amyway pyramid scheme, fact or fiction

Amway Pyramid Scheme – Fact or Fiction?

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Have you been in this situation? An old friend calls and wants to meet to catch up and to discuss an opportunity. Once you arrive, there are glossy fliers on how you too can become wealthy while working part-time from home with Amway. It all looks so attractive. Is it too good to be true?

Your friend may insist that Amway is a legitimate opportunity – not to mention they will benefit from signing you on. Other people insist that it is a total fraud.

The truth?

The story is much more complicated than either side would have you believe.

What Is Amway?

Amway was founded in 1959 by Jay Van Andel and cofounder Richard DeVos. VanAndel and DeVos had already been business partners in several ventures, most of which failed, including a stint in a company called Nutrilite.

Nutrilite was different from most companies of its time because it offered both commissions from sales as well as incentives for signing up other people as distributors. Jay Van Andel and cofounder Richard DeVos had finally found a business model where they could succeed.

Amway was formed when its owners decided to begin their own multilevel marketing company. They left Nutrilite and formed Amway, which is short for American Way.

Almost immediately, the company took off and became a global phenomenon. However, in the United States, Amway’s reputation began to tarnish. In 1999, the corporation was re-named Alticor and the sales divisions changed to Quixtar and Access Business Group.

The name Amway continues to be used in other countries.

Today, Amway is the most popular multilevel marketing (MLM) company in the world. On the surface, they appear to offer a plausible path to wealth. The company sold $8.8 billion worth of products in 2018; why not get a piece of that?

But who did they sell those products to?

Amway often fails to inform would-be associates that much of their sales come from selling to their distributors rather than actual customers. In addition, many of the sales to distributors are not even products, but rather seminars and other materials on how to get rich quick.

Can You Make Money From Amway?

It is possible to make money from Amway – just ask the founders, who have made a literal fortune. However, it is very rare for regular Amway business owners to even break even.

A study from 2008 looked at 33,000 people selling Amway products. Of these, only 90 people made enough to break even much less earn extra money. The math works out to less than 1% of Amway distributors even breaking even.

However, this does not mean that making money with this company is impossible. After all, what if you are in the lucky 0.2%?

The fact is, it is very difficult to actually make money by selling Amway products.

The path to wealth, as with every multilevel marketing company, is to get many other people to sign up under you. This has led many to call this business, “The Amway Pyramid Scheme.”

How People Make Money From Amway – And The Hidden Costs

Sellers must spend their own money to sign up to sell Amway. In addition to paying fees to be part of the “direct selling association,” distributors are also asked to buy the products.

Not only should they be seen using the products, which tend to be far more expensive than their Target counterparts, but they also should have stock on hand to sell to people who are interested.

Distributors get a small commission percentage of all of the products they sell. However, you can only move so much laundry soap.

The real money comes from the fees of the people who pay hundreds to become an “independent business owner,” – which is what Amway calls it when people sell for you.

As new people sign up below you and begin recruiting new distributors, the money flows upward. The only way to make any substantial amount of money is to get people working for you, and then people working under those people, and so on.

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While Amway is not technically an illegal pyramid scheme, it certainly structures itself in a distinctive pyramid shape.

How Does Amway Make Money?

Like its distributors, the company does not make a significant amount of money from selling cleaning supplies and eye shadow. Rather, it makes money from two main sources:

  1. Fees and products sold when people sign up as an independent business owner
  2. Business materials, (which are the tapes, conferences, and other educational experiences) intended to turn you into a “direct sales powerhouse”

Many of the top Amway business owners also make money selling the dream of wealth rather than products. They may appear wealthy, but most of this wealth does not come from belonging to the Amway direct selling association.

Top distributors collect lavish speaker fees to speak at Amway conferences. They sell books and other materials that promise to inspire and teach you how to become like them.

However, most of their customers ultimately do not become like them.

Although the Amway business model is presented as a direct selling business, very little of their revenue comes from legitimate direct selling. Although people are told that they will be Amway business owners, in reality, they will be Amway customers.

They will buy Amway products such as seminars and the dream of wealth.

Is Amway A Legitimate Business?

question mark define a habit

In some ways, Amway is a legitimate business. In other ways, it is not. Although Amway is not an illegal pyramid scheme, it comes dangerously close to the line.

In 1979, the Federal Trade Commission found that Amway is not illegal because it does sell products in addition to paying for recruitment. Generally, United States laws only ban pyramid structures when there are no products or services being sold.

However, this does not mean Amway is completely legitimate.

In 2010, customers and former distributors won a class-action suit for $150 million against Quixtar, the new name for Amway. In the class-action lawsuit, the plaintiffs alleged that Amway exists mainly to make money selling motivation and training materials.

In addition, it was alleged that the company is no longer in compliance with the 1979 ruling from the Federal Trade Commission. Quixtar/Amway was also accused of wire and mail fraud as well as racketeering.

Indeed, many people who join to earn extra money quickly find that the only real earnings are in recruiting new distributors. Despite this, Amway has managed to remain barely compliant with the letter of the law, in the United States at least.

Is Amway Banned In Any Country?

The United States has some of the most lenient business laws in the world. Amway manages to just barely stay on the legal side of these. However, there are several countries in which this company has been banned from selling their personal care products and recruiting distributors.

In 2007, the UK halted all Amway business operations in the country. Officials claimed Amway had exaggerated income claims and that they profited more from selling materials to distributors than from legitimate direct selling of products.

Similarly, Amway has met government opposition in India. In recent history, the government has shut down several Amway warehouses and seized the products inside. In addition, some higher up distributors have been arrested for participating in a pyramid scheme.

There have also been high profile legal cases involving the illegal actions of individual Amway distributors.

For example, a group of Amway distributors was successfully sued for spreading rumors that Procter and Gamble tithed to the Church of Satan. The distributors spread this rumor apparently hoping that scared Christian customers would choose the alternative Amway products instead.

Despite legal shenanigans, Amway remains legal in the United States, hiding behind a different name.

What Is Amway Now Called?

In order to outrun a bad reputation, Amway has changed names. The parent company is now known as Alticor. The subsidiaries of this are Quixtar, Access Business Group, and Fulton Innovations.

Quixtar is the direct sales and multilevel marketing arm of the company, which is the “Amway” that most people are familiar with. Access Business Group is a development branch of the company. Fulton Innovations does research on new products and on the market.

In other countries, Amway is not as well known. As a result, Amway has been able to keep its name in these countries. Distributors in the US are discouraged from even saying the word “Amway” to potential recruits, as it might turn them off the company before they have made a financial commitment.

How Many Millionaires Has Amway Created?

extra money from a cash wallet

Amway often claims that they have created more millionaires than any other company. However, the numbers do not support this.

There are likely millionaires created by Amway but not at the rate they would have you believe.

According to this Money.com article, statistics show that one out of every 20 Americans is a millionaire! (Don’t worry – it made me feel insecure as well…)

Meanwhile, about one in every 240 Amway distributors reaches the platinum level, where they can earn $30,000 to $50,000 per year.

Less than one in 15,000 reaches the diamond level where they earn approximately $147,000.

It’s safe to say that becoming a millionaire from an Amway business is extremely rare.

Why Are Amway Products So Expensive?

Amway claims that their products are more expensive because they are superior. They claim that the products are extremely concentrated and designed to be more effective and safer than other products, so you get more value for your money.

However, Amway products have not fared well in consumer testing. Consumer Reports has tested their dish detergents and other cleaners and concluded that they do not work as well as conventional brands.

Far from being superior and ultra-concentrated, the products actually are often not as good as what you’ll find for far less money in your local big box store.

The truth?

Amway products are expensive because the company wants to make more money. The amount paid to distributors is a pittance compared to what most stores must pay in overhead and employees.

The company should be profitable with a very low mark-up as most of its employees are actually paying the company for the privilege of selling.

Is It Illegal To Sell Amway On Amazon?

Although Amway forbids selling their products online through sites such as Amazon, it is not illegal. There is no law forbidding Amazon sales of any legal product.

Amway does not allow its distributors to sell its products on other online platforms such as Amazon and eBay. However, many distributors ignore the rules and sell there anyway.

Their hope is that the company will not figure out who is doing it so they can reach a larger audience to sell the items.

Online sales can be an attractive way to expand your opportunities because there is very little money to be made selling $40 bottles of soap in person.

Facts And Myths About Amway

Myth: “All businesses have a pyramidal structure.”

Fact: A CEO may earn more than the associates in a traditional business, but most businesses actually sell a product or service rather than pay commission solely for recruiting new employees.

In addition, a traditional employer pays their employees every month rather than making the employee pay them for the “opportunity” to work for the company.

Myth: “People who sell Amway can become wealthy enough to walk away from working and simply live on their income.”

Fact: Amway likes to sell the myth that you can earn enough to retire in just a few years if you follow the steps outlined in their numerous expensive books, tapes, and other materials.

However, good luck finding anyone who has actually retired wealthy and young solely by selling Amway products. Most of the speakers who claim to have achieved this actually earn most of their income from their self-help books and speaker’s fees.

Myth: “If you don’t become wealthy in Amway, it is because you did not work hard enough.”

Fact: This is a common lie told to potential recruits to explain why Amway is seen as a scam and why there are so many disgruntled ex-sellers. However, it is important to remember that Amway has a failure rate that exceeds that of most businesses.

Almost all employees at McDonald’s come home with a paycheck even after expenses are deducted, yet less than 1% of Amway sellers can say the same.

Avoid The Scams, Start Your Own Business

Avoid the get rich quick ideology that is sold by these multilevel marketing companies. If you want to work for yourself and be a business owner, don’t take a short cut by falling for one of these schemes.

In order to start your own business, find a product or service you can provide that adds value to others. Where you create value, you will create income. Don’t fall for the pyramid scheme scams that prey upon their employees.

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About The Author

Ryan Luke is a father of three, a husband, finance blogger, and full-time police officer. Through proper budgeting and money management, they have been able to live off one income and build wealth at the same time. As an active member of the personal finance community, his goal is to educate and help people get out of debt and build wealth!

2 thoughts on “Amway Pyramid Scheme – Fact or Fiction?”

  1. Thanks for your simple and straightforward description of Amway. Many years ago a couple explained the business under another name to me and I tried briefly, but got a full refund as I could tell it wouldn’t work for me. Before that I had been invited to an informal get together which ended up being a presentation for Amway much to my disappointment.

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