A supposed “criticism” of Amway, and indeed of multilevel marketing, that I’ve seen turn up regularly is the idea that it’s inherently flawed because “you are recruiting competitors”. For example, Robert T. Carroll, in his “Skeptic’s Dictionary” says -
Why, you might wonder would you recruit people to compete with you? For, isn’t that what you are doing when you recruit people to sell the same products you are selling? MLM magic will convince you that it is reasonable to recruit competitors because they won’t really be competitors since you will get a cut of their profits.
Australian MLM critic Peter Bowditch (ratbags.com.au) says for example regarding his own business compared with MLM -
I am a certified consultant and an authorised reseller for several software and hardware products. I can open a retail shop to sell these things, I can sell them on eBay, I can walk door-to-door around the neighbourhood, I can ask retailers to stock them and computer builders to include them as packages with their machines …I am not expected to find and recruit competitors for my business
Anti-Amway obsessive JoeCool comments on one of his (many) blogs -
you are very strongly encouraged to RECRUIT YOUR OWN COMPETITION. If Amway were a business where the goal was to make money selling products, it is a suicidal business plan
So, what are they on about?
Well, the claim has some truth to it because when you sponsor someone in to your business, that person is indeed now a potential competitor for a retail customer. For any given customer, you’ll make more money if you sell to them personally than if your downline does.
One flaw in this “complaint” is that the same thing applies in traditional business as well. If you owned a small clothing store, every time you sell something, you get to keep all the profit. But what if you employ someone? In the clearest example, if you simply paid them on a commission basis, then they are a direct competitor to you on each retail sale. They get that commission instead of you. The same really applies even if they’re a salaried employee. The money your paying them could have stayed in your pocket if you hadn’t employed them and sold it yourself!
Or how about Coca-Cola? If you buy a coke from an official coca-cola vending machine then are you’re buying it direct from Coca-Cola. Yet you could also buy it from your local corner store. Every time Coca-Cola reps try to get a store to sell their products, they’re recruiting competitors!
Or let’s take Pete Bowditch’s own software example. As he mentioned, he could sell the software directly himself, or he could ask retailers to stock them. In other words – he could recruit a competitor! By having a reseller sell to a customer, that’s a potential retail sale he is missing out on.
Why does Coca-Cola recruit competitors? Why does a small business owner recruit salespeople? Why does Bowditch suggest recruiting retailers?
No “MLM magic” is needed to answer that. It’s because you can make more money that way! By recruiting resellers, you can hopefully get much larger total sales volumes than by trying to do all the sales yourself. Yes, you’ll make less money per sale than if you did a sale personally, but you still get a percentage on the wholesale sale to your recruit, and you should be able to get a lot more sales for the same time invested. Asmaller percentage of a larger volume can easily be worth more than a larger percentage of a smaller volume. What’s more, the larger discount you get thanks to your recruit’s volume means you get an even bigger profit margin on your own retail sales!
Unless the marketplace for your products is saturated, and there is no room for expansion, recruiting other sales people to increase your sales volume is a smart and sensible way to increase your profitability.