Friday, 7 July 2017

Will Amway make you rich?

No.

Maybe I should just stop there? Do I need to go any further? Ok, maybe I do.

Amway is one of the world’s biggest Multi-Level Marketing schemes. Originally founded in the USA in 1959 it has a long history of selling a wide range of things including household goods, health and beauty products and foodstuffs. These products can’t be bought in stores but instead are bought and distributed via a multi-level recruiting mechanism. If you join Amway, not only will you be able to buy the products but you’ll also be encouraged (often very forcefully) to recruit people beneath you and you’ll then encourage those new recruits to recruit others beneath them. They call that your “downline” and the series of people above you will be your “upline”.

You can see why many people think of Amway as a pyramid scheme and it’s an accusation that’s has been made many times since Amway became the global company it is today. On various occasions government regulatory agencies around the world have investigated them, most notably in the USA, Canada and the UK. In each of these countries regulators either prosecuted them for crimes such as tax evasion and customs fraud, price fixing, and misrepresentation.

However, Amway is not actually a pyramid scheme, at least not technically. A pyramid scheme is usually defined as a business where the majority of the earnings come from the recruitment of other people lower in the pyramid and where the income from selling products is either minor or non-existent. In Amway’s case there are lots of products to buy. Whether they’re any good, or if they’re worth the money you pay for them, is another issue. Many Amway distributors will tell you that their products are good but, my observation is while this might be true, very often the same or better products can be obtained either at the same price or more cheaply via conventional channels. The spaghetti that Amway sell is certainly high quality and is made according to the traditional Italian bronze die method but Woolworths sell the same thing. And cheaper too.

My biggest concern about Amway is that Amway distributors, known as IBOs, Independent Business Owners, is that when they try to recruit you, they don’t mention the luxury spaghetti and beauty products, but something else. I know this is true because very occasionally I get the approach from someone I vaguely know (and who clearly doesn’t know me very well) who wonders if I’d be interesting in “an exciting business opportunity”. They’re selling a way to make money.

The problem is that this simply isn’t true. You can’t make a fortune or even a small amount from joining Amway. And don’t think I’m asking you to take my word for it. I’m asking you to believe Amway themselves.

About ten years ago Amway were investigated by the UK Government’s Department of Trade and Industry who sought to ban them. This case was eventually dropped but only after Amway dramatically modified its business practices. As a result of this, Amway in the UK are now required to publish income data for their IBOs and that’s where we get the evidence, the evidence that shows how little people actually make from joining the scheme.

The “Amway earnings disclosure statement(195kb pdf download) they published in March 2016 but which refers to the earnings people made between October 2014 and September 2015 make very poor reading.

The statement says that during this period in the UK they had 20,678 "Retail Consultants", people who are “developing a customer base through product retailing”. They also had 18,915 "Certified Retail Consultants" whose job was to “maintain a solid customer base through product retailing and introduce others to the Amway Business Opportunity”. Finally they had 59 "Business Consultants" whose job was to expand “the business by supporting and training RCs and CRCs on retailing products and building their Amway business”.

The average income figures for these groups were, I'm afraid, pathetic.

Retail Consultants had an average income of a mere £40 per month which is £480 per year, Certified Retail Consultants averaged only £106 (£1,272 per year) and the 59 Business Consultants only brought in £1,954 each month (£23,700 per year).

That last figure, the earnings for the Business consultants might sound impressive but for reference, the average annual income in the UK in 2015 was £27,456.


So the top group were, on average, earning less than the average worker, despite being the ones who presumably were working themselves harder than anyone else in the Amway pyramid. The statement also goes into a bit more detail about those 59 Business Consultants. Only one of them had reached “Diamond” status during the year, the level where they earn more than £50,000. Only one out of nearly 40,000 people in the business operating in a country of 61 million people.

That really is a very sad set of statistics.

But it gets worse. The statement refers to “income”, not profits. They don't take account of the costs involved in running an Amway business, of recruiting people beneath you, paying for electricity, phone, travel and internet costs. Nobody really knows how much Amway IBOs spend on such things, apart from the IBOs themselves, and they rarely tell the world about that because they’re too busy trying to recruit other people to make some money from them joining. However, the estimates I’ve seen suggest that 99% or more people who join schemes like Amway actually lose money rather than make some.

In short, even in a large economy like the UK hardly anyone makes even the average national wage if they join Amway. So why should we think it would be any more lucrative in Botswana, a country with a comparatively tiny population?

And what about the other Multi Level Marketing schemes that are constantly appearing? Surely if even the largest of them can’t offer people an income, how can you expect the little ones to do so?

The lesson is very simple. Multi Level Marketing schemes will cost you money, not make you any. The evidence shows that.

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