Stories by Agastya Zayant
Amway — Multilevel Marketing, Technically Legal But Will Ruin Your Life
Why should you avoid it?
Recently, I was lured into joining a Multilevel marketing company by a Senior employee from Qualcomm who had a Ph.D. in Computer Science with a specialization in Machine Learning. This was my 3rd encounter with such schemes. I first came across such a scheme in my freshman year but never joined even though one of my friends joined (incurred a loss of INR 10,000). My second encounter was with my best friend in 2015–16 where he was willing to join and invest nearly INR 50,000 (~$700) and I prohibited him whenever we talked.
I first came across the term Multilevel Marketing in 2016 through Last Week Tonight with John Oliver show. People get sucked into such get-rich-quick schemes where everything looks rosy on the surface. I urge everyone to stay far, far, far away from them. Companies include — Amway, Nutrilite, Herbalife, Mary Kay, Nu Skin and many others.
I was surprised to see intelligent people working at major tech companies to get sucked into such schemes and defending them till death. I understand getting a job, working 9–5 and retiring rich is difficult in the US but MLMs are not the answer. They might market themselves as friendly, easy and being your own boss but the reality is far from it.
When a person mentions a MultiLevel Marketing scheme just run away from him/her.
Multilevel Marketing — A Pyramid Scheme
Definition from Wikipedia: Multi-level marketing (MLM), also called pyramid selling, network marketing, and referral marketing, is a marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce selling the company’s products/services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system.
Nowadays, instead of saying they are not a Pyramid scheme, they are saying it is like a pyramid scheme but not illegal and every other company’s corporate ladder is also structured in the same way — and to this, I say bullshit.
Multilevel marketing schemes are exactly like Pyramid schemes except they made it legal by placing in some rules and regulations — Amway Safeguard Rules or Amway Rules. A regular company structure is no way similar to the pyramid built by multilevel marketing companies.
Note: I am not going to go in-depth into all the details as it has already been explained in various blogs. I will refer to all the useful blogs and articles below.
In the meeting that I attended, they comfortably left out the most important part of ‘how one has to recruit a lot of people’ to break-even and all the small details at the bottom of the slides which provide key information. I will try to explain some flaws in their logic.
FLAW 1: THE MARKUP IS VERY HIGH AND THE RETAIL MARGIN (method 1 of earning according to Amway) IS USELESS
They expect you to buy all the products from Amway itself. This is a major flaw. Yes, buying the products in a company you own the shares is a good marketing strategy but not if you have to pay a lot of extra money for those products and nobody else is going to buy them from you. The brands are unknown and so there is no brand value and the products are of mediocre quality at best. For example, a body wash of 400ml costs $11 on Amway whereas Aveeno body wash of 975ml costs $10 at Walmart. So they are charging you 2x more for an unknown brand with half the volume.
You are buying an unbranded mediocre product at a high price and now selling this product for a profit is nigh impossible. So the “retail margin” is most certainly going to be 0. You’re lucky if you don’t go into losses because of not being able to sell the products.
Suggestion 1: If you want to get rich stop buying such stupid brands and bullshit products instead stick to good regular products.
FLAW 2: PERFORMANCE BONUS PROGRAM DOESN’T EARN YOU MONEY
This is such a complicated procedure, difficult to understand and explain. What they have is a Product Volume (PV) and a Business Volume (BV) and 3 BV = 1 PV. If you buy $300 worth of products from Amway.com in a given month you earn 100 points (points are PV).
Act 1: Personal Performance Bonus — You earn a bonus on products you buy from Amway (a reason they tell u to buy all the products from Amway) based on your PV level. So if you are at 100 PV, that is you joined and are buying $300 worth of goods then you will get 3% on $300 in return which is $9. To gain a 6% return as a client alone, you have to buy $900 worth of mediocre unknown brand products every month (are you kidding me!!). As you can see this is in no way profitable again unless you can sell them but unfortunately you can’t as stated in flaw 1.
Sidenote: Amway deceitfully states that people can earn up to 29% estimated retail profit which is the Retail Margin stated in Flaw 1 so assume it be $0.
Act 2: Differential Bonus — As you can see above the ‘Personal Performance Bonus’ is pennies compared to dollars you spend the next best way to earn money is ‘recruiting people’ under you or as they call it making people Bosses — Independent Business Owner (IBO).
So as can be seen from the image below, we are going to make just $81 when the combined group of 4 people spends $1800 (jaw drop!!!) on mediocre unbranded products.
Total Bonus Paid to you: If we go with the values in the picture Personal Performance Bonus will be $40.50 (9% of $450) plus Differential Bonus of $81 which equals $121.50.
Suggestion 2: Instead develop a skill or any product or even buying from Dollar Stores/Walmarts and marketing/selling them on websites will give you better profits.
FLAW 3: LAWS OF MATHEMATICS
Say you recruited 3 people under you who are buying at least $300 worth of products from Amway alone every month (😏) and you are also buying at least $300 then the group total comes to $1200 which is still only 400 PV and just 6% Personal Performance bonus for you. The problem is we have to let the 3 recruit their own 3 and so on. In just 21 cycles you would exceed the population of earth.
You might ask, why do they have to recruit people? — because they too have to make money (that is the whole sales pitch of this get-quick-rich scheme).
Suggestion 3: Always use data and maths. Just like you can’t defy gravity, you can’t defy maths. If instead, you build your own idea or sell products your market is the entire population of earth (😶).
FLAW 4: RECRUITING YOUR OWN COMPETITORS
You might logically think that the compensation looks good enough for “spare time”. I will recruit some people under me who will keep buying products and I will earn money without work. First, the laws of mathematics prohibit you from thinking too far ahead and also you are recruiting people who have to sell the same products as you do within the same market. You have to keep on recruiting more and more people as well which will result in your own marketing costs which will be covered in flaw 5.
Why do we have to sell? — I alone will buy $300 worth of useless crap for $9 in return (sure, go ahead but loyalty cards are better). You have to sell the products if you have to make any profits at all (Retail Margin from Flaw 1). But the market you and the person you recruit to sell is the same. “In no time, the entire town will be selling the same product and no one to buy” (Maths).
Suggestion 4: This is the fundamental difference between a traditional business and a pyramid scheme. In a traditional you let people under you market YOUR product to the entire town and people don’t try to buy from you and sell them again for profits.
FLAW 5: HIDDEN COSTS
The biggest expenses people fail to take into account are:
- The expenses incurred while trying to sell the mediocre highly marked up products you buy from Amway: As I stated in Flaw 1, it is almost impossible to sell these products for profit. If indeed you want to try selling, you have to create your marketing platform — say building a website and paying google and other advertising agencies to market the product. “The thing is, do you think you can outperform the current vicious marketing platform — MLM — you are trapped in??” Amway has created such a wonderful marketing system that you are working for it right now.
- Trying to recruit new people: So trying to sell products and outperform Amway ($9 Billion company) is impossible. The best option is to recruit people. But it is also very expensive.
- Fuel and Car expenses to attend various meetings and seminars trying to learn and ‘indoctrinate’ people into this cult-like group. (~more than $1000 easily if you want to be active). Plane tickets as well.
- You invite people famous than you who are more successful to give talks and seminars to people which costs money.
- Booking meeting rooms or even meeting for a coffee (~$1.5). You have to invite a person for multiple coffee sessions. The person who tried to recruit me spent $10 on coffee alone and I didn’t join.
- Learning material: to learn how to market successfully. You buy a lot of material online and also from Amway itself. The joining fee is $100
FINAL WORDS
So, people, I would suggest you stay as far away as possible from such MultiLevel Marketing Schemes. I saw students from my own college spending money out of their pockets to attend such meetings. It is almost impossible for people to make any sort of profit and even Amway knows that. They mention it in the slides itself.
Very very few people generate a profit. According to the slides Amway shared, if someone sustained a monthly ‘active’ status every month for a whole year, the annualized Gross Income would be approximately $2,484 in the U.S.
If you take into account the tax & other deductions on the Gross Income and all the Hidden costs mentioned above — it will be a net loss (😔)
For more information please check out the fantastic segment did by John Oliver about the horrors of MLMs. There is a documentary as well — Betting on Zero. This article also does a great job of breaking down some of the other flaws in MLMs. Also, watch the film — http://childrenofinvention.com/. Please reread, watch and understand before joining any sort of MLMs.
People are losing money and lives are being destroyed and we need to stop joining MLMs.
Please read my funny story on how they are recruiting — How an Accidental Meeting at Wegmans Turned into a Farce
