Amway Business Model | Is Amway a Scam?

Amway, derived from ‘American Way’ is an American company which deals in health, beauty, and home care commodities. The company owes its foundation to Jay Van Andel and Richard DeVos in Ada, Michigan, and roots back to 1959.

Formerly counted among the top companies by the Forbes Magazine, the dual principles of Amway Business Model – direct selling and multi-level marketing – have triggered flames of controversy in the past. Let’s discuss the business model of Amway before moving ahead to discuss whether Amway a scam or not.

What does Multi-Level Marketing (MLM) mean?

Multi-level marketing, popularly termed as Network or Referral Marketing, has always been in the news due to its seemingly contentious scheme of marketing. It involves selling of goods and services through partners and promoters. The earning from the sale is attributed not solely to the seller. The payment of the associates is through a multi-level system of commissions.amway business model network marketing

These salespeople work lower down the hierarchy. They sell products straight out to as retail distributors through promotional marketing schemes.  They are also entrusted with the job of recruiting newer dispensers down the hierarchy to expand the network by the day. Either they themselves sell the concerned products or sponsor its sale by someone else.

Amway Business Model

The Amway Business Model adopts a similar fashion of network marketing wherein each trader on top of the ladder engages other traders down the line, resulting in a network, and everyone selling the products of the company too.

How does Amway work?

Amway business model isn’t too complicated to comprehend. You –

  • will be recruited by a distributor,
  • will act as a distributor ( IBOs, or “Independent Business Operator”), and
  • will sell the company’s products and get more people on board in order to earn profits.

The profits are earned as commissions when you or any IBO appointed by you sell company’s products. The IBO you appointed will be your downline and when they sell anything, you’ll get a bonus commission.

How is the Amway Business Model different from the rest?

Every company, even the one you are employed in, has a certain chain of command for its employees, in terms of power, responsibility and income. The ones on the top of the ranking (the ones who were recruited earlier) earn more than the ones below them (the ones who are recruited later). With the Amway Business Model, there is no such situation, though. Tradesmen down the line, that is the ones who are recruited later, can earn more than the former ones.

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According to the Amway Business Model, the revenue of the distributors is directly proportional to their sale charts. Also, Amway provides real commodities to consumers. The distributors, according to the proposed model, are not paid for merely expanding the network by introducing new workers down the chain.

The Amway Model is acutely infiltrated into the market and that is what makes it unlike the others and appears as a sham to many. This is because the networking needs to keep on increasing for better results – more and more people are to be made to join hands and more and more people are to be talked to. They put to use a stair-step trade form for their sales, and a compensation plan for their earnings.

Consumers of Amway’s Networking Business Model

The reality of Amway’s networking business model is that besides the retail end customer, the very salespersons recruited or sponsored by the ones higher up in the network also act as end-user retail customers for Amway as they are required to pay an entry fee to join the network. Furthermore, a major part of the proceeds is obtained from the sale to partakers itself. Only a tiny fraction of the total returns actually owes its roots to non-participant consumers. This fact has no proof from the company, because of obvious reasons. The company wouldn’t want to disclose the number of participants actually responsible for the company’s turnover! Or maybe, they do not even differentiate between the sources of revenue to keep records at all!

If you still couldn’t decode the Amway Business Model, here’s a little cue for you. Imagine you are working at Amway. You need to buy a beauty lotion. Instead of buying it from a retail store, you buy it from yourself – that is you buy it as a participant of Amway. The company sells out one product, you spend money, yes, but you get the proceeds of income. Since this is not a very feasible form of earning, you would want to sell products to more non-participant consumers, or you would want to add further participants down the chain, whose sale proceeds (actually some part of it) would also come to you. The more you buy from Amway, the more you earn. The more you sell to others, the more you earn. The more participants you employ, the more you earn! They key is to find more and more down-levels so that you do less and earn more.

Is Amway a Scam?

No. It’s not.

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The Business Model of Amway is one that has been subject to several controversies and objections. Its Network Scheme has been a case of constant conjecture. Back in 1975, its functioning was questioned by the Federal Trade Commission. It went against the proposition of its Networking Business Model, which was confused for a Pyramid Model. A pyramid model is one where people earn simply by recruiting new participants. This gives them the unjust advantage of earning through the appointment of friends and relatives.

It was held that the participants of Amway focused purely on recruiting newer ones down the hierarchy and not on selling products. Apparently, several fraudulent promises were made to lure people into the Amway network.

Amway has pondered on altering its business model in according to implications of restriction in countries like China, in order to continue marketing in the Chinese domain. An Indian court had questioned Amway India’s Business Model, in defence of which Amway cited the lack of a novel legal structure in the country. Amway has pleaded to ensure that monetary transmission policies weren’t befuddled with those of direct selling. The claim had been fruitfully accredited by top legal connoisseurs who approved of its Business Model in India.

Issues pertaining to the concept of Amway’s marketing model or those related to the class and cost of its commodities are justified enough to be raised and debated on. The blame of fraudulence on the company, however, seems a bit incredulous. FICCI, in India, had also supportively articulated for
Amway, stating that there were no alleged illicit or falsified activities involved in the Amway Business Model and hence such views and comments should be discarded.

Scamming is something that comes with human nature. Someone who catches hold of a novice in the profession would try to outdo him for his own good, through fraud and fake promises. The underlying fact is that the Amway Business Model is not a scam. Just that it is not really a pyramid model of business – all it relies on is a granted hierarchy of partakers who purchase, retail and further spread out this sequence to earn more proceed-fractions, which is more of a network than a pyramid.

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  • Avatar Hunter Onstad says:

    No Amway is not a scam, its just business. You will get what you put into Amway, as a former IBO myself (still earning money from Amway by the way, out of my control) I’m glad I went with Amway. It’s a very inexpensive way to get started with building essential entrepreneurial skills. Nowadays having an Amway and Network 21 business is so easy you can run the business on your phone while taking a dump.
    Today what brought me here is the fact that yet another person insists that Amway has scammed them.

    Guess what, you scammed yourself. When you fail at business and life are you going to say you were scammed? Probably so, and if that is you I feel sorry for you. If you fail at Amway it’s likely you will fail at getting any business going, no lie. This article said it, it’s a business model that is NOT HARD to grasp, and once you do grasp; you build on it. You build on the model, you build your business, your network, and your skills.
    That’s all I can say about this, hopefully someone can Learn something!

    • Avatar Kasey Donahue says:

      Actually my biggest issue with Amway is that the products are insanely over priced and that makes it very difficult for us family members to justify buying products from “Amway business owners” even our relatives. I like this XS cocowater stuff, but it’s friggin $29 for 12 packets of water enhancer. Those sell for MAYBE $5 at Target.

    • Avatar anonymous says:

      Bro, you don’t even do any work for them anymore. I wonder how much of your own money and time your poured into Amway before you realized it was a legal scam. Amway does not make their profits from the retail sales, but from their own employees. how many seminars, books, and videos did you have to pay for? How many times did you travel to one of the seminars? How much did you lose?

  • Avatar Be Reasonable says:

    Amway products must be priced higher than retailers because the layers of middlemen created by the Amway distribution process must receive their bonuses. For this reason, Amway cannot compete with big retailers like Target and they must rely on their distributor force to purchase the majority of their products with the lure of earning a bonus.

    Many fail in Amway because the system is designed that way. On Amway.com it says that only about .26% (about 1 in 400) reach the gold level, which is about where a hard core IBO begins to break even when factoring in business expenses.

    The only way to profit seriously in Amway is to constantly recruit new people until you can reach a point where you get to participate in the profit from tools and seminars. Unless you reach that point, you are just spinning your wheels and more than likely, showing a net loss at the end of each month.

    Of course the way to achieve that level is to deceive others so if you can live with yourself in ding that, go for it. I’d rather make an honest living.

  • Avatar Huh Nikka says:

    “Tradesmen down the line, that is the ones who are recruited later, can earn more than the former ones.”

    I’m sorry, how does this even make sense. Wouldn’t I wanna remain at the bottom of the chain aka “one who is recruited later” if in that manner I would be earning more?

    • Avatar Aashish Pahwa says:

      Hi Nikka
      You took it in a wrong context. We meant that the profits and earnings of Amway IBOs isn’t dependent on their experience. They get more profits if they perform well and the IBOs recruited later can even outperform those who were appointed before them.

  • Avatar Tom says:

    I think we should voluntarily join Amway and invite all current and future college graduates to sign up willingly every year and do the business until the average IBO makes $10,000 per month.

  • Avatar michael grimes says:

    caveat emptor

    Amway is worth billions, but the average distributor loses $$$. Do the math.

    • Avatar Me says:

      Sorry, but your comment doesn’t make a sense. I will tell you why.

      In MLM, an average distributor does nothing or very little, so he/she has no expenses at all, i.e. he/she cannot lose money. The expenses often mentioned by the critics are those that only active people have, but these people also earn money for their activity.

      If you have a group of 1000 distributors with 100 money-making active distributors attending functions, you cannot say that the 1000 lost money buying the tickets. First, 900 of them never attended the function and, second, the rest of them earn enough money which can easily cover their expenses.

      Let’s look at the following group:

      – 100 distributors, each earning $2000 per month and having expenses of $300.
      – 900 registered customers, no income

      Average distributor – by your definition – makes only $200 (100*2000/1000). If you then incorrectly assume that ALL distributors have expenses of $300 per month (which can be true for the active ones only), you will get what average 😉 critic gets – a nonsense.

      The truth is, however, that the customers don’t make any money (which is nothing surprising) and that active distributor makes $1700 per month.

      This is why you cannot use a term “average distributor” in such an ssymetric distribution. Understand the basics of statistics before you make comments like you did.

      Have a nice day.

      • Avatar Steve says:

        In Amway, the primary business expenses are the tools and training. Some people call it the tool scam. The training is never ending and totally ineffective. People think the tools and functions will magically propel them to success but the exact opposite happens and the tools are the reason why they suffer business losses, sometimes massive losses.

  • Avatar Prakash says:

    Amway is a great company. Amway introduced the concept of Network Marketing/MLM to the world. But every legal network marketing company can not be suitable for everyone.
    To choose a network marketing company we should follow the concept of 3P – People Philosophy, Product and Plan/Profit/Payout.

  • Avatar parveen verma says:

    Please confirm business modal

  • Avatar Geebo Harris says:

    Amway may or may not be a pyramid scam but one thing you can be sure about, it’s a great “business” to be in if you’re trying to drive away your friends and family

    • Avatar Aashish Pahwa says:

      Haha yes, network marketers are not liked by many.

    • Avatar Steve says:

      Amway is basically a product pyramid. For some reason, the FTC overlooks that consumers get hurt financially by having this scam continue to operate but Amway has now become a powerful force politically where they can lobby and influence lawmakers to look the other way. The sad fact is that the world is not a better place because of Amway.

  • Avatar Hayley says:

    Amway works. It’ll work if you put some hard work and dedication. By doing so, you will lose all your friends and family as well as your money. Do not buy into this bs. You will NOT be one of their success stories.

    • Avatar Jonathan Goehring says:

      Thank you. Realized this recently, more people, especially young people, need to know. Don’t be afraid of real work and always steer clear of creepy pyramid schemes like Amway!

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