I often get emails asking if Amway is a pyramid scheme. It might be because the Amway organization looks like a pyramid that some people assume it is such a scheme. However, it’s not the shape that determines if a business is a pyramid scheme, it’s how it earns money.
Is Amway a pyramid scheme? Amway is not a pyramid scheme. Amway is a multi-level marketing company and does not fit the Federal Trade Commission’s definition of a pyramid scheme.
I’m confident that Amway is not a pyramid scheme, because the FTC determined that Amway was not a pyramid scheme in 1979.
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Amway Transgressions.
Ultimately, it takes an in-depth investigation and a court hearing to determine if a business is a pyramid scheme or not. In 1979 Amway was subjected to a detailed investigation by the FTC and was determined not to be a pyramid scheme (although they were found guilty of other transgressions).
The reason given that Amway did not fit the definition of a pyramid scheme is because distributors were not paid to recruit people (Source).
Read Why Affiliate Marketing is Better Than MLM.
Where Amway is a Pyramid Scheme.
Several countries have accused Amway of either allegedly operating as a pyramid scheme or using unfair business practices. Countries that have investigated Amway include the United States, India, Canada, United Kingdom, and Vietnam.
Harvard Business School.
Harvard Business School referred to Amway as a direct selling company. HBS noted that Amway uses “an elaborate pyramid-like distribution system” where distributors receive a percentage of profits from the products they sell plus a percentage of profits from the products sold by distributors they recruited.
Skeptic’s Dictionary.
In his published collection of critical essays, Skeptic’s Dictionary, Writer and Academic Robert Carroll described Amway as a legal pyramid scheme. Carroll also alleges that the average Amway distributor earns less than $65 a month.
Amway’s Elite Privilege?
Although the FTC investigated Amway and found that it was not a pyramid scheme, it is essential to put the Amway investigation into context. The families who own Amway are very wealthy and have extraordinary political power.
Over the years, the Amway enterprise, the families of the owners, and many of the top distributors have contributed millions of dollars to the Republican Party in the United States and to various political candidates. (Source)
Tried to Change the Law.
Most notably, in 2018, the DeVos family, who owns approximately 50% of Amway, backed an amendment in the US House of Representatives that would substantially change the laws governing pyramid schemes. If successful, Amway may have been able to operate as a pyramid scheme without fear of legal consequences.
MLM’s Dismal History.
However, just because it’s not a pyramid scheme doesn’t mean that you can make money as an Amway distributor. The MLM industry has a horrific history of harming people financially. More about that in a moment, first let’s look at a pure pyramid scheme.
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Splitting Hairs.
Many critics of multi-level marketing argue that all MLMs are product-based pyramid schemes. I think it depends how closely you want to split hairs and how strict you interpret the law.
That’s why some lawyers devote their lives to defending MLMs and other lawyers prosecute them. Since the FTC has the last word on what is and what is not a pyramid scheme and because the FTC appears to be biased in favor of MLMs, we can only follow their guidelines.
It is up to you to determine if Amway is a good fit for you. To that end, I hope the information you find in this article will help you make a sound decision.
Pure Profits.
Pyramids schemes can be extremely profitable for the people who own them. Essentially, they vacuum money out of the pockets of the masses at the bottom of the organization and funnel it to the few people at the top.
I divide pyramid schemes into two camps; the pure pyramid scheme and the product-based pyramid scheme.
A pure pyramid scheme is easy to spot if you remain objective and don’t fall for their emotional sales pitch. The product-based pyramid scheme looks a lot like a typical MLM. However, scratch a little deeper and you’ll see some interesting differences.
How is the Money Made?
In this article, I discuss a pure pyramid scheme and a product-based pyramid scheme and how they compare to MLMs in general and specifically to Amway.
In both examples, you’ll see that money is made by recruiting people into the scheme. We’ll start with a pure pyramid.
The Pure Beast.
Without a doubt, Amway is NOT a pure pyramid scheme.
A pure pyramid scheme does not have products. All it offers is a dubious business opportunity. The opportunity is the license to sell the opportunity.
In other words, when someone recruits you into the organization, you pay to join. Let’s say it costs $100 to join. As a member, you can now charge other people $100 to join, etc.
The person who recruits you gets a portion of the money you paid to join as a reward for recruiting you. The person that recruited your recruiter also gets a piece of the pie.
Everyone in the upline gets a share but the largest share goes to the person at the top.
Usually it doesn’t stop there, because each month, you must pay to remain active in the organization. Let’s say that costs $100. This revenue is shared among the upline too, and like the membership fee, the largest share goes to the guys and gals at the top.
Paid to Recruit.
The thing to remember about a pure pyramid scheme is that people are paid to recruit others. Another point to remember is that members are forced to pay money to stay active in the organization.
Essentially, a pyramid scheme does little more than funnel money from the bottom of the organization to the top. People participate in pyramid schemes because they bought the dream of making a lot of money.
The key point to remember about a pure pyramid scheme is the ONLY way to make money with it is to recruit people.
The Product-Based Beast.
The product-based pyramid scheme has the same fundamental operation as a pure pyramid scheme except a product is added to conceal the scheme’s true nature.
Remember how in the pure scheme there was only the business opportunity? In the hypothetical example above, we said it costs $100 to join the organization and $100 each month to stay active.
The same is true for a product-based pyramid scheme except when you join you must pay $125 for $25 worth of product, and each month you must pay another $125 for $25 worth of product. The flow of money is the same as a pure pyramid scheme.
A product-based pyramid scheme will claim that you can make money selling their product, but the truth is selling $25 worth of product for $125 is nearly impossible.
That leaves only one way for the members to make money, RECRUITING PEOPLE into the scheme, same as the pure beast.
I’m not suggesting that Amway is a product-based pyramid scheme. The biggest clue that an MLM might be a product-based pyramid scheme is the products are overpriced. For example, some MLMs sell instant coffee for $2.50 a serving when the average market price is .15 cents.
And, some MLMs sell beverages for $40 a quart when the market average is about $3.
As far as I can tell, Amway’s products are reasonably priced. I would not call Amway a product-based pyramid scheme either.
Is Amway a Scam?
In most cases, I think people misused the word scam. Dissatisfaction with something you purchased is not the same as getting scammed.
According to the definition published on the Merriam-Websters Online Learner’s Dictionary, a scam is “a dishonest way to make money by deceiving people.”
Before I can confidently call Amway a scam, I would have to find an incident where they have made money by deceiving people. Unfortunately, Amway does use dishonesty to persuade people to become distributors.
An obvious instance of systemic corporate dishonesty is Amway’s claim that their distributors are independent business owners. They even call their distributors Independent Business Owners or IBOs. The truth is, their distributors are not independent business owners. They are commission sales people under contract to Amway.
However, the most horrific Amway deception is selling the dream.
Amway Sells a Dream.
In my opinion, Amway’s greatest failure of integrity is selling the dream that people can improve their financial lives if they become a distributor.
This assertion is misleading because most distributors do not earn more than they spend on their business.
In my opinion, it is unethical to promise people they can make money when statistically it has been repeatedly proven for decades that very few people make money with Amway or any other MLM.
Can You Make Money with Amway? Probably not. Most people do not make money with Amway. According to company records, the average active Independent Business Owner in 2006 earned $115 for the entire year! (Source)
$115 is how much Amway paid the average IBO that year. When you subtract business expenses and the costs they paid for products, it is doubtful the average IBO earned more than they spent.
Dr. Jon Taylor, who was once a high-ranking distributor in a popular MLM, researched the industry extensively and determined that only about 1% of distributors make money.
Dr. Taylor’s research is archived on the FTC website. You can find it here.
It Doesn’t Matter.
It’s possible that the wealth and power of the Amway founders Jay Van Andel and Richard DeVos families permits Amway to operate closer to the legal edge of a pyramid scheme than we might prefer.
However, ultimately, it doesn’t matter if Amway is a pyramid scheme or not. If you are looking at the Amway business opportunity, ask yourself if Amway is right for you. Were you sold a dream of financial independence?
Are you struggling financially and hope the Amway business opportunity will help? That’s doubtful. Statistical data compiled over decades prove that Amway distributors do more harm to their finances than good.
Amway is a multi-billion-dollar company. Unfortunately, all the that money came at the expense of millions of ordinary people who sacrificed their time, resources and often relationships for a dream that was nearly impossible to achieve.
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The Amway Ordeal.
For an inside look at how the Amway dream decimated a family, read My Father’s Dream by Erik German. The author recounts how his father recruited more than a hundred people in his downline but still was unable to make the Amway system work.
A digital copy is available on Amazon for about $2. It could save you a lot of heartache.
If you are considering joining Amway or any MLM, read My Father’s Dream. It’s a heartbreaking glimpse into what may be your future.
Is Amway ethical? In my opinion, Amway is not an ethical business because they sell of dream of financial independence when the probability that anyone can achieve that dream is statistically nearly impossible.
Related Articles:
Why Affiliate Marketing is Better than MLM
How to Evaluate an MLM Company
If you found this article helpful, or if you have insights or experience to share about how Amway might or might not be a pyramid scheme, please leave a comment below. Thank you.
Amway can stand so long period. I remember that Amway existed during my secondary school and I know it very well since my sister had joined and promoted them. However, I’m not very interested in their scheme and the products were very expensive. There are so many companies sell same as what Amway did and offered a better scheme and the price not too expensive.
I also ever heard that Amway was a pyramid scheme..but what do I care since I’m not involved in their business right now.
Awesome, this is very well researched and focused article. Based on your analysis, I am sure that you have experienced it. BTW, I have never experienced it before. So your review is useful for me as well.
Very useful bit of information for all those who are getting into it. A must read.
Hi!
Unfortunately, I tried four different MLMs back in the day. I had had some early success in a different business and I was confident that I could make MLM work for me. It took me years to realize that the MLM dream is an illusion.
Thanks for stopping by,
Gary
I joined Amway in 2011 or 2012. I must say that was a waste of my time and money. I think I paid about $50 or $60 to join. I received some magazines and CDs. I ordered some products for which I received some commission. This turn out in a loss on my part. The products were not bad, some of them at least. But they were too expensive as I had to price them to make a profit. Getting those products sold was no joke, It was all a disaster for me. I found myself with many products some of which I had to give away and others I didn’t even get paid for and I used some of them in my household. I must say the vitamins were great though.
Most of the income from amway I would say, comes from the persons signed below you and how well they perform in terms of signing others. I soon realize that and before long, I decided to quit as I didn’t feel comfortable encouraging others in what I thought at the time was a pyramid scheme. If someone you signed was doing good business ordering products and. signing others who are do the same, then of course the commission will be flow. Therefore, the persons in the downline will always be contributing to the success of the person at the top. The products are very difficult to sell so most of the profits from have to come from the more people you sign.
From my experience and in my opinion, I would want to think that this is a pyramid scheme.
Hi, Brenda!
Thank you for sharing your experience with Amway. You make a great point and I understand why you think of Amway as a pyramid scheme. In writing this review, I had to be careful, but I also wanted to make it clear that Amway is not a legitimate business opportunity and they are not about helping anyone other than themselves earn money.
Amway has been around since 1959. In 2017, it did $8.6 Billion in sales. However, legions of distributors lose money every year trying to make the Amway business opportunity work. If Amway was serious about helping their distributors make money they would have perfected that system by now. Instead, distributors go bust trying to make the system work and only about 1% make money. This disturbing realization can only be interpreted to mean that Amway has perfected a system of exploiting their distributors to maximize corporate profits.
Thanks again for sharing your experience with Amway,
Gary
Hey Gray,
What a detailed review article about Amway! In my opinion Amway does not operate like a pyramid scheme but the way they conduct their business is unethical.
I have known a few friends who have gotten into the Amway “business” but Amway doesn’t fulfill its promises to make the average person rich. While reading the story of ”My Father Dream”, I could tell how much of the “influence” had affected my friends. Great read, poor business…
Thank you.
Shui Hyen
Hi, Shui!
Thank you for summing it up so neatly. Amway is a poor business for the distributor. I found the story My Father’s Dream very disturbing. A close friend left a promising career to pursue a MLM business in the mid 80’s. It wasn’t Amway, but it was similar. He wanted to be financially independent so badly that he fell hard for the dream.
In 18 months he had spent all of his savings and liquidated his investments. His wife left him and his former career was ruined. I’m not sure he ever recovered.
Thanks for stopping by,
Gary
Awesome, this is very well researched and focused article. Very useful bit of information for all those who are getting into it. A must read.
Hi!
I’m glad you found my article about Amway helpful.
Thanks for stopping by,
Gary
Great post on Amway and MLM’s. I hope a lot of people read it because there is a new resurgence on MLM’s with Amway being a huge part of that. I’ve talked with a few of the young people that have been lured into it thinking it is something brand new when in reality it is the same thing over and over. The company has just changed their name and in some situations they expand their product line and increase what you have to spend to stay involved. They just keep that dream in front of their people and don’t let them question it. Thanks for the post.
Hi, Larry!
You are so right. Amway and MLM are really a trap. As you mentioned, they lure people in with the dream of financial independence, a dream that is all but impossible to achieve. That strategy is unethical in every sense of the term.
It gets uglier when you realize that in order to succeed, you must sell the same hopeless dream to hundreds of other people, maybe thousands. That then begs the question what kind of person can go into someone’s home, look them in the eye and sell them the dream when they know in their heart the odds are 99 to 1 that person cannot possibly succeed and will, in fact, damage their finances and perhaps their personal relationships as well.
Thanks for stopping by,
Gary
I appreciate your no bull review of Amway. I myself have been part of Amway many years ago and a few other MLM’s throughout the years. I remember the dream they sell years ago and they have gone through many reiterations over the years. One of their current schemes is this Worldwide Global or whatever it is. In fact, they charge like 200 a month for that product plus they have to buy Amway products on top of that. My niece has fallen for the new line of what seems like brainwashing even including them changing religions and introducing them to celebrities on the tv if they join. I recognize non-traditional ways of making money, but be honest about what is happening. Great post and thanks fro sharing.
Hi, Larry!
I tried Amway years ago too, long before the internet. Back then, there weren’t many options for starting a business. Now with the internet anyone who can write and email can make money online. There’s no reason to fall for MLM schemes.
Sorry to hear your niece has fallen for it. There is a degree of brainwashing with many of them. They control people by keeping them emotionally stirred up.
Thank you for your kind words.
Gary
You have finally cleared a big doubt that I had in my mind. Just like other people I was confused if Amway was whether a pyramid scheme or not. This article has broken all the myths and also explained everything I wanted to know about Amway and their business. It is good to know about a platform very detailed before trying it, instead of me going and searching the whole web for it I got everything in the same article.
Thank you so much for sharing this article.
Hello Gary,
To begin with I like your blog, scam avengers. Very creative in my opinion, big ups for that.
I never really liked the MLM idea because it’s just the bosses at the top that really enjoy the dividends of the business. Just as you have said, Amway is not a scam but neither is it a program to register for.
Thanks for this objective review
Warm regards
Now that’s a company name I have not heard of for a long time. I used to sell Amway, back in the 70’s. I never made my millions….come to think of it I don’t think I made anything. We did have a lot of Amway products in the house, which I did really like. We took the vitamins and used the cleaning products. I’m not a very good salesperson, so trying to sign people up was not to easy for me, so in the end we gave up. I do like the products though, but I found signing people up (which of course you had to do to make money) was easier said than done.
Hi!
I sold Amway in the ’70s too and don’t think I made a dime. I’m not a good sales person either and never recruited anyone. My biggest grief with Amway is how they pitch a business opportunity when really it’s just a commission sales job where you pay for everything and earn next to nothing.
Thanks for stopping by,
Gary
Interesting… I didn’t know much about Amway to be honest, so thanks for writing about that. The main reason I didn’t want to read or learn anything about it is for the reason that I heard it was a total Pyramid Scheme, haha… I also agree with you where you said some people misused the word scam, specially when it’s about affiliate programs, just like the GYM…everyone can start in January but not everyone will have the same results by December, if y’know what I mean.
Hi, Maria!
I love your analogy of the gym. So true.
In any business endeavor, most people will not succeed with their first attempt. However, the odds of succeeding with MLM in general and Amway in particular are dismal at best. One of the things that eats away at the possibility of success with Amway is the cost of joining, staying active each month and the cost of products. None of those expenses are necessary to run a business. They are expenses imposed by the company.
Meanwhile, the new distributor is hemorrhaging money each month and not making money. It’s only a matter of time before they have to quit. When you look at it that way, it is clear to me that Amway uses the dream of financial independence to emotionally lock people into buying product each month. The distributors are more customer than they are distributor. And, they must pay for the privilege of selling product for Amway. What a rip-off!
Thanks for stopping by,
Gary