FitzPatrick: Are you asking me about something in particular?
MLM Hopeful: Well, I’ve heard that Amway is now a $10 billion dollar business with millions of customers and has been around since the 1960s, so how could you say it doesn’t work? You probably wrote that article around 2000. But Amway keeps growing.
FitzPatrick: Okay, well first of all, Amway is a private company and nobody outside the owners really knows how big it actually is. The numbers could be hype. They aren’t verified. But I think you are saying that because Amway is so large it must be legitimate, right?
MLM Hopeful: It’s huge! So how can you write about lies and collapse?
FitzPatrick: This is not sarcasm; but we should remember that the biggest and fastest growing Hedge Fund on Wall Street was Bernie Madoff’s and the fastest growing and most respected company in America at one time was called Enron. I’m just reminding you that big or fast-growing do not automatically mean legitimate. In fact, anything growing fast in a Recession should be examined with special skepticism.
MLM Hopeful: You predicted Amway would collapse soon.
FitzPatrick: Actually, my article did not predict collapse for Amway, but failure or “collapse” for the recruits.
MLM Hopeful: What do you mean? I am pretty sure you predicted Amway would fall apart. (Looks for a reference in the article but doesn’t find one.)
FitzPatrick: Here’s the way “collapse” happens at Amway. It offers a business proposition to millions of consumers in which you pay a fee to join; then you buy Amway products…
MLM Hopeful: (Interrupts) Buying products is not required!
FitzPatrick: Right, but to get bonuses, you have to meet a quota of “points”. To get your points, you buy qualifying Amway products. Most of the Amway salespeople, or IBOs as they are called, do buy Amway’s products to meet their point quota so they can start getting bonuses, at least they hope they will. In fact, the recruits are just about the only people who ever buy Amway products. It’s called “self-consumption.” That’s where Amway gets its money — from the salespeople, not from customers.
MLM Hopeful: Okay. I buy the products because I use them. I buy toothpaste, so why not buy Amway’s toothpaste?
FitzPatrick: Nothing wrong with buying Amway products, if you want to. If you think they are good and competitively priced, why not? But my article, and I thought the reason you called me, had to do whether you as a consumer can make money working as an Amway sales rep. You don’t make money from buying products from Amway, right?
MLM Hopeful: No, you make money selling the products.
FitzPatrick: Okay, now, have you ever seen anyone actually selling Amway products? There are supposed to be hundreds of thousands of Amway sales people in the US. Shouldn’t we see some of them knocking on doors?
MLM Hopeful: Actually, I have seen someone. I saw them selling Amway energy drinks.
FitzPatrick: Okay, do you think you can make money selling “energy drinks” person-to-person, one at a time, on your own? It doesn’t seem very feasible, does it, when people can buy energy drinks, usually for less, in any convenience store? But, the facts are that Amway IBOs really don’t make money from selling the products. They make money by first paying a fee to join, then buying products to meet the points quota and then recruiting other people to do the same thing.
MLM Hopeful: What’s wrong with that?
FitzPatrick: Well, think about it. If you need to recruit 20 people for you to start making money on their purchases, each of those 20 would also need to do the same thing. That would be 400 more for them to recruit. The 400 they recruited would need 8,000 and the 8,000 would need to recruit 160,000 and they would have to find 2.4 million to be profitable. This is not going to happen. The proposition is not possible. Yet, each new person has to tell all the people they recruit that they can always recruit more. That’s why I say the plan is based on a lie. To see what I mean, just use a calculator, and you can see that the sales force cannot continue expanding forever. In our example, we just went five levels deep and got to over 2 million, and those people would then have to recruit half the households in the USA – to become “salespeople”! Who would be their “customers.” It can’t happen. What does happen is that thousands of people invest, fail and quit each year. That’s what I meant about “collapse.” It is the latest recruits who bear the cost. But as long as Amway can replace them, the company itself stays standing. To do that, it must recruit more and more future losers while telling them all, year after year, that it’s the “greatest income opportunity in the world.”
MLM Hopeful: I was told that Amway completely changed its model in 2008 and now people are selling the products and making money and that’s why the company has exploded in size! I think you are talking about the past.
FitzPatrick: Well, I have studied their income disclosure statistics and it shows plainly that almost no one makes any money and most of the commissions go to the few at the top. Also, more than half of all Amway salespeople still quit in less than a year. Those figures have not changed. Amway makes it money from the salespeople’s purchases. But, almost none of those salespeople make any money themselves. They turn out to be the “end-users.” That’s how Amway makes money — from the investments of the salespeople, nearly all of whom get no return on that investment.
MLM Hopeful: The company has changed!
FitzPatrick: It’s true that Amway was sued by consumers in a class action lawsuit and as a result of that suit Amway has offered to pay millions in restitution and to make some changes in their “tools” business and to lower prices on some Amway products. But that would not affect the basic proposition of pay-to-join, buy-products and then recruit-others-to-do-the-same.
MLM Hopeful: But even if that’s true, what’s wrong with making money based on recruiting more people? I’ve gone to the meetings and it looks like a lot of people are making money. It must be working!
FitzPatrick: Maybe it is working for those up on the stage. Remember, they make money from you, whether you profit or not. They even make money on the fee you paid to hear them speak or if you bought their CDs. But, if the company has 3 million people in the sales forces, when you join, you will be IBO #three-million-one, right? But most of those 3 million are in the very bottom ranks alongside you, and most, like you, just joined this year. They are all starting out just like you with millions of others above them and the need to recruit tens of millions more! All of you now have to find 20 more, or whatever it takes to start making a profit from others who sign up. And, if you do recruit your friends and relatives, you have to work hard to keep them in your downline, because more than half of all Amway IBOs quit each year and 99% never do make a profit. What odds do you think you as IBO #three-million-one really have?
MLM Hopeful: (Silence)
FitzPatrick: Sorry, are you there? Hello? Hello?