MYTH: 99% of IBOs fail

This is a claim that comes up again and again and again by the critics. But what is it based on? Is it true?

If you look on www.thisbiznow.com Quixtar provides some statistics about IBOs

IBO STATISTICS

  • IBOs earned $345 million in bonuses and incentives in fiscal 2005, bringing their six-year total to more than $1.72 billion.
  • More than 370,000 Independent Business Owners received a bonus in FY 2005.
  • The average bonus and cash payments earned by a Diamond IBO in 2005 were $146,995.*
  • The average bonus and cash payments earned by an Emerald in 2005 were $72,241.*
  • The average bonus and cash payments earned by a Q12 Platinum, an
    IBO who qualifies at the Platinum level all 12 months of the year, were
    $47,472.*
  • The largest annual bonus earned by a Diamond IBO in 25 was $1,830,421.
  • The largest annual bonus earned by an Emerald IBO in 25 was $688,869.

In the footnotes you find –

*The following are approximate percentages of Direct Fulfillment
IBOs of record in North America who achieved the illustrated levels of
success in the calendar year ending August 31, 25: Diamond .0012%;
Emerald .0032%; Q-12 Platinum .1683%
.

So, in any given year, around 1 in 476 IBOs qualify as Q-12 Platinum, Emerald, or Diamond where they are earning an average bonus of at least US$47,000/yr.

Is this success or failure? Well, first we have to ask some basic questions –

  1. What is success?
  2. What is failure?
  3. Who gets to decide?

What is success?

dictionary.com has as it’s first definition of success

The achievement of something desired, planned, or attempted

What is failure?

as it’s first definition of failure, dictionary.com has –

The condition or fact of not achieving the desired end or ends

Who gets to decide?

I’d note that both definitions talk about “something desired” – ie success or failure depends on whether the desired goal has been achieved. But what are the goals of people who become IBOs? Do they all have a goal to be a Q-12 platinum? I’m sure they’d like to be a Q-12 Platinum – who wouldn’t want an extra $47,000/yr?

But what is their goal?

In a recent submission to the FTC in response to some proposed rule changes, Quixtar had this to say about IBOs –

The flexibility of the Quixtar opportunity attracts an extraordinarily diverse variety of people, who approach the business in many different ways. For example, some individuals register with Quixtar to buy products at the wholesale or discount price given to IBOs, choosing not to participate in the sale of products or the recruitment of other persons to become IBOs. Other IBOs enter the business to help meet short-term financial goals, such as making the down payment on a new car, replacing a worn out appliance, or earning extra money for holiday gifts. In many cases, the IBO is a stay-at-home mother who works a few hours a week to improve the financial situation of her family. Other times, both husband and wife may work outside the home but sell Quixtar products to make up for their inadequate income. Still others, many of them parents of young children or stay-at-home parents who do not wish to return to the 9-5 workforce, are seeking a steady source of extra income with flexible working hours. In many cases, individuals also join Quixtar to increase their social contact with colleagues, which often results in respectful treatment and recognition of the IBOs efforts. In other situations, IBOs may decide to pursue the Quixtar business full-time, and often build large sales organizations overtime and earning, substantial incomes.

IBOs have lots of individual reasons for joining. An IBO who joined just to buy products at IBO price has succeeded just by receiving their first order! For many others, we have no idea what their goal is – but it’s fairly obvious they’d probably be happy with something a lot less than being a Q-12 platinum.

We don’t get to decide who is “successful” or not. The only person who can do that is the IBO themselves.

But is it possible to come up with something more substantial? How many IBOs that try to reach platinum actually do so?

In any given year, 1 in 476 IBOs are at least Q-12 platinum.

But, according to thisbiznow.com,

Approximately 66% of all IBOs of record were found to be “active”

where

“Active” means an IBO
attempted to make a retail sale, or presented the Independent Business
Ownership Plan, or received bonus money, or attended a company or IBO
meeting in the year 2.

So, at most only 66% of those 476 IBOs did anything at all towards trying to build a business. I think it’s reasonable to assume that not doing anything at all is indication that perhaps they had no goal to develop a business, and likely joined just to shop. Even if they had a desire to be a Q-12 platinum if they did nothing at all to achieve that, can we really consider it “failure”? If you enter a race and then don’t show up at the start line, you haven’t failed, you haven’t even started the race!

So, in any given year, 1 in 314 “active” IBOs are Q-12 platinums. But if look at that definition of “active” – even receiving a bonus makes you considered “active”. An IBO that registers just to shop, and orders enought stuff to get 3% back on their shopping, is considered “active”! As we discussed, someone in that situation is a success, not a failure. How can we refine the data more?

Well, fortunately the companies that support and train IBOs keep statistics on activity levels. Here is a document from WWDB with some of their statistics, and here is a similar document from Network TwentyOne in Australia. Some of the figures are slightly different, but what we are interested in his the percentages.

From the Network TwentyOne document we can ascertain that -

  1. In any given month, around 5% of IBOs are showing the plan 15 times or more
  2. In any given month, around 3% of IBOs are subscribed to “CEP”, ie a monthly CD education program
  3. In any given month, 2% of IBOs are attending seminars (assuming couples and ignoring prospects)
Network TwentyOne teaches that to achieve Platinum you need to show 15 plans a month for 6-12 months.
From the WWDB parameters we can ascertain that -
  1. In any given month, around 35% of IBOs are subscribed to “standing order”, ie a monthly tape/CD education program.
  2. In any given month, around 23% of IBOs are attending seminars (assuming couples and ignoring prospects)
As you can see, quite similar percentages.
So, according to Amway no more than 66% of IBOs are doing anything at all towards building their business, and that 66% includes people quite happily shopping and earning rebates on their shopping – in other words, “successes”
According to both WWDB and Network TwentyOne, in any given month no more than around 1 in 5 IBOs are attending seminars and on tape programs, things that successful IBOs consider necessary parts of the education to “succeed”. And according to Network TwentyOne, in any given month only 5% of IBOs are doing the work necessary.
So, assuming the Q-12 platinums come out of the group of “active” IBOs and those that are actually working, we can make the following claims. In any given year -
  • 1 in 476 IBOs qualify as Q-12 platinums
  • 1 in 314 IBOs who do anything, even get a bonus on their own shopping, qualify as Q-12 platinums
  • 1 in 95 IBOs who are on tape/cd programs or attend a seminar, even in just one month, qualify as Q-12 platinums
  • 1 in 24 IBOs who showed 15 plans a month, even if just for one month, are Q-12 platinums

Does anybody seriously suggest “success” is going to take just one month? Of course not. So what’s the success rate of people who actually do the work for 6-12 months, as is suggested? Unfortunately I can’t find any precise statistics on this, but I have seen an interesting “survey” done a few times at seminars.

The speaker, asked everyone in the audience to stand up who had been “core” the previous month. Core essentially means they’re learning from the education program and doing the work. Less than one third of the audience stood up. He then progressively asked people to sit down until all that was left standing was IBOs who had been core every month for the last 6 months, and those he invited up on to stage.

He then asked each IBO what level they were at. All but two were at silver producer or above, and those two were damn close. This experiment I’ve seen done multiple times, always with similar results.

Easily more than 9% of IBOs who had done the work and were on the education program and done the work for the previous 6 months were on track to be Q-12 platinums

99% failure rate or >90% success rate?

You decide.

Post a comment below or Discuss this post on Amway Talk

18 thoughts on “MYTH: 99% of IBOs fail”

  1. respected sir
    I have applied for BSM in Feb 2012 & CEP- March 2012. But i get CEP For Feb 2012 which I ALREADY HAVE. So please change my CEP & send ACEP Hindi for the of March 2012.
    Thanking you.

  2. I met an Amway distributor yesterday. He told if my downline makes a sales volume of 350$, i will be getting 6% commission, which is 21$. I believe this commission applies to my downline as well. I do have a query here,

    Lets assume that I have created a 20 downline network vertically. And 19 of the top level distributors including me doesn do any active purchase, only a 20th distributor does sales volume of 350$, are we 19 top distributors gets 6% commission? if yes, we are getting more than sales volume, then how does amway earns profit, it’ll actually lose. right? I know there must be some catch. please explain me about this.

    1. Hi,

      In the example you gave, only the 20th distributor would actually make any money. Think of it exactly like a traditional wholesaling business, with you getting a certain volume discount (in this case 6%) and then reselling that product to someone (in this case your immediate downline), who then resells it and so on until it reaches the ultimate consumer. If you are reselling it to your immediate downline for the same price you got it for (in this case a 6% rebate/discount off the base wholesale price) then there is no profit margin (6%-6%=0%), so you make no money. If on the other hand you were getting say a 12% volume discount, and selling to to separate businesses who were each getting a 6% volume discount, then you’d be making 6% profit on each of those transactions.

      Note also that most Amway affiliates have some certain minimum personal activity requirements in order to earn bonuses.

  3. Vemma experts also tell that “Do you know the “6 keys” to look for in evaluating an opportunity and whether you should get involved in mlm company”

    We’re going to reveal 6 key things to look for in a company that will virtually assure your success provided you pick a company where all 6 key criteria are in place and if you take consistent action & follow a proven game plan.

    What are the 6 keys? Since the year 2000, the companies with the fastest growth, the most success, and where distributors have earned the biggest incomes have several common denominators:

    1) they are in the health and wellness market;

    2) they are either single product companies or one concept driven opportunities like weight loss built around just several products (they did not have tens, hundreds, or thousands of products!);and 3) they have what are called 1/3-2/3 binary pay plans with matching bonuses! (Stay away from 1:1 pair binary plans which take advantage of people and pay far less!)

    If you want to put the odds of success in your favor, look for a company that initially meets these 3 criteria. Then here are the final 3 key criteria to narrow the list down and maximize your odds of success:

    4) AVOID brand new start ups! 98% of ALL new start up companies will fail in their first 2 years! Your objective is to put the odds of success in your favor, not try to beat the odds! Look for a company at least 3-4 years old.

    5) Here is the real key! Look for a company that is about to hit or has recently hit $50-$100 million a year in sales. Why? Historically when companies hit this number they will triple to quadruple in size in the following 12-18 months. It is during this 12-18 month window of time that the fortunes are really earned! You want to be involved right as the beginning stages of this explosive growth, 12-18 month period are taking place so that you can ride the momentum and a build a group bigger, faster, and easier!

    Once this first 12-18 month period is over, it is quite common for companies to double in size again over the next 12-18 month period.

    Contrary to popular belief, fortunes are not earned by being on the ground floor because 98% of ALL companies fail in their first 2 years! The fortunes are earned by those who take advantage of the exponential growth periods that a company will go through once they initially hit $50-$100 million a year in sales.

    There’s no such thing as picking the right company or picking a company that is right for you! There is, however, such a thing as picking a company at the right time!

    6) Finally, make sure you sponsor with the right person, the right group, & take advantage of “positioning.”

  4. I think it may help to define “flush.” While technically money would’t be paid back to a company, the net effect is that money isn’t paid out in the first place, because that “flushed” volume is wiped of the books, so to speak, when computing payouts/commissions. No individual, no distributor gets “credit” for that volume. It magically disappears when computing any compensation. So the net effect is that it “goes back” to the company.

    With the Amway business, no volume is “flushed.” All volume is counted. Nothing is taken away from the IBO/ABO/Distributor, no matter the structure (number of legs and amount of depth in those legs)of their business.

    Yes, there are parameters to qualify for commissions. But if one doesn’t qualilfy, then that money gets passed upline to the next qualified ABO/IBO/Distributor-ship.

  5. ibofightback:

    by the way the 25-35% retail mark up has nothing to do with percentage pay out of the compensation plan and many distributors mistakenly run around and add that number to the 30% the company actually pays out to the field and say “we pay out 55-65%.” LOL…it doesn’t work that way! The company pays out around 30-32% of product revenue back to the field! Read the literature from the company’s own press releases and website.

    1. MLM Expert, I have seen companies making claims about payouts and including retail markup in that calculation. With regard your longer post, again it depends on the company. From what I’ve studied, and read from experts such as Len Clements, some binary plans do not pay out volume on weakest legs if there are no qualifiers – it flushes completely, all or some of the revenue that would normally go as compensation goes to the company. With Vemma I may be wrong, I didn’t look all that closely sorry.

      Now, with regard Amway, you are completely wrong about “breakage”. Amway’s full commissions and bonuses are paid out, none if goes back to the corp due to some supposed “breakage”. If you add up all of Amway’s bonuses they come to approximately 32% – the same as the payout. Note also that things like free trips etc are NOT included in that. I’ve seen some companies include the funds they set aside for travel incentives as part of their compensation payout claims. This is not part of the 32%.

      You’re also (mostly) incorrect about Amway not paying out if you are inactive. The official rules depend on the country, in some the rule depends on the level your at. Even at low levels though, I’ve received Amway payouts when I’ve generated zero volume personally. You also talk about BV. The majority of Amway’s products (as opposed to the “convenience” products there for IBO use) are full 1:1PV. Some are even better. This is another myth of the “just like Amway only better” crowd.

      Finally, you state that a company paying out 55% might get in to trouble, but miraculously a small difference back to 50% makes them somehow invulnerable? Without seeing a companies cost structures it’s impossible to tell. You could be paying out 10% and get in to trouble. You could be paying out 80% and be fine. Quite obviously the more you payout means less for the company, and/or a more expensive product. Perhaps dropping the compensation from say 50% to 35% and taking the difference off the product price would increase sales enough to mean actual incomes increase?

      Oh, and would you care to provide a list of the “numerous” companies that have been around say, more than a decade, with binary plans?

  6. Regarding VEMMA:

    ibofightback: you have no idea what you’re talking about! You have a lot to learn about binary plans and how they work. Unfortunately, people who know even less than you do like dtytrivedi automatically take your answer as fact and I’m sure he’s off repeating the erroneous information and incorrect analysis you’ve just given him.

    First, it is typical of binary plans to pay out 50% of the total product revenue generated (product revenue does not include sales aids, shipping, handling, taxes, etc., as network marketing companies do not pay commissions on those things, Amway included!)

    In comparison, Amway pays out around 32% or so of the actual dollars generated by product sales. Why such a low amount compared to other companies? It’s called “breakage,” which although the theoretical payout is much higher, in reality due to numerous people not achieving various qualification and maintenance requirements and because not everyone is qualifying at the top level, or various other levels, they don’t have to pay the full amount of possible commissions and bonuses, breakage occurs, and guess who gets to keep the money? The ccompany!

    Some companies will have factors such as “compression” and “roll up” in their plans…with roll up being the unpaid commissions not earned by a distributor which roll up to those in the upline who are qualified and the money goes in their pocket..This by the way does not happen in a binary plan because a binary does not pay on levels and because volume is banked, provided the distributor is active, for future payment of commissions.

    Some binary plans have a $1 for $1 situation (100% BV in other words) and others will have a partial BV, usually 75-80 cents on the dollar. This is also common in companies with other types of pay plans.

    While VEMMA pays out 50% and it is on full BV, both of which are admirable, they are not the only ones with a binary plan who do this.

    Second, volume does not flush in any binary plan unless someone is not active, which is no different than Amway or any other company where if you are not active, you don’t earn commissions and bonuses and at the end of the month, your volume is flushed and you start the following month at zero.

    In fact, in non-binary plans like Amway, volume is flushed at the end of every month whether you were paid on it or not, and you start the begining of the following month at ZERO! If in a binary plan and you are active, any volume you weren’t paid is banked, not flushed, and counts towards the next pay period, and continues to accumulate from week to week or from one month to the next until you are paid on it.

    The flushing of volume has nothing to do with qualifying in a certain period of time-flushing of volume only occurs if you are not active just as in Amway if you are not considered active and have not met certain requirements, you do not earn commissions and bonuses and at the end of the month your volume is flushed and you start the beginning of the next month at zero…

    Furthermore, in VEMMA or any other binary for that matter, even when volume is flushed, nothing goes back to the company! People who are above this individual who are active have banked the volume and may or may not have been paid on it.

    A 50% payout is not harmful to a company’s longevity contrary to your statement. It is true that companies paying out much more than 55% can run intro trouble as typically you have 20% in product cost and 20% in overhead, leaving a 10% gross profit, once you payout an actual 50%.

    There are numerous companies with a binary plan paying out 50% that have been around 5-10-15-to almost 20 years now. (The binary pay plan concept is only around 20 years old.)

    Hope this information clarifies things for some of you!

  7. Hi,

    I’ve no idea what the highest income is. Average income for Founders EDC and above a few years in the US was $1.5million+. Since then they’ve pretty much doubled a bunch of bonuses. There’s many folk who quality FEDC or above in multiple markets, I suspect several would make >$10million/yr from Amway income alone.

    Re Vemma and other opportunities, you have to ask a couple of questions –

    1. 50% of what? I believe Vemma for example “flushes” volume if people don’t qualify in a certain time frame – that volume effectively goes back to Vemma, no payout at all except relatively minor global % payouts. With Amway at least 30% is paid out on *all* volume, plus there’s an additional 25-35% of retail markup available. 50% of Vemma’s “active” volume is quite probably less than 30% of *all* volume.

    2. If they’re paying out so much, how does the company survive and thrive? The less money a company keeps for itself, the less it has for research and development and support. Lack of cash is one reason most MLM companies fail. They advertise high payouts, attract a lot of people, then disappear again.

  8. hey, i have heard that company called vemma is giving 50% pay out, their distributors comment that Amway is having lowest pay put ratio of 30%. Is that possible….

  9. I’m not sure about 99% fail rate. Numbers can be played around with and as you pointed out success and failure are relative person to person.

    However what where the annual expenses for these people? The tools, the functions, travel time and lodging can be a hefty annual commitment.

    1. What are the annual expenses? Clearly the folk who do nothing have equivalent expenses. The 10-15% that actually go to seminars or subscribe to tape programs have those expenses. The 1%-5% that do that consistently and also are out doing the work showing the plan have that plus travel expenses plus other expenses such as demo products, brochures etc.

      All in all in my experience by the standards of most normal businesses this doesn’t add up to anything like a “hefty annual committment”. Maybe a few thousand dollars. You see some folks claiming expenses >$10,000/yr but they’re invariably including product purchases. That’s not a valid business expense. Indeed, if they were buying the products purely because they thought it would make them money then they’re pretty damn close to running an illegal pyramid.

      A sensible business is built on developing legitimate consumers of the products.

  10. Hi,

    More than one zero! As I note in my “welcome” at the top of the sidebar when I moved this site from Joomla to WordPress a lot of zeros went missing :(

    I’ve fixed them in this article now, thanks for letting me know!

  11. Dear administrator, I think you’ve made a mistake:
    “The largest annual bonus earned by a Diamond IBO in 25 was $1,83,421.”

    you missed one zero.

  12. I would decide that it is not 99% failure..it is more towards your ATTITUDE..why these platinum and above success is because they willing to work hard by using the right attitude to success..you cannot only depend on this 1 person out of 476 making only few dollars to be alone coz they are not yet at that time start to build his/her business..and if this 1 person have a good attitude of course he can overtake the position of his/her upline (no matter his/her upline is Diamond or what)..he/she can beat them more even higher..i have an example person here in malaysia..my triple diamond is having a very deep downline in depth who is now a Faounders Crown Ambassador (the highest position in Amway)..so we cannot say those higher people are always higher in Amway..a person need to decide and start the engine to accelerate to be what pin he/she wants..i decide this myth to be more successful people in Amway

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