Basic Business Analysis of Amway / Quixtar

Quixtar and Amway pay their independent salesmen, (IBOs - Independent Business Owners) for sales of various products. IBOs can recruit other people and earn higher commission percentages by combining the product volume of their recruits. Their commissions are paid according to a pyramided commission schedule. Many of the top Diamond and Emerald IBOs also earn a significant portion of their income from selling their downlines the motivational tape and seminar systems.

"Tools in Amway organizations are a major source of income. The Amway pay plan
is one of the worst in the industry so tools help make up the difference."
Former Amway Crown - Leonard Hall in an e-mail

In order to attract the most participants, many groups teach their prospects to just change their shopping habits and purchase $200-$250/month of products from their "own business". Since "selling" turns many people off, many groups teach their prospects to simply "redirect their buying power" and "buy from themselves". They should then teach others to do the same.

Quixtar paid IBOs an average of 31% of sales in 2003. Each IBO buying $250 per month would generate gross commissions of just $940 per year despite possible annual expenses of $2,000 or more. The volume of a "platinum group" of one hundred such IBOs would generate total commissions of about $94,000 per year. There are about $70,500 in bonuses available for those inside the platinum group.

IBO's payments for their sponsor's "optional but necessary" training system of motivational tapes, seminars, and travel expenses are usually greater than the profit available from their personal sales volume. It is not uncommon for some IBOs to spend more on promotional and motivational tapes, seminars, and travel than they even have in personal sales. The business as it was taught to me made very little sense. People were taught to reproduce businesses having $200 in sales per month yet expenses of $250/month. This ridiculous idea would result in an average loss of $104/month. Numerous lawsuits over the division of the tape and seminar profits, among Diamond distributors, provide sufficient evidence that the lavish Diamond lifestyle is financed by the tape and seminar profits.

If the system were really in place to help IBOs grow their businesses, then why do they charge $6.00-$7.50 per audio cassette, which costs only fifty cents to duplicate in bulk? If the Quixtar business were so profitable at higher levels, then why must the "systems" cost so much that they take all of the lower level IBOs bonuses?

If only 15% of IBOs in the platinum group actively promoted their business and spent an average of $3,000 yearly on the tapes, seminars, travel and other expenses, then each active business would have an average annual net profit of just $2,700, assuming the other 85% earned nothing. If these IBOs were married couples working each just 7 hours per week on the business, a couple's time would have an average net compensation of just $4/hour. The low sales productivity of the 100 PV model is a reason the majority of IBO's incomes are so low. Average IBO income can only be increased by increasing personal sales, not by recruiting more IBOs. The average sales per Quixtar IBO in 2002 were just $150/month. The groups with the highest profit per IBO will also be those with the highest average retail customer sales.

See how profitable various business scenarios are for you and your friends. Online IBO calculator Bonus Calculator

Despite plan showings claiming Gold and Silver producers to earn $1,000/month or more, many are "broke" due to the "system" expenses.

Crown Ambassador - Dexter Yager "The Golds and Silvers are broke"

In 1999 The average gross income for an active Amway IBO was $1056/year. - Amway Corp. "In 2003 the average renewed and active IBO surveyed earned $115/month ($1380/year)." - SA-4400

If IBOs below platinum want to work just 8 hours per week and gross an average wage of at least that of a $6/hr McDonalds burger flipper, then IBOs and their downline friends each need to move about $1,000/month at IBO cost (or $2,000/month to Members) to generate the necessary bonus money. The $200/month "buy from yourself" sales plan with 8 hours work per week generates only $1.88 per hour in bonuses for IBOs. Using Quixtar's average IBO earnings of $115/month per active IBO and assuming 8 hours per week of work, the average active IBO earns just $3.44/hour before expenses from their business

Amway Co-founder - DeVos - "Your business will grow in proportion to your ability to retail products"

Retail sales are needed to keep the business from being considered an illegal pyramid scheme so IBOs are required to sell at least $100/month or 50PV to qualify for a bonus on their downline's volume. Quixtar is enforcing their retail sales rule using data from their computers. However, this low sales requirement is just a fraction of the actual sales needed to generate a competitive income from the business for the typical IBO.

Most name brand products available from Quixtar Partner stores pay out a much smaller percentage than the Amway core products and carry no retail markup for IBOs. The most money will be made from selling the Amway core product line at retail prices. Member purchases generate only half the bonus points and no retail markup. A customer paying retail prices can be over three times as profitable as a Member.

Most people can afford the annual losses of an Quixtar business compared to the potential losses of traditional businesses with poor business models. IBOs are quick to claim that 80%-95% of all new traditional business are out of business in 5 years, without knowing the real facts. Traditional businesses are surely much more complicated, have no training system, no mentors, and cost much more to start and operate, but they also have a much higher productivity than Quixtar businesses. Many IBOs also mistakenly believe the business has a "tax advantage", which allows them to claim paper losses to offset salary and wage income to reduce their tax bill. The Amway distributor related tax court cases will show that this "tax advantage" is always disallowed once IBOs are challenged by the tax court.

If IBOs just had sufficient retail volume there is no reason for IBOs to lose money even in the first year. IBOs losing money have either too little in retail sales or they spend too much on their upline's system. An IBO selling 7,500PV or about $17,000 a month of core products to loyal customers at retail prices could gross $100,000/year. If the products at suggested retail prices were so price- or quality-competitive, how come more IBOs don't just retail and make $100,000/year? Yet, given this unlimited income opportunity, why does the average renewing, active IBO choose to earn only $115/month?

IBO site visitors write me saying that the majority of their unsuccessful peers are just plain lazy, and that is why they don't make more money. But, if they were so lazy, why would they spend the money to renew their business and be counted in the income survey? There must be more to the issue than just being "lazy". Maybe this former Quixtar Diamond, these former Platinums, and normal IBOs can shed some light on the situation....

Resigned Diamond Bo Short -- Former Directs and higher -- Case studies of those who did the work

"Network Marketing is the most focused, most efficient way to market, that you will ever run into" Double Diamond-Greg Duncan-tape: "EDC Attitude" RP419

Those curious enough to run some numbers will find that the $200 model is terribly time inefficient at distributing products and at making money for its participants. Given the low sales productivity, and the high expense-to-personal sales ratio, there will be hundreds of IBOs working for next to nothing so that a few can claim large checks.

Lottery players accept below-odds compensation and are willing to consistently lose a small amount in exchange for a remote chance of winning a large jackpot. Lotteries make money by exploiting their participant's willingness to ignore the unfavorable odds. Lotteries leverage the small losses from the masses so that one or two can claim a large jackpot. In the same manner, Multi-Level-Marketing companies like Alticor employ highly leveraged compensation schemes, exploiting the fact that some people will work as independent contractors for substandard compensation in exchange for the remote chance to be "financially free".

There is no magic to the Quixtar compensation plan. It is a highly leveraged plan, paying those at the bottom almost nothing so that their effort is leveraged up to richly compensate the upline. Traditional businesses can't apply the same leverage since they must pay minimum wage and the employer's match of the Social Security tax. Traditional business owners could generate the same "time leveraging" for them selves, if they could just find enough people willing to work for $1-$2/hour, no benefits, and pay for their own training like Quixtar IBOs do for their upline Diamonds. Due to the low sales productivity, Alticor could never afford to pay IBOs even minimum wage for the inefficient way IBOs promote Alticor's products.

Many IBOs promote the effortless "residual income" possibilities of Quixtar. Yet, triple Diamond Ron Puryear comments about how other MLMs can't make a lot of easy money for some without having many others making nothing. Most IBOs who believe they are under paid in their jobs never accept the fact that they are making a lot less working for Quixtar and their upline. According to Triple Diamond Ron Puryear, there is a constraining order from the SEC not to use the word "residual" in promoting the business.

"One must turn outside the world of business - to religion and politics - to find people who work as hard for as little financial reward as most Amway people do." Forbes Magazine Dec 9, 1991

IBOs could have a lot more money in the end, leveraging their superior job productivity with a redistribution scheme that mirrors Quixtar's. This chart shows the superior pyramided results of job compensation using the Quixtar compensation scheme. My pyramid scheme would make money more efficiently for IBOs than Quixtar's 100PV plan.

For "Pro-Suming" IBOs and IBOs just "buying from themselves" with little retailing of product, Quixtar is nothing more than a "buyers club" pyramid scheme. IBO's in this mode willingly sacrifice their time and pay higher prices so that they can participate in this last "legal" pyramid scheme.

Amway Co-founder - Rich DeVos "Wholesaling only (in MLM) is an illegal business."

Many IBOs hope to gain volume just by referring people to the Quixtar WEB site. They will soon find out that without a little product education (selling) that their referrals will probably not purchase much. Many lines-of-sponsorship down play retailing and teach IBOs to just buy more from their own "store" to increase volume. This may be because they believe selling is not duplicable, or the prices are not competitive enough to risk time trying to retail. Since retail customers don't buy the higher profit margin motivational tapes and seminars, it is more advantageous for the Diamonds and Emeralds to stress recruiting instead of retailing products.

"Recruits are brainwashed into spending a fortune on peripherals while consuming Amway products. They either lose their shirts or begin making money by getting enough people underneath to do the same." Don Gregory former speechwriter for Amway's Co-founder Jay Van Andel Forbes March 25, 1985