If the group is now supplemented with "customer-distributors" not looking to build the business, and not having business expenses, each active distributor needs to (3200/889=3.6), or 2.36 "customer distributors" including himself to work out of the zero sum gam for the group. (@ 100PV or $200/month in personal consumption) This means any group with more than 42% active-building distributors, they will be losing money as a whole. Some individuals will be making money, and some will be losing. As a group however, they will not be covering their expenses. In order for the system to be a positive game some, some distributors must go "non-active" and become just customers, to avoid the incremental expenses to the group calculation. Assume now that fewer distributors are building the business, 42% for our example, and that no one has any expenses. The $1.41/hour average wage (from above) has just increased to $5.07/hour, with no other business expenses. The Amway Corporation is getting a pretty good deal on labor when you consider it. The distributors in the best case earn $5.07/hour on average, and the corporation must not pay Social Security Taxes, health benefits, or pension benefits. Typical benefit packages can be amount to 30% of the base wage.
What About Fast Growth?
Some will say that if the business grows fast enough (i.e. Just show the plan 12-15 times per month) then the group will make money. The mathematics does not support this. As a whole, the group still loses money. This is the little known side effect of the power of "replication". Every new distributor brings an incremental income of at most $889/year to the "Direct Distributor Group", and every new distributor also brings incremental overhead expenses of far more than $889, up to $3,200. Every incremental active distributor to the group also brings a time investment of 520 man-hours per year. Take a snapshot of the group at anyone time. There will be X distributors each buying their 100PV of product adding income at a rate $889 per year to the income pot. There will also be X distributors spending money on overhead at a rate of $1300-$3200/year, and spending time at a rate of 520 hours per year. No matter how fast the group grows, the potential expenses grow faster than the revenue side. As long as a distributor's expenses exceed the incremental revenue he can bring the group, it will be a losing proposition on average for the "Direct Distributor Group". This is not logical or rational, but needless to say, people still do it.
So why would this type of business exist? Each distributor believes they can beat the others and grow quickly enough to get out of the losses to be the one on top collecting the bigger rebates while having enough people downline getting small rebate checks. The same psychology exists with a lottery. People are willing to pay $1 in order to win a lottery that pays $250,000 for 20 years, when the statistical payoff is $0.50. In the same light, the average Amway/Quixtar distributor is willing to spend $6,266 in cash and non-cash expenses per year to have the shot of making a $125,000, all the while the statistical payoff is $889 at 100PV in average personal consumption. In engineering terms (I'm an engineer), the lottery is 50% efficient at redistributing money to the game players; Amway in this sense is only about 14% efficient.
Copyright 1999 by Scott Larsen, The Amway Distributors "Little White Lies." Used by permission.
