Prolific anti-Amway blogger JoeCool recently did a post claiming to analyse “a platinum group” and prove using “simple math” that it’s impossible for an Amway business to be profitable overall. Let’s have a look at what he says, and what happens in the real world.
Amway Global – Analysis Of A Platinum Group
Many people who are in Amway, or were in Amway at one time is very likely to have seen the 6-4-2 plan. I understand some modifications may have been made in certain groups but the basic premise of this post will still hold true. An IBO who sponsors 6 who sponsor 4 who sponsor 2 would have a group of 78 IBOs. All told, this group would allow the platinum to earn about $47,000 (before expenses).
Here is where JoeCool begins his deceit. The “6-4-2 plan” is a model used to explain how the bonuses work. It is not reflective of a real Amway business, as is obvious with only a moments thought. So he claims to be analysing a platinum group, but in reality he’s analysising a simplified model used for explanation purposes! If the actual reailty was to sponsor 6 who sponsor 4 who sponsor2 – what happens when the “6” decide they want to be platinum? Are they not allowed to sponsor 6 themselves? What about the “4” and the “2”? Does the Amway plan stop there? Of course not. 6-4-2 in no way reflects a real platinum business. Oh – and even then this model has 79 IBOs, not 78.
JoeCool then goes on to claim this 6-4-2 platinum would earn about $47,000 before expenses. Where does he get this figure from? He doesn’t say, but let’s work it out! From the perspective of the lead IBO, he will have 6 groups doing 1300PV each and himself doing 100PV in personal volume. JoeCool doesn’t say, but it’s fair to assume he’s using the Amway Global (North America) rebate scale, which puts each of the 6 groups at 12% (1300PV), and the lead IBO at 7900 points, or 25%. The lead IBO thus earns 25% back on his personal volume and 13% back on each of the 6 legs. With a 3:1 BV:PV ratio that works out as (25%*300+12%*3900*6)/mth=$36579/yr plus a yearly Q-12 bonus of $20000 for a total of $56579. There’s also a free trip, and these days there’s additional “fast-start” bonuses and other incentives. So why is JoeCool out by $10000?
Because he’s basing his analysis on OLD data! Perhaps from his less than years experience more than a decade ago??!!
The plan assumes that IBOs all move 100 PV. 100 PV costs about $300, thus each month, this group would spend $23,400, or $280,800 annualized. Amway takes in the $23,400 in sales and returns about 33% in bonuses, thus the bonus on $23,400 is $7722, or $92,664 annualized. These bonuses are returned to the IBOs based on their volume with IBOs receiving various amounts based on their level. The majority of IBOs will receive $9 or $10 and a select few will make some significant money.
Clearly the whole idea behind this so-called “analysis” is bogus, but let’s continue looking at it anyway, just to show what we’re dealing with when reading Amway critics.
Now, Amway does indeed pay out close to 33% in bonuses – but that doesn’t go to the Platinum group. 4% of that is the leadership bonus to upline. There’s also potential upline Ruby, Emerald, Diamond, Depth bonuses etc etc. His calculation is so lacking as to be meaningless …. but doesn’t failing to exclude these means he is over-estimating the IBO income? It would if even reflected reality, but that takes us to the next point …
JoeCool’s analysis takes a point in time of an Amway business and then assumes you can calculate an average. You can’t. The IBOs reflected by “2” in 6-4-2 have likely only just joined, whereas the initial IBO has probably been working 12 months or more. Who in their right mind thinks that the guys who just joined should be earning as much as someone who has been working hard developing a business for 12 months? They’re not even remotely comparable, you can’t average their income. In reality the person just joining is likely making nothing, and the person who has been working hard for 12 months is making a decent income. The important thing to note is that like any new business startup, the new IBO doesn’t expect to be making much income!
Now let’s say this same group purchases tools such as standing order, KATE, functions and other system materials. Lets say the average business building IBO spend on average $200 a month on tools. This same group would spend $15,600 a month on tools, or $178,200 a year. NONE of this money is returned to the IBOs, thus somewhere upline keeps ALL of the profit on the tools.
“Now let’s just say” – that’s JoeCool speak for “now I’m going to make something up”. JoeCool here is assuming that every single IBO in a Platinum group is working (and spending) hard building a business. This is so far from reality it’s ridiculous, and any IBO who has built any size group knows it. JoeCool claims to have built a 4000PV business, so he either knows it and is deliberately being dishonest in this “analysis”, or he doesn’t know it, is ignorant about a real Amway business, and is lying about having reached 4000PV. A simple question JoeCool – was every IBO in your 4000PV business subscribing to tapes and attending seminars etc etc? Be honest now ….
IBO organisations like Network 21 and WorldWide Group keep statistics on the numbers of “active” IBOs in groups they support. A healthy, growing new platinumship (and most aren’t!) has no more than 15 or so folk really working, and perhaps 20-30 IBOships attending seminars, maybe a few more subscribing to CD programs. In other words, contrary to JoeCool’s unbelievable claim of 100% participation in “system expenses”, the reality is closer to 20%, and even then not everyone is doing everything. Furthermore, many of these expenses are not running expenses at all – they’re investments designed to foster future growth. As in any business, such investments are not expected to generate immediate return, as assumed in this type of “point-in-time” analysis.
Thus this group spends $23,400 a month on product and $15,600 on tools. That is a total of $39,000 a month a group of IBOs spends on products and tools. Annualized, this same group spends $468,000 on product and tools.
Did I read that right? Is JoeCool including product purchases as a business expense? That’s perfectly reasonable and sensible if the products are being purchased for resale … but then there’s another $30,420/mth income for product sales (at 30% markup) he’s decided to completely ignore!
But he’s probably assuming that all the IBOs are just purchasing for their own use, with zero customers. Now tell me JoeCool, when you had your 4000PV business … did you claim all your product purchases for personal use as a business expense? What did the IRS think about that?
Product purchases for personal use are not a business expense, they’re buying something for personal use – no different to buying something from any other business! Or did JoeCool in his 4000PV business buy stuff just to get bonuses, and tell others to do the same? If he was, then JoeCool was breaking Amway’s rules, and indeed probably running his business as an illegal pyramid!
Perhaps this is why he thinks Amway is a bad idea, because the way he was running it was a bad idea?
How about an analysis of Amway being built within the rules and legally, JoeCool, instead of the way you did it?
Amway gives back about $7722 a month in bonuses or $92,664 a year in bonuses and the LOS such as WWDB, BWW, or Network 21 gives back zero to the IBOs.
JoeCool now would have us believe he’s never heard about “tool profits”! As anyone whose researched Amway even for more than 5 minutes knows, IBO support organisations *do* give rebates back to IBOs based on the volume of products they buy from those companies, much like Amway does. It typically starts about Platinum … and isn’t there a Platinum in this group JoeCool analyses? So he’s wrong yet again, and ignoring income even for this bogus analysis.
Thus a platinum business spends $39,000 a month to earn $7722, or annualized, spends $468,000 to earn $92,664.
Yeah … if you ignore retail profit, assume every IBO spends all this money on “tools”, ignore tool volume discounts, and try to claim the energy drink and shampoo you bought for yourself is a business expense!
Simple math CLEARLY shows that only a few can receive any significant bonus. Guess what? If this bonus money were divided evenly, it would result in each IBO receiving $99 each, per month. Amway reports the average active IBO earning about $115 a month. There is a minor variance, but this post clearly shows that Amway groups as a whole, cannot collectively profit unless many products are sold to people who are not IBOs.
ROFLMAO!!! Now he gets his completely bogus figure of $99, compares it to the “average income” supplied by Amway is $115 (also worked out on a completely different, and flawed, basis), calls the 16% difference “minor” and hopes folk thinks this confirms his analysis! Sadly, some people fall for this kind of ridiculous claim.
Some if not most IBOs are taught to “buy from themselves”.
So … here at the end JoeCool clarifies that his “analysis” does indeed assume zero retail sales – ie breaking Amway’s rules. He also provides no evidence at all that this claim applies to “some if not most IBOs”. In summary, here’s just some of the deceit in what he does in this post …
1. Analyse a simplified model designed to be used to explain the concept, not reflect reality
2. Assume the group is breaking Amway’s rules and has no retail sales
3. Assume, contrary to all evidence, that everyone in the group is spending money on “tools”
4. Assume, contrary to all evidence, that everyone in the group is trying to make money
5. Categorize purchases for personal use as a business expense!!!
6. Uses out-dated data
7. Wants us to believe people who have just joined should be earning as much as those working hard for a year or more.
Alas, this type of ridiculous analysis is all too common amongst the anti-amway and anti-mlm zealots.
Note: an early version of this post had a very silly math error that has since been corrected.