Friday, March 4, 2011

Amway Is Fair?

One of the bogus things my upline taught us was that the Amway opportunity was fair. That it was a completely level playing field. On the surface, that sounds right because "everyone starts at zero". While everyone does start at zero, the compensation plan is unfair to those who "do the work" and in my opinion, should be revamped so lower level IBOs make more money. It would probably help with IBO retention and maybe, some higher level leaders wouldn't have to work so hard to keep replacing people who quit.

If you are a new IBO, then you might not be really familiar with the Amway compensation plan. Amway pays out about 30+ percent of their gross as bonuses. Thus if you move 100 PV in goods, or about $300 in sales, then Amway pays out about $100 in bonuses. You as a new 100 PV IBO, would receive about $10 and your uplines, some of whom don't even know you exist, will split up the remaining $90 in bonuses. It truly is not a case of doing the work and getting paid. You are doing the work so upline gets paid. To add insult to injury, upline wants you to purchase materials that tries to convince you that this is a good deal.

And something very significant to think about. In what other sales profession are you compensated so low (3%)? I can only think of real estate, but in real estate, your sales are likely in the hundreds of thousands of dollars. In just about any other sales related profession, you get a much higher cut than 3%. Yes, your bonus or comission can be higher if you move more volume, but then you are likely receiving more money because you are now exploiting people doing 100 PV who get only $10 back.

Even after you consider the unfair compensation, you must factor in the cost of tools. Most uplines promote tools (cds, voicemail, functions) as vital to an IBO's success. Some uplines push the tools harder than others. But the tools purchases will often be the primary cause of IBO financial losses because the cost of tools will normally exceed an IBO's bonus. It is very common in the US for monthly tool purchases to exceed $200 a month on average, and very very few IBOs will ever reach a high enough level in the Amway compensation plan to earn enough just to break even. Also, the tools apparently do not work. There is no unbiased evidence to suggest that tools have any causal relationship to IBO success.

With Amway's spotty reputation and the unfair compensation plan, IBO retention is spotty. Many IBOs sign up and do little or nothing, and many IBOs don't even last a full year before they quit. What happens is IBOs begin to figure out that recruiting downline is next to impossible and therefore, generating more volume is nearly impossible, even for individuals with skills. If you are a new IBO or a prospect, I encourage you to sit down and really look at the math and factor in the cost of tools. There are many ways to earn a dollar, I just don't feel that Amway is an efficient way to do that.


John said...

Don Lorencz said the Amway compensation plan was the worst in the industry. Of course, he was stating that from a diamond's perspective. It would appear worse from the ground-level IBO's perspective, if you consider only the 3% bonus. The problem is, when the Amway pay-plan was created, the ground-level IBO was never intended to subsist strictly on bonus money. He was intended to retail product, and if he actually did so, he would get the lionshare of the profits for a product's sale.

Consider the 100PV for $250-$300 worth of SA8. If the distributor bought at wholesale prices and retailed at distributor prices, he could capture not only the 3% bonus ($10) but also 25% or so in retail mark-up ($75). Now you have the IBO making $85 and his upline making $90, chopped up in to many portions. That functions much more like a traditional retail business, where the bulk of profit for an individual sale is in commissions for the individual salesman.

Now of course, we know that Amway hasn't functioned this way since the 70's, and AMO's, escalating product prices, and a huge decline in door-to-door type sales has changed it into the cult-like product-based pyramid scheme we have today.

Joecool said...

The prices are too high on average to be competetive. Also, in a recent blog post, I linked a consumer reports study that had some legacy of clean products ranked as less than superior quality.

Joecool said...


John said...

Yeah, I saw that post. The only Amway products that have superior performance in consumer reports studies were the water filters, as I remember. But those are still priced much higher than industry averages. My mother bought one of those water filters from my Aunt who was in Amway back in the 80's. It was a good filter, but it was several hundred dollars and the replacement filters, which were very expensive, too, had to be purchased from Amway.