalties if she has recruited people and convinced them to become supervisors too.
Additional royalties (1-5%) are earned on the volume purchased by anyone in a distributor’s first three levels, which is to say, up to the recruits of the recruits’ recruits. These royalties are based on total volume point value of downline purchases,regardless of whether those distributors actually sell the product. What does that look like to you?
4) Production bonus – Recruiting Reward
The Production Bonus, or 4th stream of income, becomes available only when the distributor reaches the GET Team, which is the seventh position in the plan. Upon reaching the GET Team, distributors can earn 2-7% on the TOTAL volume of their organization (i.e. infinite levels), with some exceptions. This level is important. As if the plan didn’t already incentivize recruiting, the production bonus is payable on infinite levels. Meaning, if a distributor has 50 levels of distributors below her, she makes money on each level, all the way down.
5) Cash bonus – Recruiting Reward
Herbalife distributes $500 to distributors upon their reaching Active World Team. Herbalife runs other promotions, including non-cash promotions that occur regularly throughout the year and are designed to inspire large purchases.
6) Vacations – Recruiting Reward
Several times a year, Herbalife runs promotions with high qualification thresholds, usually lasting for 3 or 4 months to win a cruise or vacation. Upline distributors use these promotions as opportunities to pressure downline distributors to buy large quantities of product. At every local, regional or national event, the mantra (and popular hashtag) “Qualify for Everything!” is repeated to recruits, encouraging them to purchase enough product to qualify for certain thresholds.
Promotions like these reward those at the top of the pyramid by encouraging those beneath them to make product purchases even when no end customer demand exists.
7) Mark Hudges Bonus – Recruiting Reward
Finally, there’s the Mark Hughes Bonus, where 1% of the entire company’s annual revenue is divvied up among the top of the pyramid during a highly photographed gala. The check for the top distributor is often in excess of $2,000,000 and with a few exceptions, the top winners have been the same group that’s been collecting those massive checks for 15-20 years.
The distributor receiving the $2,000,000 check isn’t the best salesperson. They will say they’re “just like you!” But the truth is, they likely joined the company in the mid-80s, recruited like crazy and probably used business methods that have since been prohibited.
In the end, Herbalife’s compensation and commission structure works to benefit those at the very top of the pyramid, and usually to the detriment of those new recruits at the bottom. It is complicated, structurally designed so that the only way to make any real money from the company is to sell others on becoming Herbalife distributors. They, in turn, can really only make money by recruiting their own downline and getting them to do the same. The confusing scheme obfuscates the probability of success and makes it easier for the company to recruit.
Because the compensation plan is complicated – and rarely thoroughly explained – millions of people every year sign up for an opportunity that will rob them of time and money and leave them far short of becoming the millionaires they thought they might be.
This is what the Huffington Post says about Herbalife.
“While Herbalife claims it only costs $59 to get started with the company, the distributors I have spoken to said they always start out asking for far more than that… typically $4,000 so the newly minted distributor can began at the supervisor level which confers a bigger discount on the wholesale cost of Herbalife’s overpriced products. In Herbalife’s pyramid scheme, distributors building their downline are incentivized with bigger commissions to lure new recruits to come in at the highest level possible.
Continuing to hide these figures from the public, their investors and regulatory bodies can only mean one thing in my opinion: that Herbalife’s promise of a business and economic opportunity is really a pyramid scheme that has locked onto the Latino community like no other that we have seen before. As a Latino organization with an 85-year history of defending the Latino community, the League of United Latin American Citizens (LULAC) has once again chosen to stand up to defend our community from a powerful threat. We encourage other organizations and people of good will to join us in this fight. ” – http://www.huffingtonpost.com
Finale Verdict: Herbalife is a product-based pyramid scheme.
Bill Ackman, Founder and CEO of Pershing Square Capital Management explains it all.
Herbalife Victims explaining how they got scam by Herbalife.
Herbalife insider admits that the business opportunity is a scam
Herbalife investigation by the FTC
After reading this post, I would appreciate if you share this with anyone you know who is going through the Herbalife. You will be saving more lives from this scam. This is our fight. To prevent anyone else from being victims and to shut down this fraud. If you have lost money to this scam, you can take action here https://www.factsaboutherbalife.com/take-action/
And if you have gone through the Herbalife, you can share your experience with me down below! I would be happy to talk to you. 🙂
“Honesty is the cruelest game of all, because not only can you hurt someone – you can feel self-righteous about it at the same time”