Is it dishonesty or just ignorance? If you search around the posts of critics of Amway and Quixtar on the internet, something you’ll see regularly is reference to something like “The 70% Retail Sales Rule”.
Here for example, on Pyramid Scheme Alert, the claim is made –
A 70% retail requirement level has been applied in various agreements between state Attorneys General offices and multi-level marketing companies charged with violating pyramid scheme statutes.
At least 70% of product must be sold at retail to consumers who are not also Amway distributors.
On QuixtarBlog, where a number of Amway and Quixtar critics congregate, the topic is considered so important, it’s give it’s own “sticky” in the “Quixtar Neutral” area –
On AmQuix, Scott Larsen seems to believe that when Amway moved from ordering from downline to direct fulfillment, they drastically changed the entire business –
In the old Amway times of buying product from your upline, IBOs relied on at least 70% of their volume being resold downline. With Quixtar’s direct fulfillment method, the ability to meet the rule by moving product downline was removed and it required to that IBOs sell at least 70% of their product purchases to others.
On lawBlawg, a now defunct website by an anti-Amway lawyer it was claimed –
70% of the volume has to be sold to non-distributors.
The problem is, this is all completely false. There is no 70% retail sales rule and never has been.
What there is, is a 70% Rule –
4.18. Seventy Percent Rule: An IBO must sell at least 70% of the total amount of products purchased during a given month in order to receive the Performance Bonus or recognition due on all the products purchased; if the IBO fails to sell at least 70%, then such IBO may be paid that percentage of Performance Bonus measured by the amount of products actually sold, rather than the amount of products purchased, and recognized accordingly.
If we go back the landmark FTC v Amway case, the court had the following to say about this rule –
73. To ensure that distributors do not attempt to secure the performance bonus solely on the basis of purchases, Amway requires that, to receive a performance bonus, distributors must resell at least 70% of the products they have purchased each month.
75. The buyback rule, the 70% rule, and the ten customer rule encourage retail sales to consumers.
146. Amway’s 70% rule deters inventory loading by sponsoring distributors. Amway’s buyback, 70% and ten customer rules deter unlawful inventory loading.
Two other Amway rules serve to prevent inventory loading and encourage the sale of Amway products to consumers. The ’70 percent rule’ provides that ‘[every] distributor must sell at wholesale and/or retail at least 70% of the total amount of products he bought during a given month in order to receive the Performance Bonus due on all products bought . . ..’ This rule prevents the accumulation of inventory at any level.
So, the 70% rule serves two purposes. The main purpose, as is evident from the above, is to deter inventory loading – ie ending up with a garage full of unsold soap! The secondary purpose is to “encourage retail sales to consumers“. Now you’ll note that is to consumers – no reference is made to them being non-distributors (IBOs). A retail sale is a sale made not for the purpose of resale. An IBO purchasing for their own use is a retail sale, as is a sale to a customer. What is there apart from retail sales? Wholesale sales – sales made for the purpose of resale. Every time a frontline IBO purchases something from Quixtar or Amway, and they intend to resell it, either to a customer or one of their downline, that is effectively a wholesale sale for the sponsoring IBO. Large Quixtar businesses are primarily wholesale businesses. A diamond for example, wholesales in excess of US$20,000 a month to each of 6 different businesses (platinums).
Amway/Quixtar and MLM critics have ignored this and decided to focus entirely on sales to non-distributors, claiming that 70% of products bought each month must be sold to non-distributors, otherwise it’s an “illegal pyramid” (see this post for more on that).
There is no 70% retail sales rule. Myth BUSTED.
UPDATE: With the changes in the business due to the use of the internet and direct fulfillment, the 70% rule has been changed somewhat. Amway corporation has explictly stated that personal use is included in the 70%. A website user has stated on the forum that he contacted Quixtar for clarification and that downline purchases direct from the corporation do not qualify under this rule. Given the purpose of the rule is to prevent inventory loading, this makes sense.
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