Amway Business Model | Is Amway a Pyramid Scheme or Scam?
What is Amway?
Amway (short for “American Way”) is a multi-level marketing (MLM) corporation based in the United States that offers fitness, beauty, and home care goods. Jay Van Andel and Richard DeVos founded the company in 1959, and it is headquartered in Ada, Michigan.
The company was founded on the premise of giving people the means to make money after work hours, and it has grown into one of the largest and most successful home-based business opportunities in the world.
In 2019, Amway and its sister companies under Alticor posted $8.4 billion in revenue. It operates in over a hundred countries and territories across a network of associated companies.
Amway has been sued for suspected pyramid scheme activities in numerous countries and by agencies such as the Federal Trade Commission (FTC). Still, it has never been found guilty, despite paying tens of millions of dollars to resolve these suits.
Amway is a company that sells a variety of products that range from health and beauty care products to household supplies to pet food.
Amway Business Model /How does Amway make money
What is the business model of Amway?
Amway employs a hybrid direct selling/multi-level marketing model. People either enter the company as affiliates and sell Amway goods directly or support (recruit) others to do the same. Amway dealers, known as “independent business owners” (IBOs), will sell products directly to potential clients and support and mentor others to become IBOs.
IBOs can receive money from the retail markup on any goods they sell individually, as well as a performance bonus based on the sales volume produced by them and their downline (IBOs they have sponsored). People may also register as IBOs to purchase items at a discount.
According to Harvard Business School, Amway founders Van Andel and DeVos “accomplished their success by the use of an elaborate pyramid-like distribution system in which independent distributors of Amway products received a percentage of the merchandise they sold as well as a percentage of the merchandise they sold.
Amway’s business model is based on direct-selling, in which products are sold directly from the manufacturer to the customer. Amway sells various products, including health and beauty products, fashion accessories, home cleansers, water purifiers and filtration products, air care products, and more. Independent Business Owners buy these products in limited quantities for resale to their customers.
Amway does not sell on a retail basis but instead markets through Amway Business Owners (ABOs) who are trained and certified by Amway. ABOs are inspired to sell products online or via one-on-one sales calls at any time that is convenient to the customer. Any customer may purchase directly from Amway’s website.
ABOs may also choose to sell products at a discount via retail-type sales, events and parties, and other functions.
Amway’s marketing plan involves the sales of business support materials to ABOs. Amway also markets products directly to consumers through online shopping.
Amway’s stated goal is to help people become Independent Business Owners so they can achieve financial success. Although the ABO owns each business, Amway does not offer franchises or pay royalties on product sales and rental fees on franchise locations.
Amway has a well-established sales network, and its products are widely available in many areas. The company estimates that over 50 million people have been part of an Amway organization at some point; however, most of those who join will not progress to large levels of activity.
Amway is able to reach certain markets because of its direct selling model, which makes it difficult for other companies to gain market share. The company uses different models in different countries and in different sectors in order to make a profit and enter new markets.
In addition to the Amway Sales and Marketing Plan, Amway has an Education System which encompasses three interrelated “pillars,” or core components, of training: business development, customer service, and support skills, and unofficial education through local clubs.
Amway Primarily makes money through:
Retail Mark-up: ABOs will sell their goods at a mark-up (the difference between the cost and the retail price) to gain retail margin on the sale. ABOs are free to set their own rates, but Amway does create a suggested retail price for each product we sell.
Bonuses: ABOs will earn monthly incentives based on their personal sales volume – how many items they sell and what types of products they sell.
Growth Incentives – As their company expands and new members join their squad, ABOs earn monthly bonuses based on their team’s product sales amount. ABOs are rewarded with growth rewards such as one-time cash prizes and business vacations for meeting important business-building milestones.
How does Amway’s business work?
The Amway business is a multi-level marketing company and operates on the principle of selling products and services with an opportunity to become an Independent Business Owner (IBO). IBOs are able to make money from their own personal sales as well as by recruiting new people into the company.
The Amway business sells products and services through independent distributors.
The business model for Amway is simple: you purchase goods at wholesale prices from the company or from your sponsor and then resell them at retail prices to customers who are not affiliated with Amway.
This is possible because you get an extra discount on these products even though they were purchased already discounted, to begin with!
Is Amway a pyramid scheme?
Amway is not a pyramid scheme but a direct selling & multilevel marketing company (MLM).
In a pyramid scheme, a company pays outright commissions to its distributors for each new person that the distributors recruits. It can continue doing so as long as its new recruits outnumber its dropouts.
The company’s goal is to create a steady-state where its recruitment of new people is equal to the rate at which existing distributors are lost. This is not what Amway has in place.
How is Amway not a pyramid scheme?
Amway is an MLM company that mostly offers motivational tools, education, and training. It does not pay commissions for recruiting, although it does pay bonuses on occasion.
What Is an MLM?
An MLM is a Multi-Level Marketing company where people sell products directly to other consumers and get commissions from the sales they generate. In an MLM, people typically sign up to be distributors for a particular company and are then trained to sell the products that the company offers.
In addition to getting paid for selling products, distributors can also get paid additional commissions for recruiting new members to join their network of product sellers under them.
A company like Amway makes money by selling its products to consumers and selling the distributors’ products to their recruits. In some cases, the company makes money by paying the distributors for recruiting new people and bonuses for reaching a certain number of recruits.
Amway distributor’s primary job is to sell Amway products to their own retail customers, just like any other retailer. Amway distributors then get a bonus from the company for reaching a certain level. This bonus is paid out twice per month on average and comes from the company’s profits, not the distributors’ sales.
The company has to make money by selling products to people outside of the sales generated by its distributors. In business terms, this is what is called profit sharing, not a pyramid scheme.
Amway does have an affiliate program through which people can sign up new recruits online and get paid when those new recruits sell products or buy starter kits. This is a typical affiliate program and is not the same thing as being an Amway distributor.
Many other companies use similar programs, including, for example, Amazon.com. To clearly identify that a company pays commissions for recruiting others to join their business opportunity, it must have these four characteristics:
1) New recruits pay to join (buy starter kits)
2) Recruits participate in the event of a sale (or buy some product) to become distributors or consultants.
3) Each new distributor should continue to recruit new distributors.
4) Money paid to recruiters is a percentage of the starter kits sales made by the recruits.
Is Amway Legit?
This is a question a lot of people have asked. To many, the answer seems to be no, because they think Amway is a scam. Those who are familiar with their products and services may disagree, but what is Amway?
Amway is a legit business that uses a network marketing business model. The Amway corporation has been in business for over 50 years. However, the company’s journey has been riddled with controversy. Amway has been through a lot of scrutinies over the past few decades. On one side of the argument, there are those who claim that Amway is a legitimate network marketing company with products that provide real value to consumers.
What is bad about Amway? Is Amway Bad?
Amway has a lot of positive aspects. They sell high-quality goods and have a support structure to help you in your business path. Amway, on the other hand, has a mixed reputation for the following reasons.
- Amway’s goods are overpriced, and comparable quality products can be purchased for less money from rivals such as HLL and other non-durable consumer firms.
- Amway has such a bad name that people prefer to ignore you if you tell them you work for them. Amway dealers may have acted unethically in order to increase profits and hires, but that is not the only reason.
- Amway distributors are well aware that the majority of the recruits they enroll in would fail in this venture. According to credible figures, more than 60% of people who start a company fails. In some ways, it is immoral for someone to try to persuade an uninformed and financially needy individual who lacks the necessary qualifications to be a successful businessman to enter Amway. The distributor profits from the few hire, who will leave at a loss sooner or later due to the difficulty of running a profitable company.