How you can lose money in Multi Level Marketing by the example of Amway

by Rudolf Faix 20. July 2015 06:27

AmwayU.S. MLM companies have to provide an income disclaimer for their promotion. This is forced by law otherwise the participants of their system have the possibility to force the company paying out the promised earnings. In Europe are even not helping such disclaimers. There need to get promises from the promotion fulfilled.

In light of the figures in the Amway pay arrangement, they are letting us know - Less than a large portion of the individuals who join stay "active" and overall, the individuals who stayed "active" and worked the framework, lost cash.

Income disclosure from Amway found on page 11 (IBO = Independent Business Owners):

The average monthly Gross Income for “active” IBOs in the U.S. was $202.

Approximately 46% of all IBOs in the U.S. were “active.”

U.S. IBOs were considered “active” in months in 2010 when they attempted to make a retail sale, or presented the Amway IBO Compensation Plan, or received bonus money, or attended an Amway or IBO meeting. If someone sustained that level of activity every month for a whole year, their annualized income would be $2,424. Of course, not every IBO chooses to be active every month.“Gross Income” means the amount received from retail sales, minus the cost of goods sold, plus monthly bonuses and cash incentives. It excludes all annual bonuses and cash incentives, and all non-cash awards, which may be significant. There may also be significant business expenses, mostly discretionary, that may be greater in relation to income in the first years of operation.

  1. Includes compensation from Amway IBO Compensation Plan and Growth Incentives (GI) Program during 2013.

  2. Approximately 0.31% of IBOs in North America achieved at least Q12 Platinum status (but not Sapphire or higher) in the calendar year ended December 31, 2013.

  3. Approximately 0.09% of IBOs in North America achieved at least Founders Emerald status (but not Founders Diamond or higher) in the calendar year ended December 31, 2013.

  4. Approximately 0.03% of IBOs in North America achieved Founders Diamond or higher in the calendar year ended December 31, 2013.

For average annual compensation and highest annual compensation at all IBO levels, go to Amway.com and search for: Money and Rewards.

A description of the income sheme from Amway gets found in their Business Reference Guide at page 5:

Immediate Income

Your immediate income is the difference between the cost at which you purchase product inventory from Amway or your sponsoring IBO, and the price at which you sell the products to your own customers. This income is realized immediately upon each sale to a customer. For your convenience, Amway publishes suggested retail prices for all products. However, these are suggested prices only, and you are not obligated to charge these prices. Each IBO is entitled to determine independently the prices at which they sell products to IBOs or other customers.

Performance Bonus

Additional income may be earned through the monthly Performance Bonus. The Performance Bonus is driven by sales volume, which is tracked from two sets of numbers – Point Value (PV) and Business Volume (BV) – that are published in connection with each available product or service.

PV is a unit amount (you can think of it as the number of points) assigned to each product. The total PV associated with your monthly sales volume is tracked to determine your Performance Bonus bracket. The higher your PV total, the higher the percentage (up to 25%) used in calculating your bonus (see the Performance Bonus Schedule below).

BV is a dollar figure assigned to each product. The total BV associated with your monthly sales volume is multiplied by the percent from your PV bracket to determine your gross Performance Bonus. Your sales volume, or your PV/BV as it is generally known, is generated by your own purchases, whether for personal use or resale, and by the purchases made by your registered customers.

To figure your gross Performance Bonus, you add the Pass-up Volume from your frontline IBOs (those you personally registered) – both PV and BV – to your personal PV and BV, then make your calculation according to the Performance Bonus Schedule. However, any Performance Bonuses earned by your frontline IBOs, using the same Schedule, must be subtracted from the gross amount to arrive at your net Performance Bonus. In addition, you will at least be at the same percentage bracket as your downline.

Note: Experience has shown that IBOs who register others generally have higher average volume than those who do not.

I have added to the provided table the average sales volume in US$ and the paid commission from the samples. The result is that 1 Point (PV) has the value of US$ 3. The normal mark-up between wholesaler and retailer for the product assortment is calculated from down to up 50% or calculated from up to down 33.33%. Here you see already how Amway is making some extra money because they are giving in sum a maximum of 25% discount.

Points (PV) US$ sales Comm% Comm US$
100 $300 3% $9
300 $900 6% $54
600 $1,800 9% $162
1000 $3,000 12% $360
1500 $4,500 15% $675
2500 $7,500 18% $1,350
4000 $12,000 21% $2,520
6000 $18,000 23% $4,140
7500 $22,500 25% $5,625

To remain active you have at least to buy for a value of US$ 300 – hopefully you are able to resell it. If you take a look at their income disclaimer you'll see that the average income of the IBO's has been US$ 202. With other words each of their IBO's have lost in average US$ 98 per month!

You may have some major difficulty burning through $22,500 every month on sales, yet this gets to be less demanding once you have a down line. Anybody you by and by backer, will "pass up" volume to you. On the off chance that you are new to the framework and figure out how to create enough volume to meet all requirements for a 3% installment, then your supporter will get 3% from you deals (6%-3%). Their supporter will get 3% from your deals (9% - 6%) thus on until the full 25% has been paid.

This "pass up" framework urges individuals to support whatever number newcomers as would be prudent. However there is no motivator to support enlists and help them succeed. The only thing that is in any way important is that cash is being spent. In the event that an individual is losing cash and winning nothing, the cash they spend is as yet sustaining the framework, and sending 25% commission up through the chain of importance.

 

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