Is Amway A Pyramid Scheme? [The Truth]

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What do you have in mind when you hear the word ‘Amway’? It’s quite polarizing, but it almost always has to do with whether or not it’s a pyramid scheme.

As with a lot of things in life, there are two sides to the story. Some say that Amway is a legit business. Distributors claim that they really do earn money from Amway, and that their life is better for it.

On the other side of the spectrum, you have the naysayers who say it’s purely a scam. They’ve even got a nickname for it – ‘Scamway’. It gets that nickname due to the allegation that the company makes its money by taking advantage of its workers. Anyone who’s made any money from it has more than likely spent more than they made to the company.

So, which one is true? Well, before that, let’s get to know a bit more about Amway.

What is Amway?

Amway is an abbreviation for ‘American Way’. It’s a multi-level marketing and direct-selling company based in Ada, Michigan. You may not have heard of or ever even seen Amway’s actual products. That’s because the company doesn’t do much in the way of advertising or promotions.

You can’t find Amway’s products in retail stores. The products are sold exclusively through Independent Business Owners (IBOs). These IBOs are distributors of Amway and are considered Amway members.

Nutrilite and the beginnings of Amway

Amway was founded in 1959 by Jay Van Andel and Richard DeVos. They met while attending Grand Rapids Christian School and realized they both had a love for business and sales.

DeVos and Van Andel became business partners in several ventures, including Nutrilite. Nutrilite focused on selling dietary supplements and cleaning products.

Soon after, they finally stumbled upon a business model that made them extremely successful – multi-level marketing (MLM). They branded their new venture as Amway while still keeping their Nutrilite products intact and immediately became a global phenomenon.

Amway combined direct selling with a multi-level marketing strategy. Tons of people were attracted to the business as an opportunity to make money and create a better life for themselves. Amway’s products included vitamins, dietary supplements, skincare, color cosmetics, etc.

However, Amway’s reputation quickly took a dive as consumers in the US started associating Amway with pyramid schemes. Hence, the corporation quickly decided to rebrand Amway into Alticor. Its sales divisions also changed their name to Quixtar Brand and Access Business Group.

What is a pyramid scheme?

According to the thesaurus, a pyramid scheme is a fraudulent scheme. People are recruited to make payments to the person who recruited them.

People in the upper levels of the pyramid will generally make a profit. And some of them really do make life-changing money.

Those in the lower layers generally lose their money. Because of the way the structure is intrinsically set up, the majority of participants fall to the bottom of this scheme. The lower you are, the higher the likelihood of not making money.

Additionally, the profit participants make largely comes from payments made by even newer recruits. If the number of new recruits fails to maintain the hierarchical payment structure, the scheme will collapse, leaving most of the participants losing the money they put in.

According to Legal Info, recruiting people to participate in a pyramid scheme is a felony in the United States. It is punishable by up to 4 years in prison, up to a $5,000 fine, or both.

A person who recruits another participant into the pyramid scheme can be sued for twice the amount the recruit paid. If a marketing system is found to be a pyramid scheme, the court can also order the defendant to pay civil penalties and consumer compensation.

Is Amway legit? The truth about Amway

In other words, is Amway truly a pyramid scheme?

Whether Amway is a legitimate business or not depends on your perspective. You may think that Amway is legit because the company sells real products and has multiple offices operating in many countries.

You may also believe that Amway is a scam since it encourages people to pay to join. Furthermore, members make their money by recruiting people, and make more money when they recruit more people. Everything seems to obviously point towards a pyramid scheme business model.

Despite this, there are certain criteria that seem to make Amway technically legit.

First off, Amway uses a direct-selling method for its business. This business strategy is recognized as a legitimate way of doing business by legal and law enforcement entities.

Secondly, there is a written contract between Amway and its members. Everything is defined in the contract, from the relationship of the member with the company to the provided rules of conduct.

Third, the Federal Trade Commission (FTC) in 1979 decided in Amway’s favor that Amway is not illegal. Amway really does sell physical products.

Amway is legit because the law in the United States only bans pyramid schemes that use an MLM business model with no product or service to be sold.

Hence, Amway has never actually been found guilty of alleged pyramid scheme practices. The business is still running even to this day – albeit under a different brand name.

What things point towards Amway as an actual pyramid scheme?

Strictly speaking from how the business operates, Amway is structured as a pyramid scheme. It doesn’t mean it’s illegal in the eyes of the law as long as it checks off certain boxes.

In a Forbes article on Amway by Paul Klebniov, it’s been found that $780 is the average an Amway distributor makes for the year and that $1,068 is the average amount spent on Amway products for the same year.

It is a bit open to interpretation, so it may not be possible to make a hard-drawn conclusion from it.

For example, the distributor may have spent the $1,068 to sell it all for maximum profit, but could not offload it all and only made $780 for the year, ending up with a net loss and some leftover products lying around.

Or, the distributor may have spent the $1,068 with an intention to keep some of it for personal use, sold only $780 worth of revenue, and stopped on purpose.

Also, there’s the fact that the FTC did find Amway guilty of price-fixing and making exaggerated income claims back in 1986. Amway was also found guilty in 2010 of making the majority of its income from selling motivational and sales materials (books, tapes, and seminars) instead of actual consumer-end products.

They’ve had to pay out tens of millions of dollars in lawsuit settlements, and have changed their business operations in response to said lawsuits.

How does Amway make money?

Making money by joining Amway’s membership requires you to sell its products and sign other people as subsequent members who will eventually become Amway distributors. You will get a commission for any sales and incentives for signing new members.

The company and the member distributors make the majority of their money by signing people on as Amway members and distributors. The products do not make up the bulk of sales and commissions.

Amway’s business model

The real money comes from the fees people bring into the company. These newly-recruited members pay hundreds of dollars for the right to become a distributor. As new people sign up below you and begin recruiting their own new distributors under them, the money flows upward.

To start a membership, you have to pay for registration. It’s around $200 for the first year, followed by a yearly renewal fee of $60. These fees cover some business material such as tapes, conferences, and other educational experiences. These business materials are what help guide you in becoming a direct salesperson for Amway.

Is Amway an MLM company?

Yes, Amway is no doubt an MLM or Multi-Level Marketing company. The business model of getting more people to sign up and you getting paid for anyone down the line from you making sales is the definition of MLM.

In a way Amway was the original MLM company, before any of the popular ones now such as Herbalife, Tupperware, Avon and Mary Kay to name a few.

You can still make good money selling products in a MLM company, but it is much easier to recruit people to profit on their sales.

How do the top Amway members make their money?

Many of the top independent business owners are able to persuade people by selling the American dream of getting rich, as opposed to focusing on the sale of Amway products. As top distributors, they get opportunities to speak at Amway conferences and get paid for it.

They can also sell books and other material that motivate and inspire newer member recruits.

Nonetheless, virtually none of the newer IBOs make anything close to what the veteran IBOs do.

However, there is an upside in that these newer recruits have joined an active community with supportive mentors and friends if that’s what they consider important more than the money itself. And for some people, that resonates sound and true, so you never really know.

How does Amway pay you?

As an IBO, you’ll have an individual account with Amway which you can access online. Whenever you make any sales, Amway will process the information and credit your account with your earned commissions. It then gets deposited into your bank account periodically.

Examples of Amway products

Since Amway is a direct-sales company without much in the way of advertising and promotion, the products it offers can’t be found in retail stores. Therefore you’ll rarely ever hear of Amway’s products.

Amway’s product line-up includes nutrition, beauty, personal care, and home products. These include items such as vitamins, dietary supplements, bathroom cleaners, water filters, etc.

Generally, the products are priced to be very expensive, especially for their respective industries. Amway does make a claim that its products are super-premium and use superior ingredients, hence the reason for the super premium prices compared to their competition.

Here are some of the top Amway products sold:

  • Nutrilite Protein Powder
  • Attitude Gel Cleanser
  • Satinique 2-in-1 Shampoo & Conditioner
  • Nutrilite Daily Tablets
  • Youth Xtend Enriching Cream
  • G&H Body Lotion
  • Glister Toothpaste
  • Attitude Sunscreen

Amway has several product brands under its domain. They are Nutrilite (vitamin and dietary supplements), Artistry (beauty products), eSpring (home water treatment systems), Atmosphere (HEPA air purifiers), iCook (cookware), and XS Energy (sugar-free energy drinks).

Amway online shop

As online store become more and more of the norm for shoppers, Amway has joined the masses and created their own online store where you can purchase directly through them, without using any IBO. This makes it particularly hard on their IBOs, since buyers can not skip the middle man and purchase directly online through Amway.

Why are Amway products so expensive?

Amway claims that its products are expensive because they are made to a higher standard and include superior ingredients and formulations.

Amway also affirms that its products are pure, safe, effective, and durable compared to its competitor’s products. Hence, you’re paying more to get more value.

However, there have been allegations that some of Amway’s products don’t do what they claim. Consumers also report that the products don’t work as well as other similar yet less expensive products offered by conventional brands.

Some of their supplements and home care products such as their toothpaste and face washes are controversial topics among medical professionals.

However, when it comes to measuring how well a product works, it can be very subjective. Generally, many of the products are good and do work – they just may not be the best value for the money spent.

Amway lawsuits lead to a name change – now Alticor

Amway was founded in November 1959. Since that day, Amway has been under a critical eye relating to numerous allegations of it doing business as a pyramid scheme. It’s gotten quite the ugly reputation.

To rid themselves of that image, Amway changed its name to Alticor in 1999. Its subsidiary companies are Quixtar, Access Business Group, and Fulton Innovations.

From that day in 1999 up until now, it has successfully kept the name Alticor.

One of Alticor’s subsidiaries is Quixtar, a company that handles direct sales and multilevel marketing. Its second subsidiary, Access Business Group, handles company development. And its last subsidiary, Fulton Innovations, handles product and market research.

Unlike in the US, Amway isn’t well known in other countries. As such, Amway has been able to keep its name overseas. That doesn’t mean they don’t ever run into trouble.

There have been problems related to legal action that Amway’s had to face in other countries, including India, China, Canada, Vietnam, Poland, and the UK. Even so, Amway has been able to manage and hasn’t been banned in those countries.

So, overall, this business has been in the running for over 60 years now. Amway has also been operating in more than 100 countries and territories.

Notable lawsuits against Amway

  1. FTC vs. Amway (1979): This lawsuit alleged that Amway was a pyramid scheme, but the court ultimately ruled that Amway was a legitimate direct selling company and not a pyramid scheme.
  2. Procter & Gamble vs. Amway (1995): This lawsuit alleged that Amway distributors spread false rumors that Procter & Gamble supported Satanism. Amway settled the case and issued a public apology.
  3. Amway vs. Price Waterhouse (1997): Amway sued Price Waterhouse, alleging that the accounting firm failed to uncover a $20 million embezzlement scheme by Amway employees. The case was settled out of court.
  4. Broussard v. Amway (2007): This class-action lawsuit alleged that Amway misled distributors about the potential earnings from selling Amway products. The case was dismissed by the court.
  5. Pokorny v. Quixtar (2010): This lawsuit alleged that Quixtar, a subsidiary of Amway, was a pyramid scheme. The case was settled out of court.

Amway banned countries list

Currently, there are no countries in which Amway is banned. However, the United Kingdom had once tried to ban them but was unsuccessful in its attempt.

Can you make money with Amway?

Selling with Amway has probably crossed a lot of people’s minds. It’s often suggested as a way to make supplemental income. The question is, can you really make money with Amway? The answer may be that the odds aren’t in your favor, but that doesn’t mean it’s impossible.

Let’s take a look at the statistics

According to surveys in MLM statistics, 25% of participants made money from multi-level marketing. Only 10% of people manage to make more than $400 on a monthly basis.

On the other side of things, about 99% of people who join multi-level marketing companies (including Amway) lose money. Most people spend their money on registration fees, starter kits, and conferences in the MLM model.

Plus, newer distributors find it extremely hard to offload a lot of their products. Only a few people are willing to buy expensive products they’ve never tried. The commission that comes from product sales is relatively on the lower end.

The rate of failure in MLM business plans is around 95%. It means that the percentage of people who succeed with multi-level marketing is very small.

Back in the 1980s, the top 1% of Amway IBOs lost around $1,000 per year. This remains a problem for many IBOs to this day. Many of them eventually quit because they never find a chance to turn it around.

The only people making the real money you often see Amway touted for are the exclusive few who have had the opportunity to place themselves early on top of the pyramid.

Can you cancel an Amway membership?

One of the few great things about Amway is that if you sign up as an IBO, and realize that it isn’t right for you, you can always cancel and leave within the first 90 days. If you do this, you’ll get a 100% refund on your registration fee.

You should visit Amway’s website to confirm the cancellation policies in your region. Amway requires its IBOs to submit their resignation in certain countries via its official website.

Amway can ruin friendships

Another thing you should consider before deciding to join Amway is your family and friends’ thoughts on it.

The problem is not everyone likes the idea of an MLM. Trying to get them to join you as a potential member may leave them feeling annoyed. You may also experience abject disappointment if they decide to reject your offers or chance at membership.

The truth of the matter is that many IBOs experience the above problems. However, if you’re great at communication and are able to set boundaries beforehand, you could potentially avoid a lot of drama. And you may just find out who would be interested in joining you.

In other words, do so at your own risk.

Does Amway deserve the name Scamway?

Based on the previously mentioned stats of success among Amway IBOs, Amway probably does deserve its alternative moniker, Scamway. If there ever was a way to level the playing field for newcomers joining the Amway scene, we could probably reconsider it then.

What are some other notable MLM companies?

  1. Avon: Founded in 1886, Avon is a beauty and personal care MLM company that sells makeup, skincare, and fragrances through a network of independent representatives.
  2. Herbalife: Founded in 1980, Herbalife is a health and wellness MLM company that offers nutritional supplements and weight management products through a network of independent distributors.
  3. Mary Kay: Founded in 1963, Mary Kay is a cosmetics MLM company that offers a range of makeup, skincare, and fragrance products through a network of independent beauty consultants.
  4. Tupperware: Founded in 1948, Tupperware is a home goods MLM company that offers food storage containers, cookware, and other kitchen products through a network of independent sales consultants.
  5. Young Living: Founded in 1993, Young Living is an essential oils MLM company that offers a range of natural wellness and personal care products through a network of independent distributors.
  6. Usborne Books & More: Founded in 1989, Usborne Books & More is a children’s book MLM company that offers a range of educational books through a network of independent consultants.
  7. Scentsy: Founded in 2004, Scentsy is a home fragrance MLM company that offers a range of wax melts, warmers, and other fragrance products through a network of independent consultants.

In conclusion

Multi-level marketing (MLM) businesses are legit. Pyramid schemes are not.

As far as Amway/Alticor, they are most definitely an MLM company. Whether they are a pyramid scheme or not depends if you’re talking on a technical level or in general. Many would say that fundamentally they are, based on how they make the majority of their money. Legally speaking though, they aren’t.

Overall, the majority of people won’t make money from it. But if you think you’re an above-average salesperson and want to try it out, you can do so at your own risk. They do have a 90-day guaranteed money-back policy, which is pretty sweet. However, just be sure you take into account boundaries between family and friends.

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