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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18 thoughts on “MYTH: 70% Retail Sales Rule”
This issue of 70/30 is a result of the 60’s and 70’s when almost all MLM’s had problems with “front loading”. This was further a result of recruiting un-qualified people… ie: no sales talent, lazy, slothful, weak, not too bright with personalities of a tree stump etc and most always… with huge REJECTION problems. If all of the MLM bashers were studied carefully… we would surely find a large group of terrified weasels who would rather commit suicide than risk putting themselves in a position where the awful word NO could even remotely come up! There is also another group of MLM Watchdogs who try to profit by proclaiming they are EXPERTS (with worthless titles, phony resumes and fake credentials) whose only quest in life is to protect you from all of those evil MLMers” out there. I’ve always felt this way about any opportunity… if a person has to ask someone else what they should do or not do as far as any business opportunity they will never succeed anyway. If you ask anyone (even members of your own family) about should you go into ANY business (not just MLM) 99% of the time they will try to discourage you. They will tell you to get a “good” job with a “good” company… work 40 or 50 years on meager pay and then you can retire on half of what you can’t live on anyway! Misery Loves Company! This notion that only the people at the top in MLM make the big bucks is an invalid assessment. Look at any company in America… the CEO always makes the big bucks… thing is in MLM you are at the TOP! I LOVE THE MLM Concept … and I’m soooo happy that so many other people don’t! If everyone were dedicated MLMers it wouldn’t pay so good! Heee Heee LOL
You do realize what you say is “I LOVE MLM because those lazy people think they can sell, but they can’t, so I’m profiting off of their failure!” and why do those “lazy people” join MLMs? Because they are led to believe MLMs make them rich, as is always advertised by MLM companies.
So in the least, the MLM business model is based on deception and hiding actual income statistics.
Think about it: you are not in the non-MLM sales industry for a reason; the difference between MLM and non-MLM is the presence of soooo many sales people who *think* they can become rich.
So obviously, you are in a fraudulent business: you either make no money (lose money mostly) OR if you do make money, you make it off of those who were sold the idea that they could make money but in reality they couldn’t.
Either way, this business needs to be eliminated as it is obviously fraudulent.
If what is being said about this 70% rule is true, then I don’t see how Amway’s 70% rule deters inventory loading. According to what is said above, anything the IBO who buys for their own personal use counts toward the 70% requirement. How is Amway going to know what I use for my personal use and what I don’t?
For example, I could buy $1000 worth of product, set aside $300 of it as inventory for future months (or sell to another IBO), then say the other $700 is for my personal use, therefore Amway considers it a retail sale and I’ve satisfied the 70% retail sales rule yet I haven’t sold a single thing to any customers. But if this satisfies the FTC ruling, then the FTC didn’t do its job right.
Charles, there is no “70% retail sales rule” that needs to be satisfied. It’s a lie promoted by anti-MLM critics, for reasons unknown.
But there is a 70% rule of some sort (section 4.18 of the Quixtar Compendium) and if I understand the explanation of it correctly, it seems rather pointless, if I can consume 70% of the products I buy from Amway every month and not doing any “inventory loading”. How would Amway or anybody else actually know I was consuming 70% of what I bought personally and not just stockpiling it in the garage?
The rule, like all rules, is there to say “don’t do this!”. If people want to break the rules there’s not much you can do about it. Nevertheless it’s them breaking the contract they signed with Amway and effectively defrauding their upline by receiving bonuses they did not legitimately earn. Having said that, when the FTC investigated Amway in the 70s one of the findings wasn’t just that Amway had this rule against inventory loading, but also that they actually enforced it. While Amway can’t monitor exactly what you do, with millions of distributors around the world they do have an idea of what is statistical normal and what is unusual. If red flags appear, they investigate.
It’s really a rule against stupidity more than anything else. Why would anyone think it would be a sensible thing to do?
It isn’t a sensible thing to do, but it seems to happen all the time (or did happen), from what I read. Still, if Amway takes the trouble to see the red flags and investigates, that’s what they should do.
I wonder how prevalent it really was? It seems more apocryphal than anything. Having said that, some groups in the past reportedly taught the idea of “get the recognition and the volume will come”, which could easily lead to inventory loading. Again though, I’m skeptical it was very widespread. Given the millions of people who have been involved with Amway over the years there’s very, very few reports of it.
From Amway’s business reference guide. Section D.
“2.3. Customer means a non-IBO who is an end user of
products and services offered through or by Amway.”
This is from the Rules of Conduct, which is located in Section D-11 of the Amway Business Reference Guide. As well as the stand alone Rules of Conduct document.
2.3 is under Section 2, which is a list of Definitions. These definitions, like any legal document, is to clarify what certain terms mean within said document. It is to give clarity that when Amway uses the word “customer” in said document, “customer” refers to a non-IBO who is an end user of products and services offered through or by Amway. In no way does this document, and use of the word “customer,” suggest that Amway IBOs are not also customers. The definition is to clarify, when talking about certain criteria, such as what is addressed in Section 4.13 about “Customer” Volume.
Even the CMO, Candace Matthews knows that Amway IBOs are customers, and publically acknowledges this.
At the 4:09 mark of this interview with Forbes, she is asked who is the “core Amway shopper/consumer,” and Candace starts to explain the demographics of the distributors (IBOs/ABOs). The interviewer clarifies, and Candace says that the distributors are “major consumers themselves.” Here’s the link, at the 4:09 mark, to the interview:
“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“
It is also designed to keep individuals from “buying into” a certain level. If an IBO had a 4000 pv business, they couldn’t buy 3500pv personally to hit 7500pv (platinum). Their personal consumption would obviously exceed the 30% that is allowed.
The member/client volume rule has always existed in Quixtar and is in the Compendium. It’s a separate issue to the 70% rule.
Your upline was unfortunately promoting deceit with the idea that
“most of our IBOs meet requirement by doing at least 50PV personally each month and then reporting that volume as member/client volume.”
That clearly does not fulfil the member/client volume rule, it’s promoting fraud.
People don’t understand, but everyone in any one MLM company are competing against one another. So, I can certainly see why you would want to sell strickly retail. An Emerald took the money I bet you worked very hard for. Just another reason why people run when they hear the word “Amway”. Only people at the top make the big bucks being supported by their downline.
Oh, now we’re on to the old “you’re competing against one another” canard. You’re really pulling out all the silly lines here Peter! Yes, we are competing against one another. Just like if, say in the computer hardware business I used to own, I employee a salesman and he makes a sale instead of me. He’s competing with me!
But guess what, I still make money on his sale. Less perhaps, but I employ him (or her!) in the hope that the increase in sales by having an additional salesperson will overcome the decreased margin, making the business as a whole more profitable.
Oh, and who said I “want to sell strickly retail”? Profit margins are lower in wholesale, but again, larger volumes can more than make up for that.
We finally agree on something.LOL
I remember a couple of years back when I had four downline IBOs. I was encouraging them to get their orders in before the end of the month so as to allow for the various bonuses that would be sent to them by Quixtar. My own purchases were slim, not quite meeting the 3% rule. I thought that if I took the time to encourage my downline to get those last minute needs in before the end of the month that the PV would increase.
I was in shock when I received a note a few weeks later from Q telling me that my bonus was paid to my upline Emerald. When I emailed my upline to find out about this, I was told:
———— February 17, 2006 ———–
I’m answering this quickly without researching it; but I will give you some general information.
The Corporation has a relatively new rule called the “Member Client Volume Requirement”. It says that every IBO will be paid a bonus on his personal volume; however, to receive a bonus on downline volume, the member-client volume requirement must be met.
The rule is pretty simple. Each month you are required to sell to members or clients….or they can shop for themselves if they are registered. The required minimum amount of the sales is 50PV or $100 or 10 individual sales. The sales can be auto-captured by the corporation as with members/clients who are registered with Quixtar and do volume during the month; or it can be self-reported.
It is important to keep track of this yourself. When your downline volume puts you in a higher PV bracket, the requirement must be met in order for you to be paid on the downline volume.
So most of our IBOs meet requirement by doing at least 50PV personally each month and then reporting that volume as member/client volume. Reporting can be done at the time of the order or after the fact on the site, just so it’s done during the month.
When the requirement is not met and there is downline bonus earned, it passes to the first upline qualified Platinum…in your case, me. Then, if proof of meeting the requirement is provided to the upline, the bonus would be paid by the upline.
Is that as clear as mud?
Obviously, this had a negative impact on future behavior. It also happened to all four of my downline, who later quit the business. I haven’t built it since this issue surfaced.
Yet, I continue to seek retail customers on my own, there’s more recognition with retail sales – heck, I keep all the profit from a sale. I don’t need discouraging bonus’s based on some kind of rule that discourages my downline.