Friday, August 28, 2015

Where's The Amway Success?

I heard a great comment from a commentator on a related Amway blog. Basically, he said if IBOs were so successful, people would just naturally be attracted. And that's true! Where I live, the local electric company is an attractive place to work with a good salary and benefits package. When there's a handful of openings, you might get as many as 6,000 people applying for these positions. When the federal government hires for the post office, you get thousands of applicants for a handful of jobs as well. But instead, we hear of Amway IBOs tricking people or lying to people just to get them to see the Amway plan. The best attraction would be people actually making money but that is rare in Amway.

IBOs often have to justify their positions. The common ones are how Amway products are concentrated, or they have magical ingredients in their vitamins. It is my position that if these products were so good and the opportunity actually produced successful IBOs, there would be no need to be deceptive about the products or opportunity. The products could easily be marketed. In fact, customers would be seeking IBOs to find the products and there would be lines of people waiting to see the opportunity. If the Amway system and products were s good as some IBOs claim, the masses would be flowing to your presentations, not having to be deceived into attending an opportunity meeting.

Instead, IBOs themselves are the primary consumers of Amway products. Many IBOs are deceptive when inviting people to see the Amway plan. Some prospects are outright lied to when recruited for the Amway opprtunity. The curiosity approach is still used by many, because mentioning "Amway" is more likely to get you funny looks than interest. If what I am writing is not true, why do IBOs need to deceive people? Why don't some IBOs open their books and display the financial success they claim to have? Why so secretive? Why aren't there hoards of new diamonds and emeralds each month? Instead, you mainly hear of the Amway growth in foreign countries. Most likely because the Amway name and reputation has not yet been soiled as it has in the US and Canada.

In the US, I see primarily the same old diamonds who were in control of the functions and systems from more than 12 years ago. In fact, factoring in diamonds who quit or dropped out, I believe there are fewer diamonds now than when I was an IBO. Some of these diamonds also had some apparent financial difficulties. The opportunity is far from how it's promoted. Success speaks louder than words, and where North American Amway success is concerned, the silence is deafening!

Wednesday, August 26, 2015

Amway IBOs Exploit Family And Friends?

Many prospects see the Amway plan, and get unrealistic dreams of attaining incredible material wealth and retiring in a few years. I find it strange that nobody has been able to point out anyone who actually got in, worked a few years and then walked away from the business and is now enjoying buckets of cash rolling in while they spend their days on exotic beaches sipping mai tais. The more likely scenario will be debt, higher credit card bills, and boxes of unused cds and other various products. The alleged wealthy people in Amway are often spoken about but have you ever heard of or known someone who was retired and living a luxurious lifestyle because they made so much money in Amway? I know Amway IBOs hear about it, but they believe it without any kind of actual evidence. I could say I am retired because I make millions by blogging, but is that believable? In the same train of thought, do you believe that people join and work hard for 2-5 years and then enjoy life with financial freedom?

So why would someone joining the business become annoying? It's because to the average person, it beomes clear that to achieve this, you need to find "six" people. Thus to find six people, you need to make contacts to show the plan. Cold contacts of people on the street would be unlikely, even for the boldest of people, so new IBOs start lookin at people they know. They start with people they are familiar with, or family and friends. They may also think their family and friends will want to get rich with them. So the IBOs start making phone calls and contacts. Pretty soon all your family and friends know about your involvement in Amway and most will not be interested. Where do you recruit now? That's when the cold contacts begin, which makes it nearly impossible to succeed in Amway.

Sadly for most new and enthusiastic IBOs, they will find that they are shunned by family and friends. Over the years, IBOs have done too much damage to Amway's reputation and overcoming this challenge is too much for the rank and file IBOs. They will hear stories about failures and opinions that Amway is a pyramid and/or a scam. Of course, IBOs will have "canned" answers to respond to from their upline. One of the humorous ones is that Amway is praised by the BBB or the FTC and is the shining example of an MLM. To those familiar with this line of reasoning, it can become side splitting humorous.

At first, the family and friends may humor the new IBO, but relentless persistence can eventually turn ugly. This is where uplines will teach the new IBOs to avoid "negative" and to shun these family and friends. This is why some people charge the Amway leaders with being cult - like. It's at about this point where IBOs might realize that Amway products are costly and try to sell off some of them to reduce their own costs. Often times, sympathetic family and friends might make a token purchase to show support. but that can get old in a hurry also. Most IBOs will eventually quit and make amends with family and friends, but some lose friendships for good.

To information seekers and new IBOs, hopefully this message is food for thought......

Monday, August 24, 2015

A Job Or Amway?

One of the ways that upline diamonds would put down jobs was to toss in the phrase that a job was simply trading hours for dollars. As if it were demeaning to have a job where you got paid for your time. I believe it's all relative. Being that many IBos are young and maybe working in more entry level types of jobs, then yeah, your hours wage might not be that great. If you earn say $10 an hour, then you might be struggling financially and it may take time before your skills and knowledge increase to a point where your experience is worth more money. What if you had a job paying $1000 an hour and earned $160,000 a month? Is that a lousy deal trading hours for dollars? I think not!

Conversely, having a business can be good or bad also. If you have an Amway business earnning less than $100 a month and you spend $200 on functions, standing orders and other training and motivational materials, then you are losing money. You would be better off working for free. That is still a better alternative than working a business where you are losing money. I think most people agree that a platinum group typically has a 100 or more IBOs. Thus a platinum is in the top 1% of all IBOs. I have heard that the platinum level is where you start to break even or make a little profit, depending on your level of tool consumption. If platinums are barely making a profit, then the other 99+% of IBOs are likely losing money. How much is that worth per hour?

I think uplines cleverly trick IBOs into thinking that a job is bad. Trading hours for dollars, afterall, sounds like some kind of indentured servant of sorts. But in the ned, what matters is your bottom line. If you are an IBO with little or no downline, and/or not much in terms of sales to non IBOs/customers, then you are losing money each and every month if you are attending functions and buying standing orders. Your 10-12 hours a week of Amway work is costing you money! But if you spend 10-12 hours a week, even at minimum wage, then you might be making about 300 to 350 a month groww income. After taxes, you make about 250 to 300. At least trading hours for dollars gets you a guaranteed net gain at the end of the month.

Uplines trick you into a "business mentality" where you think that working for a net loss is just a part of business. IBOs should realize that a business promoted as low risk and no overhead should be one where you can profir right away. Instead, IBos are taught to delay gratification, or to reinvest any profit back into their business in the form of tools and functions, which results in a net loss. If that's the case I would choose trading hours for dollars.

Remember, trading hours for dollars is not a bad deal if you are making enough dollars per hour. And even those who make less, are better off that those who "run a business" but end up with a net loss. It's all relative and hopefully, this message will help new or prospective IBOs who are being enticed to join the Amway business opportunity. Good luck to those with jobs and those with businesses. You can be successful either way. Remember that!

Thursday, August 20, 2015

Amway Business Expenses?

A recent sight visitor posted this link which I found interesting and humorous. I did not post the entire link, so there is more material. Check it out.

http://riles52.blogspot.com/2011/06/selling-soap-as-hobby-amway-ibos-in-tax.html

Selling Soap as a Hobby - Amway IBO's in Tax Court
Roger S. Campbell, et ux. v. Commissioner, TC Memo 2011-42

The Amway distributorship system is well known to respondent and this Court
Friscia Construction, Inc., et al. v. Commissioner, TC Memo 2000-192

I included the Campbell case in one of my group posts. It concerned someone whose Amway activities were considered a hobby by the Tax Court denying them deductions for losses. That portion of the post was picked up by someone who calls himself Joecool and posted on his blog under the title "Do IBO's have a clue about business?". I found that there are quite a few blogs dedicated to pointing out the downside of the Amway experience including Married To An Ambot by Anna Banana :

The other attraction of Amway to some people is that it might allow them to deduct as business expenses things like cars, part of their home or entertainment that they would have spent anyway. That's probably the aspect of Amway that the IRS finds most interesting. Joecool did a post on how some IBO's think of their income tax refunds (generated by Amway losses sheltering other income) as profit.

To me the most interesting thing that I found in my search is this excerpt from the Internal Revenue Manual for examiners who are doing information requests:

.4.4.3.39 — Amway Corporation
[Last Revised: 12-10-2007]
(1) Amway Corporation has waived the hand delivery requirements of 26 USC §7603 and will accept summonses by personal service, mail, or overnight service at Amway Corporation, 7575 E. Fulton, Ada, MI 49355, Attn.: Director, Legal Division. Direct distributors who further qualify for profit sharing bonuses receive the non-cash part of that bonus through a mutual fund account administered by Amway Mutual Fund, Inc., 7575 E. Fulton, Ada, MI 49355, which requires a separate summons

Now I am subject to the AICPA Statements of Standards on Tax Practice, which among other things forbids me from giving clients advice based on what I believe the audit selection process of a taxing authority is. I wouldn't do it anyway, because I think most people who give that type of advice are guessing. Even if you happen to be one of my clients, I'm speaking to you purely as a reader here when I give you this advice:

You don't tug on Superman's cape
You don't spit into the wind
You don't pull the mask off that old Lone Ranger

And you don't take no Schedule C losses from an arrangement with a company that IRS examiners have on speed-dial.

I found 23 cases of IBO's who fought the IRS in Court. (A couple appealed, but I only counted them once)They pretty much all lost. In these type of cases there are really three ways you are denied deductions. The first is substantiation. You didn't prove it. Next is that the expenses are not really ordinary and necessary expenses of the business. When you are talking about cars and business use of the home, those two issues can get blurred together. The third is that there really isn't any business there. Taxpayers fight the IRS and win on that issue frequently even a Vietnamese couple whose "business" was playing slot machines using the principles of Feng Shui. Amway IBO's who take on the IRS on the Section 183 "hobby loss" issue almost always lose.

One of the most common themes is that IBO's seek advice generally only from their "uplines", who of course are not disinterested. They also do not seem to put any energy into trying to control their expenses. I'm going to give you a little snippet from each of the cases and comment a bit on some of them.

LOPEZ v. COMM., Cite as 94 AFTR 2d 2004-7075
Jorge N. Lopez, et ux. v. Commissioner , TC Memo 2003-142

Tax Court properly determined that engineer and wife weren't entitled to business deduction for expenses incurred in connection with their Amway products distribution activity because they didn't engage in activity for profit: although taxpayers showed proof of profit motive, such wasn't sufficient to override govt.'s evidence that included their failure to keep businesslike records, their failure to alter unprofitable methods, their non-dependence on activity income, and their use of activity to socialize with friends and family.

In their own Amway activities, which began in 1996, the Lopezes sold products at cost to both their downline distributors and their customers, which practice eliminated retail sales as a source of gross income. They chose instead to focus their efforts on developing a network of downline distributors to generate performance bonuses. Relying on Amway brochures, the Lopezes concluded that they would need to achieve and maintain a monthly point value of 4,000 for their Amway activities to be profitable. In 1998 and 1999, the Lopezes' point value did not exceed 372 points in any month.


The only advice they sought for their Amway activities was from upline distributors, and when they received unsolicited advice from their accountant, they disregarded it. During the years in question, Mr. Lopez was employed full-time as a petroleum engineer, and Mrs. Lopez was a homemaker.

The tax court ultimately was not persuaded that the Lopezes' primary motive for conducting their Amway activities was for income or profit. It found that the conduct of their Amway activity “virtually precluded any possibility of realizing a profit.” The Lopezes' lack of a business plan for recouping losses and achieving profitable levels of activity indicated the absence of a profit motive. In the face of four consecutive years of losses, the Lopezes still did not change their approach to increase the likelihood of earning a profit. The tax court further found that the Lopezes did not conduct market research to help them assess the potential profitability of their activities. It also noted that, although the Lopezes had no prior business experience, they accepted the advice of upline distributors rather than seeking advice from unbiased, independent business sources.

Since the Mr and Mrs Lopez appealed, they got to lose twice.

OGDEN v. COMM., Cite as 87 AFTR 2d 2001-1299
Michael A. Ogden, et ux. v. Commissioner, TC Memo 1999-397
Contrary to the Ogdens' contention, evidence of profit is not determinative of whether a profit motive exists. See id. at 876 (no single tax regulation factor, nor the existence of a majority of factors, is determinative of whether a profit motive exists). There is overwhelming evidence in the record that, if believed, supports a conclusion that the Ogdens maintained their Amway activity for deductions, personal pleasure and to offset wages. The tax court did not abuse its discretion in denying the motion for reconsideration.

Amway does not have a quota for sales, its products do not have to be sold above cost, and its distributors are not required to sponsor downline distributors. An Amway brochure, The Amway Business Review, states that the potential for earning income increases as the number of distributors in a sponsor's group grows and as sales increase. Distributors devote as little or as much of their time to Amway activities as they desire. The eight page Amway Business Review in large blocks on four of its pages highlights the fact that “The Average Monthly Gross Income for “Active” Distributors was $88.”

We believe Amway distributors may be biased when discussing Amway because they have a natural desire to advance the organization and/or obtain income from a downliner.


ELLIOTT v. COMMISSIONER, 90 TC 960

Deductions denied for business expenses and depreciation connected with Amway distributorship. Activities were conducted in unbusinesslike manner, taxpayers maintained full-time jobs, and little distinction was made between Amway activities and personal social activities. Also, IRS properly imposed penalties for failure to timely file and negligent or intentional disregard of rules.

A further indication of the unbusinesslike fashion in which petitioners conducted their Amway activity was the thin line dividing business activities from personal and [pg. 973]recreational activities. Petitioners offered scant evidence that their Amway activity required them to do anything other than to maintain an active social life. Although they occasionally attended seminars, most of their activity involved giving parties and taking people out to restaurants. While there is no requirement that profit-oriented work be onerous and unpleasant, the evidence presented by petitioners does not indicate activity motivated by a profit objective. On the contrary, the evidence shows that petitioners made some small modifications in their routine social life, kept cursory notes about their activities, and claimed deductions for the cost of nearly everything they owned or did. On this record, we find as a fact that petitioners' activities were motivated by a desire to avoid tax rather than a desire to generate income.

Roger S. Campbell, et ux. v. Commissioner, TC Memo 2011-42

Activities not for profit—profit objective—distributorship and direct marketing activities. Code Sec. 183 deduction limits applied to expenses pro se married real estate and construction business operators claimed in connection with Amway distributorship activity that they engaged in without requisite profit objective. Lack of profit objective was shown by facts that taxpayers commingled expenses, had no idea if they were making profit for any given year until they filed that year's return, didn't keep complete records, and otherwise didn't conduct activity in businesslike manner. It was also telling that taxpayers didn't have experience in this type of activity, didn't seek out independent advice, used activity losses to offset their real estate and construction business income, and stated that they would continue with activity regardless of whether it ever turned profit. Countervailing facts that they spent significant time on activity and increased gross receipts during years at issue weren't dispositive considering overall record

Wednesday, August 19, 2015

Amway Critics?

To this day, Amway has many critics and supporters. Many supporters become critics if they leave the Amway business. Some Amway apologists are claiming victory recently as they say there are fewer new internet critics. But funny enough, there aren't any apparently new Amway supporters on the net either. But still, it doesn't appear that Amway is suddenly growing by leaps and bounds. The name Amway doesn't bring visions of sugarplums in most people's heads. In fact when you google Amway, you'll see many critical sites and the words scam or pyramid often associated with the name "Amway".

What does the Amway name bring? People often think of "pyramid" or "scam". Some people are negative about the Amway opportunity and they don't even know why. Many people however, were involved in Amway at one time, or knows someone who had a bad experience. While many people's experience may have little to do with the Amway corporation, surely the motivational groups such as N21, BWW, or WWDB has had an impact on people's experience with Amway. Getting tricked into attending meetings or being lied to will lead to a bad experience. So will ridiculous snake oil campaigns like perfect water. Most people are recruited by family or friends, thus these victims are often reluctant to file complaints against their family and friends to authorities.

But has Amway done anything significant about IBO abuses? Surely they must know something about this. Someone from Amway routinely visits my blog to see what I am writing. But as far as I know, even the most abusive uplines have gone unpunished. Amway implemented an accreditation program, but thus far it appears to be mostly a toothless tiger.

I have some suggestions to curb Amway criticism. Transparency. Why not inform prospects of how many diamonds are currently qualified? Why not say how many IBOs are active or registered? Why not report North American sales? Why not say what the typical IBO earns? It would prevent critics and supporters from extrapolating information and making their own possibly inaccurate conclusions. Of course Amway is a private company and therefore will probably release only information that is required by law. And that is their right. But if that is the case, then criticism will continue......

Like the AMO saying goes, insanity is doing the same thing over and over and expecting different results. With no apparent changes forthcoming from Amway, the valid criticism continues........

Tuesday, August 18, 2015

The System Is "Proven"?

Many uplines and IBOs will talk about their system. More often than not, the various systems such as WWDB or Network 21 will tout themselves as the best, fastest growing, proven, and most profitable. I know that was promoted when I was an IBO and I believe it is still promoted this way. There are many comments on the internet from IBOs and recently former IBOs that indicate that this is true. But let's take a look at these claims.

How does one determine the best? You really can't. The best is an opinion unless there are established criteria on what constitutes the best. Of course, every upline will think their group is the best, but what can factually be derived from that claim? If you are an IBO or prospect of Amway, try asking that question. Based on what do you make the claim of being the "best" group or system?

Fastest growing can be proven or disproved. But for the most part, we know that Amway isn't growing by leaps and bounds in North America. During the Quixtar tenure, it appeared that Amway sales in NA either stagnated or even shrank. Amway supporters cite overall Amway sales going up, but it's reasonable to conclude that the increase in sales is primarily in foreign countries. For some odd reason, Amway no longer reports North American sales, but simply lumps everyhing into a global sales figure.

As for any system to be making claims of proven, all these systems have basically done is proven that they are dismal failures. Based on Amway's own figures, we can deduce that less than half of one percent of IBOs ever reach the platinum level. The platinum level is approximately where you might see a small profit if that platinum is CORE. There is some documentation indicating that platinums might lose money at that level. While the study is dated, the expenses associated with being a platinum have gone up significantly since that study (Wisconsin Attorney General) so it can be very possible that platinums continue to see a net loss these days. It's also very visible that there are fewer diamonds in north America today than a dozen years ago. Diamonds have quit and some were terminated. It appears that most new diamonds come from foreign countries where Amway has not ye suffered reputation issues.

Makng claims of fastest growing is also one that can be proven. However, try asking your sponsor or upline for evidence of this claim. Also, is the growth occuring in your area? Are you from the US or Canada? Citing growth in Korea for example, is unlikely to mean anything for the vast majority of IBOs. And even if there is some growth, how does that translate as leverage or an advantage for you? Aks these questions and see what answer you receive, if any.

The system is proven for sure. But it's proven to be a failure. The numbers supplied by Amway clearly back up this claim.

Friday, August 14, 2015

The Real Amway Business?

I have been reading some ongoing debates about whether the system income for higher pins is more than their Amway bonuses. I believe the systems such as BWW, WWDB, N21 or LTD, does generate more profit for upline than the sale of Amway products. How the system income is divided though, is still a mystery as it doesn't appear that there are bonafide written contracts explaining how tools income is split up among the higher pins. There is also the debate of whether diamonds themselves or their "corporations" receive the profit, which is laughable as a defense.

But it's very easy to determine that more income is made from the system than from Amway. If you move $100 worth of Amway products, Amway will pay about $33 back in the form of bonuses. These bonuses will be split among the Amway IBOs (middlemen), depending on your level. On the other hand, if your group bought say 20 cds at $5.00each, the system will profit about $90 as cds cost about 50 cents each to produce in bulk. Some Amway apologists will cite the fact that some groups sell cds for $2.50 or $3.00. While this is true, there is a "member's fee" which must be paid. And when you add in the member's fee, the profit for the system is the same or possibly higher! Even when you factor in the system employees, you can easily see the math and determine where the real money is made.

If you buy a major function ticket for $125, the cost of that function might be in the neighborhood of $25 to $30 per attendee, so the system may generate $100 profit on a $125 sale. I believe the smaller functions such as open meetings, books and voicemail have smaller profit margins, but still overall, it's easy to conclude that the profit from the system is greater than profits generated by moving Amway products. I might add that the sales on these functions are often made in cash, thus who knows if the diamonds are even paying the IRS taxes on these sales.

The only question is how much each individual earns. I have "heard" that platinums get a discount on the sale of standing orders and cds, but I have never heard of a platinum sharing any profit for functions, voicemail, or any of the other materials. This is puzzling to me as I believe the platinums do the most work in the system, helping downlines.

So for the lower level IBOs, if you move $300 in Amway sales (Approximately 100 PV), you will receive about $10 or 3% while upline enjoys the rest of the $90+ in bonuses from Amway. And then when you purchase and move tools volume, you receive nothing and some of your uplines enjoy all of the profit. While I don't see any problem in upline making a profit for selling training materials, I see a problem in the fact that the tools don't work. So few IBOs progress to levels where an actual profit is earned that the use of tools cannot be justified. Amway supporters will point out the new platinums emerging each year, but do not mention the platinums who do not re-qualify.

Based on my observations, I can only conclude (quite easily) that there is substantially more profit from the sale of support materials for upline to enjoy, and I can also conclude that the support materials are ineffective in training downline IBOs so they can progress to higher levels of the business. But as PT Barnum once said, a sucker is born every minute.