Is Amway a Pyramid Scheme or MLM? [Review]

So you’re probably curious about Amway, the MLM company that sells a variety of products ranging from health to beauty and home care. You might have even heard about it from a friend or family member.

As an online entrepreneur, I have reviewed many similar online opportunities over the years. So I can tell you what you need to know.

Just so you know, I’m not affiliated with Amway in any way, shape, or form. That means you can count on me to give you an honest and unbiased review. 

And if you stick around until the end, I’ll even share with you the best alternative I’ve found for making a full-time passive income online.

So, is Amway worth joining? Let’s dive in and find out!

What is Amway?

Amway is a multilevel marketing company that’s been around since 1979. You might know them for their home products and for their victory against pyramid schemes.

In 1999, Amway’s founders created a holding company called Alticor and launched three new companies: Quixtar, Access Business Group, and Pyxis Innovations. Quixtar is a separate sister company that focuses on the internet.

Did you know that Amway Global is the top direct selling company in the world? They make a whopping $8.9 billion in sales each year, which is $3 billion more than both Avon and Herbalife. That’s a lot of money!

Back in the day, it seemed like Amway distributors were on every street corner. Nowadays, the company employs over 17,000 people across 100 countries. While there are no official figures, it’s estimated that Amway has three to four million distributors worldwide.

Forbes has ranked Amway as the 44th largest privately held company in the United States by revenue. They’ve also been featured in Direct Selling News’ “Top 100 List” for multiple years in a row.

Amway’s headquarters is massive! It spans over one mile and includes 80 buildings that total 3.5 million square feet. And if that wasn’t enough, the company even owns the Amway Grand Plaza Hotel in Grand Rapids.

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Is Amway An MLM?

Yes, it’s an MLM. Amway offers you the opportunity to become an “independent business owner” (IBO) and sell their products directly to customers. 

As an Amway IBO, you can make money by selling their products and recruiting new members to become IBOs under you. You’ll earn a commission on the sales generated by you and your downline, which includes the IBOs you’ve sponsored.

However, here’s the thing. While it’s true that you can make money selling Amway products, most IBOs cannot make a full-time income just by doing that. The real success lies in recruiting more people to join your downline.

In an MLM company, the more people you recruit, the more money you’ll make. And, it’s not just about recruiting new IBOs, but also about getting them to recruit others under them. This creates a complex network of people, which is why it’s called “multi-level”.

To explain it better, let’s think of it as a triangle. You’re at the top of the triangle, and everyone in your downline is below you. You earn commissions from the sales made by everyone in this triangle, including the new members recruited by the people you’ve sponsored.

Most people in an MLM company would rather earn passive income by recruiting others than just selling products, even if the company offers a wide range of products. This means that those at the top of the triangle are likely to make the most money, while those at the bottom might struggle to make a good income.

To be successful in Amway, you need to have a large and active downline. That’s the key to making serious money in this business.

You may also want to read our article on the top MLM companies.

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Is Amway a Pyramid Scheme?

While Amway has faced investigations in the past, it is not a pyramid scheme. It’s a multi-level marketing (MLM) company that offers opportunities for its members to make money by selling skincare and beauty products. You don’t have to make money just by recruiting others.

That said, the company has faced scrutiny in several countries and from institutions like the Federal Trade Commission (FTC) for alleged Ponzi scheme practices. However, despite paying tens of millions of dollars to settle these cases, Amway has never been found guilty.

In fact, in 1979, the Federal Trade Commission found that Amway didn’t meet the definition of a Ponzi scheme because its distributors weren’t paid for recruiting members, it didn’t require distributors to purchase a large inventory of goods, and it required distributors to make retail sales.

So what exactly is a Ponzi scheme? It’s a fraudulent scheme where valuable goods or services are rarely sold. Instead, the scam’s only source of revenue is recruiting new members and asking for more money from existing members.

A pyramid scheme, on the other hand, promises commissions to members who recruit other members. This model is unsustainable and often a scam because the members at the bottom are doomed to lose money. Participants are required to pay a membership fee to the company, which then shares a portion of the money collected from each additional member recruited.

However, the scheme is only profitable for the directors at the top of the pyramid who can receive a portion of the payments from each newly recruited member. The system can only continue as long as members recruit new members and funnel money to the top. Eventually, the pyramid will collapse once there are no new recruits or other sources of revenue, leaving most members at the bottom with lost money.

While Amway isn’t a Ponzi scheme or a pyramid scheme, Harvard Business School has noted that it has an elaborate, pyramid-like distribution system where independent distributors receive a percentage of the goods they sell and also receive a percentage of the goods sold by recruited distributors.

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Is Amway a Scam?

Amway is not a scam. Let me explain why.

First off, according to the Oxford Living Dictionary, a scam is defined as “a dishonest scheme; a fraud”. While there have been fraud cases involving Amway in the past, it’s generally not considered a scam.

However, it’s worth noting that Amway’s operations in the U.K. and Ireland were suspended in 2007 following an investigation by the U.K. Department of Trade and Industry. The investigation accused Amway of engaging in misleading marketing, providing inflated profit estimates, and misleading distributors into buying counterfeit “motivational and training products.”

Additionally, in 2010, Amway settled a class action lawsuit filed in Federal District Court in California. The lawsuit accused Quixtar (a subsidiary of Amway) and several of its top distributors of fraud, racketeering, and operating an illegal Ponzi scheme.

The FTC also found Amway guilty of price-fixing and overstating income. As a result, Amway was ordered to disclose actual averages per distributor in income statements and to point out that more than half of its distributors make no money, with the average distributor earning less than $100 per month.

In short, while there are some distributors who do make money with Amway, the majority make little to none. It takes a lot of effort to succeed with Amway, and those who do often advertise aggressively.

Because of Amway’s disingenuous and irresponsible marketing claims to recruit members, some people refer to it as “Scamway”.

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The Founding of Amway: From Failed Businesses to Success

Amway, one of the most well-known multi-level marketing companies worldwide, was founded by two businessmen, Jay Van Andel and Richard DeVos, in 1959. Interestingly, they actually met at Grand Rapids Christian School because they shared a passion for business and sales. Prior to Amway, the duo had tried their hand at other businesses that unfortunately didn’t succeed, including Nutrilite.

Nutrilite was unique at the time because it offered sales bonuses and incentives to attract suppliers. Although the company started off selling nutritional supplements, it later expanded into cleaning products such as Fluid Organic Cleanser. Despite the potential, the business didn’t quite pan out.

Jay Van Andel and Richard DeVos didn’t give up, though. They kept experimenting with different business models until they came up with one that they were confident would work. Thus, they left Nutrilite and founded Amway, which stands for “American Way.” With their hard work and dedication, the company quickly became renowned worldwide.

However, Amway’s online reputation in the United States took a hit when people started seeing it as a pyramid scheme. To address this, the company’s name was changed to Alticor in 1999 and its sales divisions were renamed Quixtar Brand.

Today, Amway continues to be a popular multi-level marketing company that many see as a way to achieve a broad audience. Despite the challenges along the way, the company has managed to establish a significant presence in the market.

How Much Money Can You Make With Amway?

Let’s take a look at the numbers from the 2017 income disclosure for the UK and Ireland. Unfortunately, we can’t examine the income disclosure for the United States since Amway doesn’t prepare them.

At the end of August 2017, Amway had 17,205 registered retail consultants. Out of those, only 4,735 received reimbursements from Amway. That means 72.5% of individuals, or 12,470 people, earned nothing. The 27.5% who did work had an average monthly salary of £41.82, which equates to an annual income of £501.84 before expenses.

If you’re a business consultant, which is at the top of Amway’s pyramid-shaped earnings chart, things may look better. However, in 2016-17, only 66 of them existed, and their average monthly income was £2,281 (£27,372 per year). Also, only 66 out of the 36,940 Amway members in the UK and Republic of Ireland earned more than £110 per month on average that year.

But even if you’re a top Amway rep, remember that you still have to deduct your expenses from your income. This means that your “profits” are significantly reduced, if not completely eliminated.

According to the FTC research, the average net income (after expenses) of the 200 largest Amway distributors in Wisconsin was about minus $900. Moreover, based on their tax returns, the top Amway distributors in Wisconsin lost money on average. These details come from state tax returns obtained by the Wisconsin Attorney General’s Office in a 1980 lawsuit against Amway.

According to the same study, it is 286 times more likely to win a single spin of the roulette wheel in Las Vegas than to make a profit as an Amway representative. So, it’s essential to weigh the risks and rewards before deciding if Amway is a good investment for you.

Learn more: legit ways to make money online.

How Much Does It Cost To Join Amway?

Well, the good news is that joining Amway doesn’t require any upfront payment or fees.

However, to get started, you will need to purchase some products. These products are available in the form of starter kits, which come with everything you need to begin your journey with Amway. Alternatively, you can choose to create your own starter kit by purchasing individual items.

To get started, you should expect to invest around $100 in products. This will give you the opportunity to experience the quality of Amway’s products and start building your business.

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The Drawbacks of Joining Amway

Amway is a multi-level marketing (MLM) company that promises financial freedom and the chance to be your own boss. However, there are some drawbacks to joining an MLM like Amway that you should be aware of before you invest your time and money.

Difficulty Making Money

One of the biggest challenges with MLMs like Amway is that it’s tough to make money. According to an audit of tax records from the late ’70s in Wisconsin, Amway distributors reported an average net loss of $918. That’s not a small amount of money to lose, especially when you’re trying to build a business.

Moreover, statistics show that between 72.5 percent to 99.9 percent of MLM members lose money. The sales quotas in MLMs require members to keep selling products to be eligible for commissions, and if they don’t meet the quota, they don’t get paid. As a result, many members end up losing money before they even recruit a single person to the company.

Losses Reframed as Investments

Another drawback of Amway is that uplines often reframe financial losses as investments to keep their representatives in the MLM system. They promise a chance at future financial freedom and entice them to keep investing in the business.

The problem is that these losses are unlikely to be recouped, and the return on the “investment” is negative in most cases. Therefore, it’s important to recognize that the claim that it’s an investment is a scam.

Cult-like Culture

MLMs like Amway have a cult-like corporate culture that can make it hard to leave the company once you’ve invested your time and money. Critical thinking is discouraged among representatives, and those who ask questions or deviate from the ‘this company is awesome” mentality are chastised and even isolated.

Amway is often compared to a Big Brother organization, with seminars and meetings that resemble religious revival meetings. MLMs encourage their reps to isolate themselves from anyone who questions their involvement and prioritize their business over their personal lives, which can lead to the separation from family and friends.

Leaving an MLM is not easy, and those who do often experience rejection from people they once considered practically family. MLMs often label those who leave as failures or bad influencers, and reps are not allowed to contact them.

You Might Have to Buy Products Yourself

Unless you have a huge network of friends, family, and neighbors, you may need to buy Amway products yourself every month. That’s not only frustrating but can also cost you a lot of money in the long run.

Amway Products Are Overpriced

Amway products are often more expensive than other brands, making it difficult to sell them to potential customers. Most people would choose to buy similar products elsewhere at a lower price, which makes it even harder to make a profit.

Amway’s MLM Business Model Has a Bad Reputation

Amway’s business model is not very favorable to newcomers. The distribution of commissions favors top-level members, making it challenging for lower-level members to make money. This is why Amway has a bad reputation as a serious business opportunity.

Exaggerated Claims of Income

Amway overstates its income, making it sound like a lucrative business opportunity. However, the reality is that very few people make a living promoting Amway. Additionally, Amway’s low retention rate is discouraging, with less than 41% of distributors being active.

Amway Is Like a Pyramid Scheme in Disguise

While Amway is not a pyramid scheme in the traditional sense, it does require you to recruit others to make a living. This can make it feel like a pyramid scheme disguised as a legitimate business opportunity. If you want to avoid losing money every month, recruiting others is often the only option.

Recruiting is Required to Succeed

Amway heavily relies on recruiting to make money. Eight out of ten ways to earn money with Amway require recruiting others to join the company. If you’re not comfortable with sales and recruiting, you may struggle to make any money in Amway.

Expensive Events

Attending Amway events is a big part of the company culture, but it comes with a hefty price tag. These events are often mandatory, and if you don’t attend, your upline may withhold support and mentoring. On top of the ticket cost, you’ll need to pay for travel, lodging, and meals, which can add up quickly.

Shipping Costs

As an Amway distributor, you’re responsible for all shipping and service charges. These costs can eat into your commission, reducing your income. Make sure to factor in shipping costs when calculating your earnings.

FTC’s Ruling

Amway has faced numerous investigations and allegations of illegal business practices, including operating an illegal Ponzi scheme. While Amway is not a pyramid scheme, the FTC found that their commission policy is similar. Some people have nicknamed the company “Scamway” because of these allegations.

Lawsuits

Amway has faced class-action lawsuits, including accusations of extortion, violating “endless chain” laws, and committing wire and mail fraud. While Amway denies these allegations, it’s worth noting that they’ve faced legal action in the past.

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Is Amway Banned?

Well, in the U.S., Amway is perfectly legal and operates without any issues. However, in the UK, it’s a different story – it has been declared illegal due to the fact that it generates more revenue from selling to distributors rather than customers directly. Even in India, the police are currently investigating Amway due to some of its high-ranking representatives being involved in illegal Ponzi schemes.

Unfortunately, Amway is currently facing legal difficulties in various locations, and it’s struggling to maintain its operations in the United States. As with India and the UK, it seems like the end may be near for Amway.

Final Verdict

So, I’ve finally reached the end of my Amway review, and I have to say, I wouldn’t recommend it if you’re looking to make money. Why? Well, for starters, finding new clients and recruiters can be tough in the beginning. And if that wasn’t bad enough, you’ll end up having to ask your family and friends to join your Amway business opportunity, which is never fun.

To make matters worse, your upline will be constantly contacting you to buy more business support material, even when you’re struggling to recruit people to your downline. The reality is that you’ll likely end up losing more money, and according to a case study on the FTC’s website, 99% of people who join an MLM go broke or lose money. No wonder people drop out of these MLM-like companies feeling pressured to succeed.

If you’re looking for a better way to earn money and have a flexible schedule, why not consider starting your own online business? This way, you can choose what you want to promote rather than having someone tell you what you must promote. Plus, it’s 100% legit and sustainable – unlike MLM models.

So, in the next section, I’ll share with you how I’ve been able to build a successful online business in a legit way, allowing me to make a full-time income in just a year.

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