How Amway Quixtar Could Work

Here is my page on how Amway/Quixtar could work. Many site readers have asked how then can they make money with the Amway/Quixtar opportunity. I will define "to work" as to have more than 50% of distributors reporting a profit with their business and distributors on the whole receiving more from Amway/Quixtar than they spend to promote Amway/Quixtar products.
To preface my page, I am not saying Amway does not work in the absolute sense. There are some people making great money, but they are a very minute fraction and the majority of their income does not come from the Amway products business. The big incomes come from the motivational supply businesses of selling tapes, books and weekend Amway motivational seminars. These items are known as the tools or the "system".

"I was taught and therefore taught that the system was put in place to assist people in building their "Amway" business. This is as far from the truth today as you can get as when you are making 80% of your income off of the system, it is totally reversed, Amway is in place so people can sell their system!"

Don Lorencz: Diamond Direct Distributor

The vast majority of distributors are reporting losses on their taxes due to spending too much money on the system. The reason for my site is to help people minimize what they lose and possibly make more money.

 

 

 

 

 

Einstein points out to an Amway distributor the obvious profitability problems in the Amway Plan when AQMO overhead costs are included.

Listen to Amway Co-founder on how to have a more profitable business .

Throughout my site I detail the business and economic problems, which holds back Amway sales growth in the United States, thus holding back the success of individual distributors. Sales growth is a direct reflection of what the market (economy) thinks of any business's products and how highly the economy values the service being provided. Consistent sales growth of Amway is THE factor that will determine if your Amway/Quixtar distributorship and others make it to Diamond. If the sales growth of Amway/Quixtar (don't confuse it with market growth, say for e-commerce) in the US is healthy (+20%/year) then this means the "market" has embraced this company as adding something valuable to the economy. The single largest underlying factor, in my opinion, that holds back further advances in Amway sales growth in the US is the price competitiveness of the products Amway sells. If Amway/Quixtar wants to expand sales from here they need to tap new market segments. As I see it, they only target the market segment of consumers "wishing to own their own business", and not all consumers in general. Since these consumers get the main benefit of "owning their own business" by purchasing their personal consumption goods from Amway, they may not be as price sensitive as other consumers in the market place.

If I knew I could save decent money in Amway, on 4 out 5 products I'd buy, then I'd be doing Amway now. I spent a little time, which few people expend for them selves, and made a price comparison for myself. Needless to say I was surprised and disappointed. Other pages in this site show how a diversified basket of good purchased from Amway could cost as much as 40% more than discount stores and that 4 out of 5 products compared were more expensive through Amway at distributor cost. True, Amway has the Nielson study saying they are competitive to grocery stores, and they have countless other tid-bits to say their products are competitive.

What really counts is what the MARKET says via sales growth and not what I say, what Nielson says, or what Amway says. The market is telling me that the economy doesn't value the Amway system highly when they only have $1.28 billion in sales to US distributors after 40 years when Wal-Mart has US sales over 100 billion in 37years. The distributor count in the USA has only grown 2.85% per year since 1991. If you want Amway to be the next growth machine like Wal-Mart was, then Amway needs to be more competitive, so it can grow faster.

The second problem with Amway is the ratio of overhead costs to distributorship gross margin and distributorship sales. The actual sales of the average distributorship are quite low, on the order of $1700/year, according to the Amway SA4400 business prospectus. You cannot "double count" your downline sales as your own if they counting those sales for themselves. A 900PV distributor might only have personal sales of 100PV. The other 800PV actually belong to his downline. For the purpose of allocating the overhead costs of the distributorship, you cannot use that 800PV, as bonuses on these sales must also get paid to the downline.

A major selling point of Amway is the low absolute dollars spent on overhead. But as a proportion to actual distributor's sales, it is extremely high. Most of the time overhead exceeds the personal sales of the distributorship. Given this situation it is very easy for the majority of distributors to be losing money in their business while only a very few very high up are making money. Bonuses are pyramided but so is the total cost of overhead expenses. It is so easy for distributors to lose money, when the AQMO's encourage reckless purchases of tapes, books, $120 seminar tickets, Amvox, WEB access, Tape of the week, Fast Track Tape series I & II, Recruiting Tapes, WEB hosting and all the other stuff. New people don't stick around too long when they see all of these fixed business costs (overhead) "required for success". Sure, all this System is 100% optional but as they say "so is success". On the whole people spend more promoting Amway products than they receive in compensation from Amway. A distributor with sales at 100PV/month, or $2400/year (or 30% higher than the average distributor in the SA4400 distributor prospectus) only brings at most $600/year of gross profit to the "group", while spending many times that amount on business overhead. Even if Amway could grow faster it would only widen the pool of people losing money with their distributorships since they employ an inefficient business model. The typical business model must be changed if more people are to be profitable. A good start would be to build the 6-4-2 business plan using 300PV instead of 100PV for personal volume. This would tell people that sales to customers are important for profitability.

The "negative sum game" is the condition where all distributors are spending more to promote Amway products than they receive back in retail mark up or performance bonuses. IBOs need at least 4 times their typical overhead costs in personal sales of Amway Core products to break even on "average". Fewer sales are needed if the products are sold at retail prices. A Quixtar IBO will need 20 times their overhead costs in personal Partner store sales, when the partner has the 10%PV/20%BV bonus schedule. For Members at the same partner store, IBOs need 40 times their overhead costs in personal sales due to the recent 50% reduction in PV/BV for members at many partner stores. Most people lose money because there are too many IBOs spending money on overhead relative to the number of "customers".

If your plan is to rely on selling the Amway core line and the line of sponsorship you have proposes $2,000/year in overhead, you will need to have at least $8,000/year in personal sales of those products so that everyone "break even on average". Personal sales are those to retail customers, yourself, non-building personally sponsored IBOs, and personally sponsored embers/clients. This says that the profit margin from those sales is enough to pay for the overhead incurred on average. This doesn't mean a 3% IBO will break even. It only means that as a group they will be breaking even. For a Quixtar IBO spending $1,000/year in overhead, wishing to just sign up Members, those Members need to be buying $40,000/year in goods from the partner stores with a pay out of 5%PV/10%BV to break even . ($40,000 *10%BV* 25% performance bonus level=$1,000)

If you want to "help" people in Amway/Quixtar be successful help them to understand that sales to customers are a necessary part of the business. Buying from your own store and showing others how to do buy from their own stores is a ticket to business losses if you spend money on books, tapes and seminars. That is the reason Amway has the Retail Sales Rule. If AQMO business costs are to be duplicated then the corresponding rate of personal sales, from the graph above, must also be duplicated if people are to make money on average. If your upline Emerald and Diamond does not understand this or enforce the retail sales rule to get everyone up to this level of personal sales, he is basically saying he doesn't care if you make money, he will make his money from selling you tapes and seminars.

The graph above show the profitability of a Quixtar "member" at various performance bonus levels. Interesting to note is that at the 5%PV/10%BV level where the more popular and main stream partner stores have their pay outs, that even for direct distributor a $1,000/year Quixtar Member only generates $25 in gross profit. For a 3% IBO, such a member generates $3/year in gross profit. You will have to decide for yourself if the time required to prospect a $1,000/year member is worth your effort. Of course members become more profitable when they use partner stores with higher PV/BV ratios. A member buying $1,000/year of Amway products could generate $250 in gross profit for an IBO. This of course would probably worthwhile to pursue if there were a high percentage of these people out in the market. This is another reason why it would be good for Amway/Quixtar to publish data, so you can know the market response to the member program without having to "experiment" for yourself.

So now you ask, how can you make this Amway/Quixtar opportunity thing work?

"When I was in Amway 8 years ago I lost over $4000 on all of these meetings and tapes and books that are supposed to get you all fired up and go out and sponsor more people. Be really careful of how much of your funds you allocate to these types of functions. Don't get sucked in. It will bleed you dry with no real benefit" Site Visitor

The System of tapes and seminars is only motivating the people who are not really interested in the value of the products but those that just want a fast growth business of selling "businesses". These people will last a while, but the inefficiencies of the AQMO system will wear them out. The majority will quit long before the can make any consistent profits. The AQMO systems assure that their downline, who have reproduced the same cost structures, will be in the same unstable financial position.

Do you really believe that people can build a successful Amway business without the system? "My answer on this is only 1% of people that are active in the Amway business ever reach the direct level now, how successful would you say the system is? I hate to repeat myself, but I believe that proper systems with the proper motives are excellent but as the systems stand today that I personally know of, I believe that we could help more people become direct today by abandoning the present systems and doing without. I believe by getting back to smaller, more personal meeting we could accomplish much more." Don Lorencz: Diamond Direct Distributor

The typical plan presentation, which shows each distributor doing 100PV/month ($200/month) distributor/consumer, only brings $600/year in gross margin to the group via one distributor's sales. Logically, if everyone is to make money on average, everyone needs to spend less than this $600 on overhead for the businesses. An active distributor will spend at least $600 on tapes and seminars alone. Distributors will have to overcome the Amway Business Paradox to grow their businesses without the AQMO System.

 

 

 

 

This is the slow but loss-free, economically efficient way to grow your Amway/Quixtar business, and hopefully take more money out of it than you put in it. It is clear from E-mail I receive, and the easy calculations done in my pages, that most distributorships lose money when run according to the AQMO System business plans. Without your active financial participation in the "system" (i.e. buying tapes and attending seminars) you will most likely lose your ability to "parade" a upline Diamond or Emerald in front of your group. The "parading" and handshaking with these people is necessary to convince new recruits that there are actually people "living the Amway dream. This is hypocritical because these people "successful in Amway", are only financially successful because of the profits from selling books, tapes and seminars. They are successful because they give the illusion that the Amway products business is the source of their income when in reality the "System" is the major source of their income. I have received numerous E-mail where distributors who stopped using the "system" also stopped receiving support. This is just additional evidence that the compensation generated by moving Amway products is not good enough to justify the work, without the added revenue of the System.

So to recap:

  1. Minimize your overhead by avoiding irrational, emotionally charged System tools purchases.
  2. Keep more of your money by avoiding irrational buying of everything from your business, especially when you must pay more than those products costs at your local discount store.
  3. Push the advantages to people who don't have access to discount stores or where geographically the prices are very high.
  4. Show others the products, which are true values. If they like those then consider showing them the plan. They will be more interested than some one with no product history.

The New Plan: My suggestion to make Amway/Quixtar a better and more profitable business.  

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