There is a lot of controversy surrounding Herbalife’s business operations. The recruitment style business model that it uses to bring in new distributors is something that often gets it to be associated with a Ponzi scheme. But is it really? Is Herbalife a Ponzi scheme? Or is this just a rumor created from people trying to smear the companies name that have their own hidden agenda?
In this short review I’ll be going over why people call Herbalife a Ponzi scheme, how it is similar, and the truth of whether it is or not. I am not affiliated with Herbalife in any way so this is going to be an unbiased 3rd party review. I often review mlm opportunities like this so its something I have some experience in.
Why Herbalife Is Called a Ponzi…
If you Google “Herbalife Ponzi” you will find a lot of results. There is no shortage of people calling this place a Ponzi scheme and of course the last thing that you want to do is get involved in a scheme like this where you will more than likely lose money.
Herbalife is nutrition focused mlm company that has been around since 1980. They sell all sorts of health products (which are good quality by the way) and rely on a direct sales from distributors to keep their business running. Basically what this means is that they do not sell in retail stores. Instead, independent distributors go around selling the products.
Anyone can become one of these independent distributors and I’m guessing the reason you are reading this review in the first place is because maybe you got asked to join, or maybe a friend/family member.
As an independent distributor you can make money in 2 basic ways: by selling Herbalife products yourself and by recruiting in other distributors and earning commissions from what they do. This recruitment side of the business is why people are calling it all a Ponzi scheme.
Compensation Plan Explained
There are actually 4 ways to earn money with Herbalife in total but as you will see they do fall into 2 main categories as I just mentioned. These ways to earn include Profit on Retail, Profit on Wholesale, Royalties and Bonuses.
Profit on Retail
As a distributor you can buy products at 25% discount when starting out. You will then be able to turn around and resell these products at a retail price. As you sell more you will be able to move up the ranks and get up to 50% discounts.
Profit on Wholesale
When you recruit other distributors in you will make money from what they do. This part of the compensation plan pays you commissions based on the wholesale products that your personal recruits make.
Here you are able to earn up to 5% commissions from distributors in the first 3 levels of your downline. The people that you personally recruit in make up your level 1, the people that they recruit in make up level 2, and the people that they recruit in make up level 3.
Here you will be able to earn from 2-7% of your total organization (downline) volume.
So as you can see the Profit on Retail is the only part where you earn by selling products, everything else is based on recruitment. The amount you can earn ranges a lot. It is largely based on what rank you are and the rank is based on your personal sales volume and organizational volume.
Recruitment is a necessary step to move up the ranks.
I know this really might sound like a Ponzi scheme but let me explain what a Ponzi actually is and you will understand why it is not one.
What Is a Ponzi Scheme Exactly?
A Ponzi scheme is an investment scheme that lures in new investors with the hopes of making easy money. They can be very elaborate and appear to be completely legitimate but if you look inside their operations you will see that they provide no real value and that people are making money only by newcomers investing money.
They are basically a big flow of money from new investors to older investors.
I get why people call Herbalife one. I mean after all… recruiting in new distributors and earning from them is a big part of the business. However… Herbalife does provide value.
Herbalife is not a pyramid due to the simple fact that they do sell real products and this is what their earnings come from. Even when distributors are earning money from other distributors they are still only earning from the products that those distributors are buying and selling. So it all comes down to product sales in the end.
Now you could argue that some of the product sales are not legitimate. Some distributors feel forced into buying products just to move up the ranks and such. This is unfortunate and I get that some people do actually do this, and I get that the compensation plan can somewhat indirectly push them to do so… but they are not forced to do this and Herbalife does not advocate it.
I’ve Seen Worse
MLM’s (multi-level marketing) businesses can operate legally. They are allowed to have a pyramid-like recruitment structure. The big key to staying legitimate is to make sure that most of the revenue is coming from real product sales and not just from endless recruitment.
The truth is that I’ve seen much worse than this. I have reviewed plenty of mlm’s over the years. Shaklee, Youngevity, Plexus, Total Life Changes, and many more. There are others out there that operate completely legally and have much more recruitment focused compensation plans than this.
Herbalife actually does pretty good to ensure that they are not a Ponzi or pyramid scheme in any way. They…
- Require no minimum purchases
- Have a 12 month money-back guaranteed for the International Business Pack if you quit
- Don’t require distributors to purchase any sales (although some feel indirectly forced to)
They have been around since 1980 for a reason.
Not a Ponzi But…
Ok, so they are not a Ponzi (nor a pyramid scheme for the same reasons) but there is a downside to this business model.
MLM’s like this often have a lot of potential to earn great money but the income distribution is very uneven and only a small percentage of people will ever make really good money here.
The reason is because potential profits are taken away from those at the bottom and given to those at the top. This is great if you build up a big downline and can earn from those beneath you but if you do not do this then you will just constantly be passing commissions up to those above you…. commissions that you would be able to keep for yourself if there wasn’t a mlm business model.
And of course there are always many more people working at the bottom of pyramid-like structures like this so this means that most people are, in a way, getting screwed over. This is something that many don’t really think about when joining.
Conclusion on Herbalife – Is It a Good Opportunity or Not?
The answer to this questions all depends on you. This type of business is where people with “salesperson” type personalities thrive. Recruitment is a big deal and if you aren’t going to be the type of person that can go out and easily recruit others into your downline then its probably not the best idea.
Something else to consider is the age of Herbalife. They have been around forever. This means the market is much more saturated with distributors. They aren’t this “hot” new company that everyone is looking to get into. This can make it more difficult to recruit people in but on the flip-side they have a long standing reputation which helps them.
Anyways… its your decision to join or not. Personally I’m not because I would never be any good at recruiting people in, which is why I avoid mlm’s in general, but some people love this type of business.
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Questions, comments, concerns? Leave them below in the comment section and I’ll get back to you soon ?