See also "Amway- A negative sum game?" for a way to look at it on an individual basis. How about a distributor writing me to rebuttal my numbers? See also the Real 6-4-2 Amway/Quixtar business plan.

"In truth and fact, the average annual adjusted gross income for each of the approximately 20,000 Wisconsin Amway Distributorships was $267, or 2.2% of the projected $12,000 income. During the two-year period of 1979-1980, approximately 139 Direct Distributorships, or less than 1% of all Wisconsin Distributorships, had an average annual adjusted gross income in excess of $12,000. The average annual net income (after the deduction of business expenses) for all Wisconsin Direct Distributorships was, in fact, a net loss of $918." --State of Wisconsin v. Amway Corporation et al, 7/82, in which Amway and a number of Amway distributors were fined for illegal misrepresentation of income

In the May 11, 1999 article in USA today, Amway's 1999 sales were stated at $5.7B (estimated retail) of which 70% was stated to be outside the United States. At a 25% average markup to "estimated retail" would give US corporate sales of $5.7B*(1-.25)*.30 = $1.28 billion. The USA article stated the number of US distributors to be 750,000. Sales per distributor calculates to be $1.28 Billion/750,000 or $1,707/distributor. [summary]

From the SA4400, the summation of all the various bonuses levels amount to about 31.5% of BV (business volume). 31.5% is unreasonably high since Amway sells many catalog items, which have lower $/PV/BV ratios. Core products have a BV/$ ratio of 1.08, and catalog products average .461. Assume that catalog sales are 40%, and Amway core products are 60% of total US sales. (.6*1.08+.4*.461)*.315= 26.2% is rebated instead of 31.5%. I will stay with the assumption of 31.5%, as it will make the numbers in Amway's favor, lending more room for error on my side and credibility for my calculation. Per the SA4400, of the 750,000 distributors, only 41% are active, or 307,500. [summary]

Total rebates amounting to 31.5% of 1.28 Billion sales is $ 403.2 million. This means Amway pays a total of $403.2 million to US distributors, in the best case. In business, this is called "gross margin". Gross margin is what is left after "cost of goods sold" is subtracted from gross revenue. Gross margin is used to cover overhead, profit and taxes. Gross margin as stated in the Amway SA4400 disclosure brochure, is claimed to be $1,056/year/active distributor. To confirm this number we can multiply the $1056/active distributor by the number of active distributors of 307,500 to back calculate what Amway is paying out. This comes out to be $325 million. [summary] At 26.2%, instead of 31.5%, it comes out to $335 million, so there is possibly 61 million in Amway's favor due to this assumption I use of $403.2 million. Note: From Amway's public sister company "Amway-Asia Pacific" distributor incentives were about 26% of corporate sales, and they sell a large fraction of Amway core products. (Data form the Asia Pacific annual report to shareholders)

As additional support, Quixtar reported sales of $100Million in the first 100 days of operation and payments of $30 million in performance bonuses to IBO's resulting in a pay out ratio of 30%. The $30 million also contained bonuses from partner stores. The partner stores sales were not included in the $100 million sales number. The pay out ratio from actual Quixtar data is still lower than the estimates I used in the calculation.

Assume now that 15% of sales are sold at "Retail" with an average distributor markup of 25%. 1.28*.15*.25= $48.0 Million in retail margin for distributors. [summary]

To help the Amway cause, assume now that Americans sponsored all foreign direct distributors, and that Americans get all the international leadership bonuses for International Directs. Amway's worldwide sales (not estimated retail sales) were about 4.3 billion. Less the 1.28 Billion US sales, this leaves 2.99 Billion. The 2% International leadership bonus amounts to an additional $60 million of additional gross margin to US distributors. This should be included already in the $1,056/year on average the active distributor makes from Amway, but to error on the safe side I will include it here. [summary]

Since only 59% of the distributors are inactive (See Amway SA4400), this leaves 307,5000 distributors (41%) who are spending money to build their distributorships. Assume that of the 307,500 building distributors there are 50,000 spending $1,000/yr, 172,500 spending $2,000/yr, and 85,000 spending $3,800/yr. The table, see hyperlink below, shows the total expenses for each group of building distributors. [summary] [Table of typical Amway distributorship overhead costs] Distributors have written me and said that my travel costs were low and that tape prices have been increased, so my numbers are conservative. Some very active distributors who travel a lot can spend up to $5,000/year, so my cap at $3,800 is also conservative. $1,800 in extra mileage costs would be an additional 5800 miles/year at $0.31/mile. The calculation above assumes expenses for a single person. Costs for couples increase due to the cost of second tickets (4*55) and hotels (4*80) for the four yearly motivational seminars. Add approximately $540/distributorship if they are a couple. The error for the couples could amount to $540*172,500 or and additional $93 million!

* These calculations do not include gross margin generated by tool sales, 1) since it is income not officially recognized by the Amway Corporation as a potential part of a distributor income, 2) most distributors say "no one makes money on tools". 3) Tools money is directed to Direct Distributors and above.

Annual Sales: $30 Million (smallest store in the area), profit $750,000, 2.5% of sales.

Store hours: 362 days/yr, 15 hours/day M-Sat, 13 Hours/day Sun.

Crew: 80 people 7:00am-5:00pm, 15 people 5:00pm-10:00pm

Total man-hours/year = 285,200 (142.6 man-years)

Sales/man hour: $30 million/285,200 = $105.00/man-hour

Premiums paid for Amway products are not included in this calculation. From my price study, I found that I could save money on 1 out of 4 consumable products (26%), and 1 out of 5 (21%) of all products. On average the premiums exceed 40% over what I could purchase an equivalent basket of goods from local discount stores. An average distributor has sales of about $1700/year, backing out the 15% or product, which is sold retail, leaves $1,445. A 40% premium implies the average distributor is spending $578 more per year to "buy from their own business". This costs distributors an additional $433 million, and is not included in the combined profit and loss of distributors.

Link to a "Amway - The Continuing Story" web site for a list of typical time commitments

One can see even with the most optimistic assumptions that the Amway business for distributors, as a whole, is overall not a profitable venture. Sure, some will make money, but others will then lose far more than the average $673/distributor. It is a losing proposition on average, and that is why it has not grown faster than any legitimate traditional business that makes money.

 The AMO's (Amway motivation organizations) push the idea of just consuming the product and showing others how to consume the product. This idea is bankrupt since a self consuming distributor brings to the group at most $600/year in gross margin at $200/month in personal purchases, at Direct Distributor 25% bonus level, while having anywhere between $1000 and $3200/year in distributorship overhead expenses! Any business that has expenses that are 3-4 times their gross margin will go out of business very quickly. Most distributors have J.O.B's to provide the cash to fund the losses from their Amway business. Amway distributors hang out to this bankrupt pyramid business concept because they have seen the 1/10 of 1% of distributors who have made it big (mostly from selling books and tapes), and they think they will be the one to reproduce what the successful have done.

Let's look at a single, self-consuming distributor as a single business. At $200/month, sales are $2400/year. One can't count sales to their downline, since the downline counts them as their own. So real sales per distributorship is really very low, about $2400-$3000/year. Each active distributor has expenses of $1,000 to $3,200/year. This means each active distributor could spend more in expenses than his personal gross sales! No legitimate large business stays in business with such numbers. Amway distributors stay in business because most have full time jobs to subsidize their dream filled Amway distributorships, most of which lose money.

Assume the distributorship had 31.5% in bonus paid, which is the maximum. This gives $756 in gross margin/year at the best rebate level, but each active distributor has expenses from $1,000-$3,200/year. What sense does this make? It only shows that the system is so bad that everybody on average loses money. Sure some people make some good money with the help of selling tapes and seminars, but one needs lots of people losing money in their downline to make it work. That is surely "people helping people"!

The only way to make distributors profitable on average is to decrease expenses, increase personal consumption, sell more products at retail, or have more inactive self-consuming distributors.

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