http://skepdic.com/amway.html

Amway, a subsidiary of Alticor, is the largest multi-level
marketing (MLM) organization in the world. It is a multi-billion
dollar a year company based on the sale of products as varied as
soap, water purifiers, vitamins, and cosmetics. One of Amway's
most important products is motivation. Selling motivational
products at motivational seminars is one of the more lucrative
aspects of this enterprise. Amway proponents are fond of
asserting that their products are of the highest quality, their
company is very large (several million distributors and several
billion dollars in annual sales), and does business with such
giants as Coca-Cola and MCI (bought by Verizon).

In Amway, one is recruited as an "independent" distributor of
Amway products by buying a couple of hundred dollars' worth of
the products from the one who recruits you, known as your
"upline." Every distributor in turn tries to recruit more
distributors. Income is generated by sales of products by the
distributor plus "bonuses" from sales of his or her recruits and
their recruit-descendants.

Here is a description from an Amway distributor as to how it
works.

It goes like this:

If I buy $200 of stuff from Amway this month, I'll get a 3%
bonus check (3% of $200 = $6). If I share the opportunity with
nine others, and we each buy $200 of stuff from Amway this month,
they each were responsible for $200 and will get $6, but I'm
responsible for $2000, moving me to the 12% level. I get $240.
However, I'm responsible for paying the bonuses of the people
right below me - $54 - so I keep $186. I make more because I did
more, I found nine people who wanted to buy at a discount and get
a bonus for doing it. After I reach the 25% bonus level there are
other bonuses that kick in, but they're all based on the volume
of product flow, not on signing people up or having lots of
people (Bob Queenan, personal correspondence). [April 7, 2004.
Gary Elliot Murway writes: Please correct: distributors/IBOs no
longer need to pay downline bonuses. Quixtar can pay each IBO
directly.]

Amway defenders take offense at describing this method of sales
and recruitment as akin to a pyramid or chain letter scheme. It
is true that MLM as practiced by Amway is not an illegal pyramid
scheme. Amway has been taken to court for being an illegal
pyramid and the courts have ruled that since Amway does not
charge people either for joining Amway or for the privilege of
recruiting others as distributors, it is not an illegal pyramid.
Illegal pyramids and chain letters have no product. Amway has
lots of household products: from laundry detergent to vitamins,
from cosmetics to water filters. Amway is a legal pyramid scheme.
the legal pyramid

There are several distinct aspects of MLM schemes that justify
calling them legal pyramid schemes. One is the aspect of the
chain or line of distributors whose income depends primarily not
on their own sales of Amway products but on sales made by others
whom they've recruited. The actual practice gets fairly
complicated. Here is how Bob Queenan, cited above, describes it:

Now we get into the actual mechanisms. While my product volume
is low, it makes sense to combine my order with other orders to
reduce the paperwork that Amway has to deal with. So the way I
order from Amway is to call my "upline" and place my order. My
upline combines my order with others and calls Amway directly.
Amway would normally ship direct to the upline, and we'd all go
over and pick up our products. In my actual case, I live too far
away from my upline to make that practical, so I order through my
upline, but get direct shipments from Amway.

Do I sell to other distributors? No, we all buy direct from
Amway.

Do other distributors order their products through me? Yes, I
combine the orders and send them to Amway.

Do I get money from my distributors? Yes, for the products they
buy. I write a combined check to Amway.

Do I profit if my distributors buy more? Yes, I do -- so do
they, but yes, I do.

Is my bonus from their money? It's from the bonus pot, which is
filled with money saved by not paying middlemen.

Am I missing something here? Haven't the distributors become
their own middlemen? Aren't the distributors selling to each
other? Isn't income mainly generated by recruiting new members to
the organization? Isn't Amway Corporation the big winner in this
scheme?

An Amway customer is not just buying a detergent, but is
recruited into being a minister of a faith with a complicated
bookkeeping scheme. Why not just go to your local store and buy
soap, you ask? Because the agent is someone you know, or who
knows someone you know, who's invited you over for coffee to tell
you about a great opportunity. Odds are good that you'll either
buy something out of politeness or a genuine need for soap or
vitamins, etc. Perhaps you will become an agent yourself. Either
way, the agent (distributor) who sold you the soap or vitamins
makes money. If you become an agent (distributor) then part of
every sale you make goes to your recruiter. The new recruit is
drawn into the system not primarily by the attractiveness of
selling Amway products door to door, but by the opportunity to
sell Amway itself to others who, hopefully, will do the same. The
products seem secondary to the process of recruitment. Yet, the
distributors will learn to talk about little else than the
product and its "quality." What justifies MLM schemes is the high
quality of their products. What entices the recruit, however, is
likely to be the attractiveness of making money from others'
sales, not the products themselves.
Do the numbers add up?

[Note: the data used in the following paragraph is outdated. I am
not going to try to keep up with the specific dollar amounts in
sales and the number of distributors. The current Amway Global
website does not give the numbers needed to determine how much
the average distributor makes. Wikipedia claims that sales for
2008 were $8.2 billion, up from $7.1 billion the year before,
when the sales force was over 3 million. Sales for 2010 are said
to be $9.2 billion. Alticor reported sales of $11.3 billion for
2012.]

According to Amway, their annual sales amounts to about $7
billion and there are 3 million distributors. Thus, the average
distributor's sales amounts to about $2,333/yr. If 30% of that is
profit, the average distributor makes $700/yr. Klebniov claims
that the average income is $780, but the average distributor buys
$1,068 worth of Amway goods himself and also has expenses such as
telephone bills, gas, motivational meetings, publicity material
and other expenses to expand the business. "The average active
distributor sells only 19% of his products to non-Amway
affiliated consumers," according to Klebniov. "The rest is either
personally consumed or sold to other distributors." In the United
States, the Federal Trade Commission requires Amway to label its
products with the message that 54% of Amway recruits make nothing
and the rest earn on average $65 a month. No such labels are
required in other countries, but the facts are clear. Most people
who get involved in Amway will not make money.

Far from boosting their incomes, the vast majority of those who
become Amway distributors, particularly those in 'the system',
are likely to end up losing money.

The majority of the wealth of the tiny number of top-ranked
distributors in this country comes not just from the sale of
Amway products but from selling motivational materials and
organizing seminars and rallies for the people below them
(Thompson).

Amway has made a very few people very rich while paying its foot
soldiers more in inspiration than in cash (Thompson). There is
nothing particularly unique about this in the history of
business. What is unique is the faith, devotion and hope that the
foot soldiers have. (Note: the numbers in the paragraph are from
2005-2006.)
Is Amway a cult?

Critics of Amway have compared it to a cult whose main product is
Amway itself. Amway folk do resemble religious devotees in some
respects. They have great faith in their company, its products,
and the hope for wealth and early retirement. They attend
seminars and meetings that are reminiscent of revivalist
meetings, where the power of positive thinking replaces (or is
accompanied by) faith in Jesus. Instead of a parade of souls
healed by faith, Amway faithful are treated to testimonials of
early retirement with plenty of money. While there have been some
accusations of persecution of those who have left the flock, by
and large Amway devotion seems harmless enough. Amway doesn't
seem to differ much from other zealous big corporations which
preach positive thinking about the business of business in
endless motivation seminars and retreats, books, tapes,
brochures, among other things (Klebniov).

Graham Baldwin of the United Kingdom compares an Amway
motivational meeting to a revival or cult meeting. The former
university chaplain tries to help people break away from
religious cults with his program called "Catalyst." Soon after
one of his broadcasts, he got a call from a man

who explained how the group he had joined a year earlier was
slowly taking over his life. There were the huge monthly meetings
at venues like Wembley Conference Centre where he and thousands
of other followers were worked into a passionate frenzy then told
to go out and find as many new recruits as possible; there was a
powerful doctrine that frowned on television, newspapers and
other 'negative' influences; there was the strict dress code and
advice on how to bring up children and relate to loved ones;
there was the fear that to quit would mean giving up hope of a
happy future.

However, having seen the television show featuring Baldwin, the
man now alleged that he was being subjected to mind control
techniques and being manipulated by those above him. He wanted
advice on making a possible break. Baldwin asked which cult the
man was in.

"It's not a cult. It's not a religion. It's something called
Amway" (Thompson).

To some of Amway's critics, Amway may look like a religious cult,
but to others it just looks like a shell game. The ministers of
the faith work their magic by constantly calling your attention
to the quality of their products, their concern with ethics, the
wealth of their company, their association with Coca-Cola or MCI,
the claim that they don't have to pay the middleman or
advertising costs, and the numerous testimonials of the faithful
who have passed through the valley of death and have arrived on
the mountaintop with buckets of gold. Meanwhile, you do not
notice that the products are secondary to the process of
recruiting new distributors of those products. You do not notice
that the wealth and associations of the company are irrelevant to
its promises of wealth to the millions of distributors recruited.
You do not notice that many costs, such as mailing, handling,
doing forms, advertising, and driving personal vehicles to
deliver or pick up products, are picked up by the distributors
themselves. You do not notice that even though some people make a
decent or more than decent living exclusively through Amway, the
chances of all or most distributors making such wealth are
absurdly small. You do not notice that while the leaders talk
about ethics they are stimulating resentment and greed. And of
course you never hear the testimonials of those who feel cheated
by Amway; dissidents are not allowed to give their testimony at
revival meetings.

The shell game gets even more complicated because when it is
pointed out that most people who are Amway distributors either
lose money (they buy more products from Amway than they sell) or
make a very modest income, the ministers of the faith don't
respond honestly and directly by saying that that is what should
be expected from such a system. Instead they claim that no one
said you would get rich quick at Amway; no one promised great
wealth with little work. Those who fail do so because they are
failures. They don't work hard enough. They don't devote enough
time to their distributorship and recruitment. The failures need
motivation!
the dissidents

Paul Klebniov writes that

Former distributors and Amway officials say that like many
movements based on a cult of personality, Amway's attitude toward
any insider critical of the organization has bordered on
paranoia. Edward Engel was Amway's chief financial officer until
1979; he resigned over a disagreement with DeVos and Van Andel
[the founding fathers of Amway] on how to run the Canadian
operations. This apparently branded him a traitor; he says he and
his family received threats for years after his resignation. "It
was a Big Brother organization," says Engel today. "Everyone
assumed that the phones were tapped, and that Amway had something
on everybody."

In 1983 Engel's former secretary, Dorothy Edgar, was helping the
Canadians in their investigation of the company. She was roughed
up in Chicago, after she was told to "stay away from Amway."
Engel, who picked her up after the incident, says he believes her
story. Amway would not comment on the incident.

There was extremely bad publicity in 1982 when a former
distributor, Philip Kerns, quit to write a damaging expose called
"Fake it Till You Make It." Kerns charges that Amway used private
detectives to follow him and rough him up. Kerns' expose prompted
the "Phil Donahue Show" and "60 Minutes" to run uncomplimentary
pieces on Amway. Amway's recruitment dropped off; with it, sales
plunged an estimated 30% in the early 1980s.

In 1984, another former Amway insider, Donald Gregory, says he
started to write a book on Amway, but the company obtained a gag
order against Gregory in a Grand Rapids court" (Klebniov).

Even so, the vast majority of Amway distributors are probably
decent people who believe in the quality and value of Amway
products and who are in it to make money in a legal and ethical
way. They are not responsible for what the founders or "uplines"
do. They are not making wild promises about making millions of
dollars with just a few hours of work a week to their friends.
The average Amway distributor is undoubtedly not like James
Vagyi.
Amway comes to Hungary

Now that capitalism has come to many former communist nations in
Europe, Amway has spread its ever-replicating roots into
countries such as Hungary and Poland. James Vagyi, the lead
recruiter in Hungary, tells potential recruits that the minimum
income is about $9,000 a month [700,000 forints]. Mr. Vagyi says
to a group of potential recruits, "If 10 million people were
persuaded for 40 years to build socialism in Hungary, you can
each find six people to do this." If those six find six who find
six who find six, you will be rich in no time. Mr. Vagyi shows
his audience a videotape that ends with a message from Amway's
co-founder, Richard DeVos: "Ethics and caring for people are the
fundamentals of Amway's business." Maybe. But apparently some
distributors have cynical views of ethics and the only people
they seem to really care for are themselves. Still, isn't this
true in every business? Aren't there always a few bad apples who
give the whole group a bad reputation?
Is the appeal to greed or to need?

It isn't very likely that the majority of Amway's distributors
follow Vagyi's example. Nor do they follow the example of Michael
Aspel who used a curious recruitment video in London. The video
"features couples who live in enormous detached houses and have
luxury cars, talking about how much freedom and independence the
Amway opportunity has given them. The narrative tells how the
company is built on "ethics and integrity" and how it has helped
"thousands improve the quality of their lives" (Thompson).

Furthermore, there is no doubt most Amway meetings are not like
the one described by Paul Klebniov:

One weekend this summer over 12,000 enthusiastic people gathered
for a rally in Richmond, Va. A handful were wealthy distributors
of Amway Corp's products; the rest wanted to be. The meeting
began with a prayer and a Pledge of Allegiance. On stage, Bill
Britt, the master Amway distributor who organized the rally,
introduced the other top distributors, who had arrived in their
Cadillacs and Mercedes, flaunting expensive furs and jewelry.
With the introduction of each of these role models, the crowd
cheered.

Stories such as Klebniov's inevitably lead to the question, Does
Amway encourage fraud? The answer is No. However, one of the main
criticisms made of Amway and other MLM organizations, is that
they inevitably encourage unscrupulous people to defraud the
gullible into thinking that with a little hard work they can
become rich beyond their wildest dreams. These unscrupulous
people become rich themselves, not by selling Amway products but
by selling the concept of Amway and "inspirational materials"
such as books, tapes, seminars, etc., aimed at motivating a
person to think positively. Critics argue that while it is
possible to make a decent living selling Amway products, a
realistic person should not expect more than a supplement to
one's income from selling the products. The real money is in
recruiting people into Amway. The really big money is in selling
motivational materials, i.e., hope.

See also multi-level marketing, MLM harassment and pyramid
scheme.

reader comments

further reading

books and articles

Butterfield, Stephen. Amway, the Cult of Free Enterprise (Boston:
South End Press, 1985).

Carter, Ruth. Amway Motivational Organizations: Behind the Smoke
and Mirrors (Backstreet Publishing, 1999).

Conn, Charles Paul. The Possible Dream: a Candid Look at Amway
(New York: Putnam, 1985).

Klebniov, Paul. "The Power of Positive Inspiration," Forbes,
December 9, 1991.

Fitzpatrick, Robert L. and Joyce Reynolds. False Profits -
Seeking Financial and Spiritual Deliverance in Multi-Level
Marketing and Pyramid Schemes (Charlotte, N.C.: Herald Press,
1997). See my review of this book.

Smith, Rodney K. Multilevel Marketing: a Lawyer Looks at Amway,
Shaklee, and Other Direct Sales Organizations (Grand Rapids,
Mich.: Baker Book House, 1984).

Thompson, Tony. "The Hidden Persuaders," Time Out, June 22-29,
1994.

websites & blogs

Union Fights Amway

MLM Watch

In pursuit of the almighty dollar - Dateline investigation:
Inside story of business that attracts people with promise of
easy money by Chris Hansen

What's Wrong With Multi-Level Marketing? Dean Van Druff

FTC - The Bottom Line About Multilevel Marketing Plans

FTC's Online Booklet: "Net Based Business Opportunities: Are Some Flop-portunities?"

The Mirage of Multilevel Marketing by Stephen Barrett, M.D.

Steve Hassan on Amway Cult expert Steve Hassan provides an
interview in which he details techniques that have been utilized
upon MLM distributors. Steve Hassan has been retained by families
to provide cult exit interventions for Amway/Quixtar IBO's as
well as those involved in other similar organizations. Mr. Hassan
has a master's in counseling psychology (M.Ed.), is a licensed
mental health counselor (LMHC) and a Nationally Certified
Counselor (NCC).

news story

Amway invests in China based botanical research center By
Michelle Yeomans, 28-Oct-2015 "Amway has invested $13 million in
a botanical research center in Wuxi, China where its researchers
will study traditional Chinese medicine plants for health and
beauty products."

Court Grants Approval of Class Action Settlement Against Amway
Corporation in Gift Card Lawsuit Consumers Will Be Able to Redeem
$20 Million Worth of Expired Gift Cards

"Amway received millions of dollars from consumers for gift cards
that were never redeemed and that contained 'redeem before' dates
that have passed," said James Kawahito, class co-counsel of
Kawahito, Shraga & Westrick LLP (Los Angeles). "In California and
many other states, laws designed to protect consumers make it
illegal for gift cards to contain any expiration date."

The settlement for deception regarding gift cards comes on the
heels of an earlier settlement for "abuses in the operation of
Quixtar’s multi-level marketing business....These abuses included
structural incentives toward recruitment of other distributors
rather than merchandizing; misleading statements regarding
Individual Business Owners’ (IBOs) business prospects; overpriced
goods that were difficult to market to retail consumers; and
inducements for IBOs to spend substantial amounts of money on
motivational books and tapes."* The suit, filed in 2007, alleged
that Quixtar (which has since been dissolved by Amway) is an
illegal pyramid scheme because most of its sales are to
distributors rather than retail customers. The plaintiffs also
charged that the company's arbitration policies prevented most
distributors from recovering their losses if problems arose. The
settlement called for payment of $34 million in cash and $21
million in free products.

Amway hopes marketing will help it continue comeback in U.S.
Quixtar (dissolved back into Amway beginning in 2007)

ZDNet reported on Amway's entry into e-tailing which is known as
Quixtar. All Amway agents (now to be known as IBOs: independent
business owners) have been invited to open up their own e-mall,
selling not only Amway products but products of other
manufacturers as well. The emphasis, as with Amway, will be on
multi-level marketing, i.e., recruiting new Quixtar agents who
are encouraged to recruit agents ad infinitum. Agents will get a
cut of sales made by those they recruit, and by sales of recruits
of recruits, ad infinitum theoretically.

Why would the 5th and 6th richest men in the world, Rich Devos
and Jay Van Andel (d. 2007), founders of Amway, want to get
involved with Internet sales? For one thing, there is a lot of
money to be had in e-commerce: they're hoping for $1.5-$2 billion
in sales the first year...better than Amazon.com or E-Bay.
Secondly, sales at Amway have dipped recently (18.5% drop in
1998).

Why not call the new company E-Amway instead of Quixtar? That
might have something to do with name repulsion.

Will it work? It will certainly work for Devos and Van Andel.
They will have millions of agents to sell products, including
their Amway products, from the day they open on September 1,
1999. Unlike Amazon.com, who had to spend some time recruiting
agents to sell their products, Quixtar will be able to bank on
Amway agents to aggressively market their products from the get-
go. How much money will the Quixtar agents make? They may think
they will become nanosecond millionaires but my guess is that
they will fare about as well as they did as Amway agents.

Note: Quixtar eventually dissolved back into Amway.

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