Sections on this page
- The History of Amway: Why It’s Not a Pyramid Scheme
- Why the Controversy?
- How to Make Money Through Amway
- Frequently Asked Questions
Founded in 1959, Amway, which is short for The American Way, is a multi-level marketing (MLM) business that sells various products such as makeup, cookware, cleaning supplies, and nutritional products like vitamins and energy drinks. According to a lawsuit in 1979, Amway is a legitimate business. Yet, some recent claims make people uneasy about Amway’s business practices, and many people believe the courts need to reinvestigate this decision.
The History of Amway: Why It’s Not a Pyramid Scheme
Amway’s history is very controversial depending on people’s perceptions of pyramid schemes and how multi-level marketing companies operate. Amway is said to be the original blueprint for the MLM business model. Their founders, Jay Van Andel and Richard DeVos, worked for Nutrilite, which sold America’s first multi-vitamin. They started as distributors but worked hard to get new recruits under them and eventually had a team of more than 5,000 people. Of course, when they left Nutrilite to start Amway, they took their best distributors with them to get the MLM process started.
Today, Amway owns Nutrilite and sells it alongside their various products and isn’t considered a pyramid scheme because:
- They market and sell legitimate products
- They don’t advertise that you get paid directly for recruiting people
Why the Controversy?
Amway focuses on the message of building your own business, and in some ways, the business structure has some similarities with pyramid schemes, such as:
- The requirement to buy their products before you sell them
- The difficulty in selling Amway products
- The ability to make money by recruiting new distributors
While Amway isn’t considered a pyramid scheme legally because of their legitimate products and emphasis on building your own business rather than being their employee, they coined the multi-level marketing business model, which has become the blueprint for many scams. Although Amway has had a negative reputation, especially in the U.S., they continue to succeed by bringing in around 8 billion dollars of revenue a year.
How to Make Money Through Amway
There are two main ways to make money with Amway:
- Sell Amway products
- Recruit new distributors or IBOs
Selling Amway Products
Amway considers all of its distributors Independent Business Owners (IBOs). The first way you can make money is from the profit made by selling Amway products. As an IBO, you have to buy Amway products first at a “wholesale” price, which the company claims are reasonable.
You are then able to set your own prices when selling these products to consumers. This puts you, the IBO, in charge of how much money you can earn from selling the products.
Much of Amway's controversy comes from the difficulty faced when trying to sell these products for a profit or even just to break even. Amway encourages IBOs to use their inventory in live demonstrations to help with sales and recruit new distributors.
Recruiting new distributors is the second way of making money through Amway, which is marketed as a bonus for growing your business. (This is why Amway isn’t considered a pyramid scheme, since recruiting is a secondary or bonus method to making money.)
While you don’t get a direct payment for recruiting new members, which protects Amway from being considered a pyramid scheme, you are instead incentivized with a point system that rewards those who can recruit the most members.
Amway’s Point System
Amway’s point system is how bonuses and other income are calculated. Here’s how it works in a nutshell:
- Business Volume (BV) = Dollar amount you spend on products to sell.
- Point Value (PV) = Used to estimate the minimum product you or your group should be selling. (Typically a third of the BV.)
- E.g., $3 spend (BV) = 1 PV
The number of PV points you or your group receives determines the percentage you get back from the BV amount.
- If your PV = 1,500, your BV = $4,500.
- 1,500 PV means you would receive 15% of the BV (~$675).
- You get $675 back from the $4,500 you spent on products.
Although this doesn’t include the profit you make off selling items, the money you’re making is not even close to breaking even.
Using this intricate point system, Amway has found another way to avoid being considered a pyramid scheme by making it possible for distributors lower on the totem pole to earn more income than the person who recruited them. This is possible when a person lower on the totem pole has the same PV points as the person who recruited them. Bringing as many distributors into your business as you can handle is smart because the more you spread out the PV points between distributors, the more likely you will get a bigger bonus after your sales.
This business model is only logical if you have people working under you that don’t plan on recruiting any other members and are satisfied with making a minimal profit. Essentially to succeed with Amway, you want to have the highest PV possible, so you’re getting the maximum percentage of your BV back. Yet, you want to have as many distributors under you as possible to spread out the PV points between them and maximize your profit.