Herbalife has a checkered past, and paying restitution of $200 million to customers explains why so many have mixed feelings about the company.
However, since its restructuring in 2016, Herbalife is a more viable option for some people. The key is to go into it clear-eyed. Like with any investment, there is a potential for loss, so it's essential to understand precisely how to make money.
Many claim the old Herbalife was a scam, but the new Herbalife is undoubtedly more legitimate and a genuine:
- Source for health products
- Way for people to earn money
Why The Controversy?
Herbalife has seen its fair share of controversy, ranging from legal disputes to health concerns to celebrity reporters doing exclusive stories on the company's practices.
Herbalife Legal Disputes
In 2016, Herbalife had to restructure its operations and pay $200 million to consumers to settle claims from the Federal Trade Commission. Those claims said that Herbalife “deceived consumers into believing they could earn substantial money selling diet, nutritional supplement and personal care products.” The FTC also made the following charges:
- Herbalife’s compensation structure was unfair, focused on recruiting more participants, not on actual sales
- Only a small minority of distributors make substantial money
- Most make little to no money; many lose money
- Marketing materials are misleading
Since the restructuring, Herbalife now works a bit differently. At least two-thirds of rewards paid to distributors must be based on sales. Herbalife is also prohibited from making misleading claims about how much money can be made, in particular prohibiting them from saying distributors can “quit their job.”
This model has proven successful, even financially promising, with the company recording its best quarter in the second half of 2020.
However, in August 2020, the New York Stock Exchange suspended trading on Herbalife due to reports that the company was charged in relation to a criminal case in China. The company later disclosed that it had an agreement with the SEC to settle the investigation, including a $123 million fine. The business practices in question occurred before their restructuring.
Beyond concerns about how it markets its products, there are also concerns about its health impacts. Because many Herbalife shakes and other items are filled with protein, there have been claims it can impair kidney function in those who already have kidney issues. Some studies have also linked Herbalife to liver injury, although experts caution that it’s unclear whether that’s at higher risk than other herbal supplements.
Additionally, many claim that Herbalife meal replacement shakes can be high in sugar and can actually make you more hungry.
Herbalife In the News
In 2012, hedge fund manager Bill Ackman made a short bet against Herbalife. He said it was a pyramid scheme that was doomed for bankruptcy and spent $1 billion on this bet. However, Ackman exited his position in 2018 because he couldn’t convince regulators the company was a pyramid scheme.
In 2014, ABC News did an extensive investigation into Herbalife. Two reporters went undercover, finding that nearly 600 distributors were disciplined for making false medical claims. One person, according to ABC, told a potential customer that a woman got rid of a brain tumor by taking Herbalife.
Further, in 2016, comedian John Oliver dedicated a segment of his show to pyramid schemes and singled out Herbalife.
What Is Herbalife?
Herbalife is a supplement and nutrition brand selling multiple products across the globe. Some of their products include:
- Weight loss products such as shakes, meal replacements, supplements, protein boosters, and protein snacks
- Multivitamins, fiber supplements
- Supplements for skincare and hair
- Energy-boosting drinks, like tea and coffee
- Concentrates like herbal aloe
Herbalife’s products are designed and marketed to help you gain and maintain proper health in a variety of ways, from proper nutrition and hydration, to exercise.
How Does Herbalife Work?
Herbalife works with a model of a “direct selling” company. Direct selling companies don’t sell their wares in stores. Instead, the product goes from the manufacturer to the sales company—in this case, Herbalife. From there, Herbalife sells it to a distributor or sales rep, who then sells it to the customer. Thus, you cannot buy these products without buying them from the sales rep.
How Do People Earn Money?
There are currently over four million Herbalife sales reps who work on a multilevel marketing (MLM) model. Compensation comes from the products they sell, and bonuses are paid as they recruit new reps to sell as well.
Distributors earn money by buying Herbalife products at a discount, then marking up the price well selling to a customer.
No minimum purchases are required, and there are also 100% refunds on any products not opened.
In 2020, there were roughly 191,000 distributors of Herbalife in the U.S. Nearly all (180,000) earned some compensation throughout the year. A little more than half (90,000) earned money monthly.
Typical monthly payments, for those in their first year, are as follows:
- 50% earned about $201 in a month.
- 10% earned more than $1,246 monthly.
- 1% earned $5,913 in a month.
Herbalife says that the so-called President Team (only about 600 total sellers)—the top 1% of distributors—earns about $16,213 in a month. It supposedly takes around five to 11 years to reach this status.