This data includes ABOs from the following countries -
Austria, Belgium, France, Germany, Greece, Ireland, Italy, Holland, Portugal, Scandinavia (Denmark, Finland, Norway and Sweden), Spain, Switzerland and the United Kingdom.
All levels had a decent increase in income, especially Founders Emerald, however for European ABOs, there’s still concern when comparing to Amway North America incomes (using EUR-USD exchange rates as of September 1, 2010) -
It appears the Founders Diamond discrepancy might be because in the US it includes Founders Diamond and above, thus including high achievers such as Founders Crown Ambassadors, whereas the European data seems not to. The discrepancy in Founders Platinum income is even worse than it appears though, as in Europe the statistics include Sapphires, whereas the US disclosure document states they’re excluded in the North American data. On top of this, Platinums and above generate more in sales than their North American equivalents, with 10000PV/mth required to qualify Platinum in Europe, and only 7500PV/mth in North America.
It’s a common claim among critics of multilevel marketing and Amway that “most people lose money”, some even go so far as to give specific figures. Jon Taylor of Consumer Awareness Institute claims loss rates exceeding 99.9%. Robert FitzPatrick of Pyramid Scheme Alert essentially just repeats Taylor’s analysis and claims the “loss rate” exceeds 99%. Former Amway Emerald Eric Scheibeler claimed that a UK court case (BERR vs Amway UK) found a 99.7% “loss rate for investors” and this was reported in a news article and is currently included in the wikipedia article on Multilevel Marketing. The truth is that no such finding was made. Prolific Amway critics like Joecool, Shyam Sundar, and David Brear repeat these myths, and unfortunately so do members of the media.
Is there any truth to these accusations?
An example of a Jon Taylor & Robert FitzPatrick analysis
Robert FitzPatrick and Jon Taylor come up with their figure by analyzing various companies Income Disclosure Statements. Using the averages and number of distributors qualifying at a particular level (a frequency distribution), they work out the total income each level earned and use this to calculate the average income of the “bottom 1%”. Taking their Nu Skin example, using 1998 average income data, they calculated that -
The mean average payment to the bottom 99% of Nuskin distributors was $7.43 per week
and go on to add “before expenses and taxes are deducted – resulting in a significant loss.”
Mathematically their calculations are roughly correct (though averaging from a frequency distribution doesn’t give the exact mean). Statistically however, their analysis is completely bogus. Why?
There’s several flaws. First, when calculating statistics like “mean” or “average”, a measure of central tendency, you need to consider differences between groups included in your sample. For example, when statisticians calculate and present average heights, it’s typically broken down by age and sex. It simply makes no sense to average the heights of, say, 5 year old girls and 30 year old men together. You can do it and get a figure, but what does it tell you? Pretty much the only thing it tells you is you need a better statistician! This however is exactly what Taylor and FitzPatrick do. They pile together people who have been registered for a few months and mix them together with people who have been actively building a business for 30 years and more! They include people working 30 hours a week and people working one hour a week. They include people with a goal to generate a full time income with people whose goal is to buy some products cheaply. It simply makes no sense. The only thing it tells you is need a better statistician!
Still, that’s possibly not the worst thing they do. Jon Taylor claims to have a PhD in Applied Psychology. I too have qualifications in Psychology (and postgrad in Sociology) and I can assure readers that you do not get these qualification without quite extensive training in statistics. Here’s one of the things you’ll typically be taught about statistics like “mean” or “average” -
The important disadvantage of mean is that it is sensitive to extreme values/outliers, especially when the sample size is small. Therefore, it is not an appropriate measure of central tendency for skewed distributions.
What is a skewed distribution? It’s helpful first to look at what’s called a “normal distribution”. Here’s a graph of a sample of men’s heights.
You’ll note how the graph peaks in the middle and tails off to either side in roughly symmetrical fashion. The more symmetrical it is in this “bell curve”, the more useful a statistic like “mean” is in describing the population or sample you’re interested in.
Now let’s take a look at another distribution.
You’ll note this distribution is very heavily skewed to the left, then a bump, then a tail to the right.
Remember what I said above about “skewed distributions” and “mean”? It is not an appropriate measure.
But that’s exactly what Taylor and FitzPatrick have done. The second graph above is a graph of the actual data they used to calculate that “The mean average payment to the bottom 99% of Nuskin distributors was $7.43 per week”.
So what is that big group on the left? It’s Nu Skin distributors that earned no bonus at all. According to the 1998 Nu Skin income disclosure statement, fully 86% of distributors earned no bonuses at all. That’s no surprise. This is what it says on Nu Skins’ 2004 income disclosure (I was unable to find a copy of the 1998 one Taylor & FitzPatrick quote) -
As with any other sales opportunity, the compensation earned by distributors varies significantly. The cost to become a distributor is very low. People become distributors for various reasons. Many people become distributors simply to enjoy the Company’s products at wholesale prices. Some join the business to improve their skills or to experience the management of their own business. Others become distributors but for various reasons never purchase products from the Company. Consequently, many distributors never qualify to receive commissions.
85% of individuals who sign up with Shaklee do so as “wholesale buyers” rather than distributors
Primerica, Quixtar, Melaleuca and others all reported similar statistics to the FTC. Quite simply these people are not operating a business, and their predictable lack of income from not operating a business should obviously not be used in determining whether it’s possible to earn an income through the business. It’s as absurd as judging whether a particular medicine works by including all the people who didn’t take the medicine! It might tell you something, like the pill is too big so people don’t want to take it, but it won’t tell you whether the medicine itself worked or not.
The obsession that anti-mlm zealots have with the low income of people who don’t actually try to make money makes you wonder if their disappointment with MLM comes from the fact it’s not some kind of “get rich quick scheme” and requires work to succeed, just like any other business. It seems they wanted fast riches and were disappointed.
FitzPatrick & Taylor don’t stop with their bogus analyses there though. In part 2 I’ll look at the other side of the profit equation – expenses.
Amway United Kingdom & the Republic of Ireland went through a tough time a few years ago with an investigation by the UK government (ultimately dismissed) . The company halted all sponsoring during the investigation, yet millions of pounds of Amway products continued to be bought and sold, and leaders all the way up to Diamond continued to qualify. Sponsoring renewed several years ago, along with a slightly modified business model that requires, amongst another things, Amway Business owners to have a certain amount of registered customer sales before they’re allowed to sponsor and to earn bonuses and rebates. The latest income disclosure indicates the model appears to be working well. This years figures (for October 2011 to September 2012) are below, along with the same data for the previous two years.
Retail Consultants can purchase and sell Amway products, but are not yet allowed to sponsor
Certified Retail Consultants are Retail Consultants that have developed at least 5 customers and €125 in sales, completed an online course, and are now able to sponsor.
Business Consultants have reached the top of bonus scale. If their business also has a structure that reaches minimum income level requirements, they qualify as Platinums.
CVR is Customer Volume Rebate. It includes the standard Amway volume rebate plus retail margin, which (unlike in most other Amway markets) is collected by Amway and then rebated to those who qualify.
Amway UK & ROI Income disclosure data
# of Retail Consultants
# earning CVR
average monthly CVR
highest monthly CVR
lowest monthly CVR
# of Certified RC
# earning CVR/bonus
average monthly CVR/bonus
highest monthly earnings
lowest monthly earnings
# of Business Consultants
# of new BC
average monthly CVR/bonus
# of Platinums
# of Emeralds
# of Diamonds
That’s a more than doubling of registered consultants in just two years, and based on the # earning bonuses and the averages somewhere near a 50% increase in sales. One of the most vocal European critics of Amway and multilevel marketing is a man by the name of David Brear. His entire argument is based on his opinion that Amway’s products are “unsellable”. If we look at the figures above, each of those Certified Retail Consultants had to have a minimum of 5 clients in order to earn a CVR in any given month, which means they alone represent, at a bare minimum, over 43000 Amway customers and €10-15 million in retail customer sales in the UK & ROI. Many of the retail consultants will of course also be developing customers and making retail sales, as are the Business Consultants. It’s also interesting to note that at least one Retail Consultant earned straight retail sales commissions for a month of nearly €1900 (over US$2500)
As is usually the case, the beliefs of Amway’s critics just doesn’t stand up to the facts.
For the last decade, whenever Amway has published income data for the Amway business they have also reported, based on a survey in 2000, an “average income” for “active IBOs” -
The average monthly gross income for “active” IBOs was $115.
Approximately 66% of all IBOs of record were found to be “active.”
“Active” means an IBO attempted to make a retail sale, or presented the Amway Independent Business Ownership Plan, or received bonus money, or attended a company or IBO meeting in the year 2000.
“Gross income” means the amount received from retail sales, minus the cost of goods sold, plus the amount of Performance Bonus retained. There may be significant business expenses, mostly discretionary, that may be greater in relation to income in the first years of operation.
Amway critics have often latched on to this “average income” and claimed (by falsely assuming all these IBOs are working hard and have business expenses) that virtually all IBOs are losing money and that it’s a poor business opportunity. In reality it’s a very poor and virtually meaningless statistic. There’s a reason why if you google “average income” you’ll be hard pressed to find it. What you’ll find instead is “median income”, which is altogether different statistic. “Average” only really works when you have a group that is homogenous, or members are similar to each other. The group used by Amway is “active IBOs”, and as per their definition includes everyone from the handful of US Founders Crown Ambassadors who have been building their businesses for decades and earn millions, through to the 19yr old college student who joined a few months back and asked their brother if they wanted to buy an XS – and the brother said “no”, and they never did anything again.
Clearly the statistic doesn’t tell us much at all! I can only surmise that Amway keeps publishing it at the behest of their lawyers, who want to keep on the good side of the FTC and ensure nobody can complain Amway gave them an overly optimistic view of their chances of making money with Amway.
So, we’re left with a lousy, misleading, statistic. At least now though, we’re not left with an old lousy, misleading statistic. Recent issues of Amway’s Achieve Magazine have been reporting new data, based on a survey from 2010 – Continue reading →