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 –
The average monthly Gross Income for “active” IBOs was $202.
Approximately 46% of all IBOs were active.
U.S. IBOs were considered “active” in months in 2010 when they attempted to make a retail sale, or presented the Amway IBO Compensation Plan, or received bonus money, or attended an Amway or IBO meeting. “Gross Income” means the amount received from retail sales, minus the cost of goods sold, plus monthly bonuses and cash incentives. It excludes all annual bonuses and cash incentives, and all non-cash awards. There may be significant business expenses, mostly discretionary, that may be greater in relation to income in the first years of operation.
While it’s a lousy, misleading statistic, we can at least compare it with itself, and a few changes are apparent. First of all, the “average monthly Gross Income” has increased nearly 76% to $202. That’s well in excess of the 25% you can attribute to inflation over the same time period. Next is that the number of IBOs considered “active” has dropped from 66% to 46%. I’m not quite sure what to make of that number. It’s well known that most people who register with Amway don’t do anything to build a business, with some registering just for cheaper pricing. Amway has however been introducing numerous incentives (such as free shipping) to encourage people to register as customers rather than IBOs. That should have the effect of increasing the percentage of IBOs who fit into the (very broad) “active” category, not decreasing it. It would appear instead that more people are registering and then not attempting at all to earn an income. This may mean the free shipping incentives have failed, and people prefer the discount shopping, or that even more people than 2000 are registering when they probably shouldn’t … or there’s something else going on I haven’t thought of! Either way it just more evidence that Amway critics ,who would have us believe everyone who registers tries to make money, are simply not being honest.
The other interesting change is a clarification of what this income data includes, or rather, doesn’t include – “It excludes all annual bonuses and cash incentives, and all non-cash awards”. This is significant. Take Founders’ Platinum. According to the most recent statistics, Founders’ Platinums in the US earn an average of $40,125/yr. That however includes annual bonuses, such as the Q-12 Platinum and Sapphire Bonuses of $15000 and $20000. This means the “average income” statistic of $202 doesn’t include up to half of a Founders’ Platinum’s income! Not to mention the $1.22 million dollars ($4.48 million the first time) that IBOs like Founders Crown Ambassadors FAA70 Barry Chi and Holly Chen get as just one of their many yearly bonuses. From Founders’ Platinum and above a significant portion of the income comes in yearly bonuses. None of this is included in the “average monthly Gross Income for active IBOs”.
The statistic is even more misleading than I ever thought, and this information puts lie to the critics claim that it’s been skewed significantly upwards by the higher achievers.
The 2010 income stats are here : http://www.amway.com/en/ResourceCenterDocuments/Visitor/opp-amw-cat-v-en–AmwayBusinessOpportunityBrochure.pdf and it says 300,000 North American IBOs received a bonus.
LInk does not work.
It’s updated yearly. Here’s the current one, which says over 342,000 IBOs earned a bonus in North America in 2012.
Thanks for the updated 2012 info !
you are a delusional twit
Hey IBOFightback, thanks for taking the time and due diligence to research this and provide such quality information. In the grand scheme of things, i see it as a minor issue, but if people perceive it to be “deception” then it would be a valid issue. I recall in the disclaimer of at least one cd that i’d listened to the phrase, “while the term private franchising may be used, ibos are not actual franchisees and not held to the same agreements as traditional franchises…etc.” something to that effect. That came of course from the Business System i’m a part of and not directly from an Amway product or resource though.
More to the point though, i think the forest was being missed for the trees on this subject, in explaining the business to people, drawing out the mcdonalds franchise is done AS A MODEL, for ILLUSTRATIVE purposes. It’s done to help people who, like myself prior to the business, have no business experience or knowledge and have no basis or frame of reference. There are different business types and different models of businesses and how they are run, and comparing our business to a franchise with the added benefit of a franchisee being able to become a franchisor and partake in the residual income streams therein, still seems to me a clear analogy that grounds a new person in reality of how business works. It’s effective, not deceptive, unless people go prancing around calling their downline their franchises and their own business a franchise too, but i don’t know anyone who does that.
So again, i think a mountain was made out of what is obviously, thanks to your research, a molehill.
For what it’s worth
Oh look – Michigan law also states that a franchisor is exempt from the disclosure rules if “The prospective franchisee is required to pay, directly or indirectly, a franchisee fee which does not exceed $500.00”
Note that they’re still called “franchisee” and contrary to what you claim, they are NOT required to issue a disclosure. I also think I found the document you are citing – it’s not even lws or regulations, as you claim, it’s merely a “guide”.
The Federal law is clear, as is the Michigan law. The only question is whether the marketing method for Amway is “prescribed in substantial part” by Amway. If the answer is yes, then it’s a franchise, but no disclosures are required. If the answer is no, then it’s not a franchise, and disclosures still are not required.
First of all, Amway DOES NOT want to be considered a franchise in the eyes of the law. (no matter how much you want them to be)
But let’s imagine that for some bizarre reason they decided to follow your logic and attempt to operate as a franchise opportunity. First of all, they would be entering a world of red tape and regulation at the sate and federal level. Currently they now they operate freely in a virtually unregulated industry. Why would they do that to themselves?
Plus, they would need to have amendments to the distributor agreement for each state that has its own franchise laws, which would add additional regulations on themselves. Why would they want to do that?
And they would be opening up themselves to legal actions under a set of new laws from distributors around the nation and from various Attorneys General in those states where franchises are regulated. Why would they do that? Just to give distributors like you some kind of “bragging rights”? Really?
But, let’s pretend they did. Let’s first say that Amway attempts to evade the disclosure requirements over the $500 rule.
Amway would STILL have to comply with the rest of the franchise law that may pertain to termination of franchisees, reporting requirements, etc. Amway distributors would suddenly be granted all of the rights of a franchisee under the franchise laws. In this process Amway loses many of the advantages it now has over distributors in conflict resolution. Why would they want to do that?
Does Amway really want to grant distributors new rights concerning termination? Or arbitration, etc? Does Amway want to grant disgruntled distributors additional legal protection in the eyes of the law? The Pokorny victims would have loved to have had franchisee protections from state and federal government. And the TEAM diamonds who were summarily fired would have loved to have those additional protections as well.
Remember on Board Meeting when Amway swiftly and abruptly terminated a number of TEAM diamonds in one afternoon. Michigan law could have protected them. For instance, the State of Michigan requires that franchisors give franchisees a written notice of termination PLUS a reasonable time and opportunity to correct the alleged violation before they could be terminated. Woodward and company, (at least the Michigan Diamonds) could have taken Amway to court claiming that their termination was illegal if they were not granted those protections.
Regarding the $500 fee. First of all, the FTC allows other fees to be counted towards what is considered to be the “franchise fee.” Two of those fees that stand out are “supplies” and “training.”
The FTC explained this requirement as follows in its Interpretive Guides: required payments are not limited to a simple franchise fee, but entails other payments which the franchisee is required to pay to the franchisor or an affiliate, either by contract or by practical necessity. Among the forms of required payments include initial franchise fees as well as those for rent, advertising assistance, required equipment and supplies – including those from third parties where the franchisor or its affiliate receives payment as a result of such purchases – training, security deposits
http://www.pitlaw.com/pdf/Hidden%20Franchise.pdf
So in other words, all any distributor has to do is to show that the use of business support materials from Amway or an AMO affiliate is a “practical necessity” and they could be a long way towards meeting the $500 threshold in the eyes of the FTC. Additionally, many states are more restrictive than the FTC and have a threshold as low as $200-$300. In one state it is ZERO.
And look what the courts have done. When litigated, the courts have taken even a more expansive view of expenses that count towards the “franchise fee.” In other words, the “franchise fee” can be pretty much anything the court says it is. If a court simply has to determine that a business expense is a “practical necessity” and it gets counted toward $200-$500 franchise fee. And courts have also allowed states to have a franchise fee of zero. For instance,
– In Computer Curriculum, the presence or absence of a franchise fee was (ruled) irrelevant because it was not part of the New Jersey statutory definition.
– the Seventh Circuit upheld a judgment of the federal district court in Chicago, which held that a distributorship contract required payment of a “franchise fee.” …Over the nine-year history of the relationship, the distributor paid over $1,600 for (sales and service) manuals. The Seventh Circuit held that those payments constituted an “indirect” franchise fee because they exceeded $500 and otherwise satisfied the statutory definition of a “franchise fee,”
– The Ninth Circuit concluded that a dealer’s purchases of video cassettes, films, floats, banners, posters, and brochures — all of which were necessary to promote the manufacturer’s products — represented a franchise fee.
http://jolt.richmond.edu/v6i1/lockerby.html#t7
In other words, in at least one state, New Jersey, the payment of any kind of franchise fee is irrelevant regarding the disclosure requirement. So there goes your theory in New Jersey. In other states it is as low as $200-$300, making your argument even weaker.
But if that is not enough, the courts, and the FTC, have allowed all kinds of other fees like catalogs, manuals, videos and brochures to count towards that amount, even if it is as low as $200 per year. And these expenses can accumulate in some states like Illinois, for at least up to nine years! (In Michigan the limit is six months)
So why don’t we add up years of Amway registration fees, annual renewal fees, and other “practical necessities” needed to build an Amway business … things like marketing materials, catalogs, website, etc.? … not to mention all the thousands spent on BSMs and conventions. What do we come up with? How long before that distributor goes over the $200-$500 limit that would put Amway at risk of legal action from an attorney general or disgruntled distributor for failure to make proper disclosure to prospects?
So your argument that Amway would not have to make disclosures to Amway prospects is a poor one.
At best, Amway has to provide a UFOC with disclosures and a mandatory cooling off period in certain states, but not in others. Does Amway want to have this patchwork of regulations across the 50 states in order for people like you to use the words “Private Franchising” in their contact? Really?
There would be an upside to this assuming Amway did go through the red tape to make themselves an official franchise. It would give Amway distributors strong legal protections to help level the playing field when they get into conflicts with Amway Corp or their upline’s tool company. This would be a good thing. If distributors would have had the protections afforded by actual franchisees, the tool business may have been exposed a long time ago and Amway Corporation would have changed long ago.
Now let’s step out of your fantasy and back into reality.
Since Amway has not gone through the process to become a legal franchise, why should Amway distributors be allowed to deceive people into thinking that this IS a franchise?
How is this any different than a “counselor” labeling himself a psychologist? “I really do the same thing as a psychologist. So I think I should be able to call myself one. It is not deceptive.”
I bet after this post michman just had to get up from his computer and walk away in shame. He must feel pretty stupid for opening his mouth when he has no clue. He’s probably back to one of the quitters’ blogs where no one checks up or challenges his nonsense. The truth will prevail.
By the way, according to the FTC (notice how I provide a link so you can check?) only 15 states have their own franchising laws, not “all of them”. Apparently “what everybody knows” isn’t correct.
1. Laws which you refuse to point us to
2. You want me to contact the AG and say “someone on the internet said you said something but won’t tell me where and I think it’s wrong!” Perhaps you won’t point out where it’s said because in context it doesn’t say what you claim?
3. Amway is spending millions on advertising, is all over Facebook and twitter, has top notch spokespeople, and growing by 11% in a troubled economy … and you think people are being taught “don’t tell them it’s amway?”
In any case, the FTC rules on franchising are clear.
1- There in not one “current law” regulating franchises. All states, including Michigan, have their own laws regulating franchises. (I thought everyone would know that)
2- The information I provided you was put out THIS YEAR by the current Attorney General Bill Schute, who assumed office in January 2011. I doubt that it is “outdated” as you claim.
If you believe that the Michigan Attorney General’s Office is in error, you may contact him at:
BILL SCHUETTE
ATTORNEY GENERAL
Consumer Protection Division
Franchise Section
G. Mennen Williams Building, 1ST Floor
525 W. Ottawa Street
Lansing, MI 48913
3- I repeat. Amway does NOT want to be considered a franchise by federal or state governments. And why would they? … just so that deceptive Amway distributors can continue to use the “don’t tell them it’s Amway” approach to contacting?
Michman, did you read what I wrote? I provided you with links to the actual current law and quotes from it.
A franchisor with fees less than $500 is NOT required to do the things you claim under federal law.
If you cut and pasted that from a Michigan gov website, then it is clearly out of date and does not reflect current federal regulations. Michigan may have separate laws, but you didn’t quote them and instead gave a link to an FTC page that doesn’t even exist! Did you even bother to check it? Maybe it was removed because it’s wrong?
I am not opposed to labeling Amway a franchise, as long as they live by the same rules as other franchises.
Here are a few of them in the State of Michigan:
Under both federal and Michigan law, a franchisor is required to provide you with a presale
disclosure, known as an “offering circular.”
The franchisor is not required to file this
disclosure with the federal government or the Michigan Attorney General.
Under federal law, the disclosure should provide:
1. names, addresses, and telephone numbers of at least 10 previous purchasers who
live closest to you;
2. a fully audited financial statement of the seller;
3. background and experience of the business’ key executives;
4. cost of starting and maintaining a business; AND
5. the responsibilities you and the seller will have to each other once you’ve invested in the opportunity.
Federal Trade Commission Facts for Consumers: Franchise and Business Opportunities,
http://www.ftc.gov/bcp/conline/pubs/invest/franchse.htm
This disclosure must be provided to you before either the first face-to-face meeting with the
franchisor or 10 days before money is paid or the contract is signed. (The contract must be
provided to you 5 days before you are required to sign it.)
The bottom line is that there are similarities between a “counselor” and a licensed psychologist. A counselor cannot use the term psychologist in any way unless he is one.
If he wants to become one, then he can go through the same procedure as the actual psychologist did to earn the right to use the word.
The fact is that mlm’s DO NOT wish to become franchises and have to live under franchise laws that vary from state to state.
And for you to be making the case that Amway is an ipso facto franchise is a silly argument. They don’t want to be one. And neither does any other mlm.
By the way, Amway Anwers, the corporate blog that stated that the term “Private Franchising” is deceptive, has been discontinued as of today.
…We thank you – all of you – for your participation on this blog. We hope that you’ll continue pursuing the passion we share for making the world of direct selling a better place and building a stronger understanding of the industry’s positive economic and personal impact.
With that, we bid you adieu!
There were lots of questions posted on the blog by ibos and others asking how this was going to be enforced. One year later, they were still unanswered.
To me, it looks like the term “Private Franchising” has won, along with the AMOs who continue to use it. And the Amway blog that labeled it “deceptive” has lost.
Lets see if the Amway Insider blog, which is supposedly merging with Amway Answers, offers any clarification or if they chose to ignore it.
The term private franchising and the meaning owning your own McDonald’s just came up when someone was trying to recruit me for amyway global. On top of that there was a large meeting in Kentucky last week and spokesmen were speaking of the experience of owning your private franchise.
It sounds like Amway may have decided after discussion with leadership that they have no problem with the term. I don’t know why they did in the first place. I suppose there’s the risk that people might “legally” confuse it with traditional franchising, which I think is unlikely. Personally I think “personal franchising” is a better term than “private franchising”. I’m not really sure what the “private” part is supposed to mean?
There is nothing in the comment by Indygo that indicates that Amway reversed itself and now approves of the deceptive term “private franchising.”
And it is not the word “personal” or “private” that Amway has a problem with.
It is the word “franchising.” There is a specific legal definition for the word franchise. States have specific laws and regulations written for franchises, just like they have for a psychologist or a doctor.
You are free to charge people money to talk about their problems. But you cannot advertise yourself as a “Private Psychologist” or a “Personal Psychologist” unless you have been licensed by the state practice psychology.
Words like Psychologist and franchise have very specific LEGAL meanings. If nothing else, terms like that are extremely deceptive.
When was the Amway blog post? The “specific legal meaning” of “franchise” changed in 2007^
It currently reads as –
“(h) Franchise means any continuing
commercial relationship or
arrangement, whatever it may be called,
in which the terms of the offer or
contract specify, or the franchise seller
promises or represents, orally or in
writing, that:
(1) The franchisee will obtain the
right to operate a business that is
identified or associated with the
franchisor’s trademark, or to offer, sell,
or distribute goods, services, or
commodities that are identified or
associated with the franchisor’s
trademark;
(2) The franchisor will exert or has
authority to exert a significant degree of
control over the franchisee’s method of
operation, or provide significant
assistance in the franchisee’s method of
operation; and
(3) As a condition of obtaining or
commencing operation of the franchise,
the franchisee makes a required
payment or commits to make a required
payment to the franchisor or its affiliate.”
This would seem to fit the Amway business opportunity in the US. In the past the concern has been regarding the various legal obligations for franchises. The new regulations have however the definition above, plus a section exempting certain franchising operations from these obligations –
(a) The provisions of part 436 shall
not apply if the franchisor can establish
any of the following:
(1) The total of the required payments,
or commitments to make a required
payment, to the franchisor or an affiliate
that are made any time from before to
within six months after commencing
operation of the franchisee’s business is
less than $500.
By my reading of these rules, the Amway business opportunity, since 2007, explicitly legally IS a franchise – it certainly fits the definitions – but it is exempt from the regulations.
I’ll throw them Kevin Thompson’s way and see what he says.
IBOFB is the one who brought up rule enforcement.
It seems to me that they haven’t been really pro active in the way they enforced the rules.
I have never seen Amway claim that showing a $70,000 income for Founders Platinum is unethical. But they have said that “Private Franchising” is a deceptive term that should not be used. One year after that announcement and Amway IBOs are still using it in very public ways.
I do accept the fact the Amway is a very large organization, and it takes a LONG time to make changes.
But should it take a year for AMOs to quit using deceptive terms when contacting prospects?
“But experience tells us that Amway does not take pro active steps to stamp them out.”
I disagree. I just think that the way they are proactive is not as in-your-face and with a lot of drama as some folks would like. Because there are hundreds of thousands of people involved, and because there is a delicate balance to maintain with both the IBO leadership and the corporation, not wanting to usurp anyone’s influence, things are done slowly and more sublte than folks, for those on the outside looking in particularly, to even notice.
But, a bigger issue, in this case is, as ibofightback points out, your comment, MichMan, is off topic. Why is that?
You say that we should report deceptive recruiting practices to Amway.
But experience tells us that Amway does not take pro active steps to stamp them out.
They have seemed to make long term changes to unethical business practices through accreditation process. Over time, this may ultimately trickle down to the distributor force.
But they seem to leave way too much up to the AMOs.
If Amway was going to crack down on deception, they would have done it a long time ago.
One recent example- Amway put out a statement almost one year ago that the term “Private Franchising” was deceptive and was not acceptable. This would have been shocking news to the distributor force… if they were ever informed of that fact by their upline who was selling business support materials using this deceptive phrase.
One year later, you can still go on Facebook and see countless Amway distributors using the phrase “Private Franchising.”
So what am I to believe that the corporation is going to do when this phrase is ingrained in the teaching of some of the largest “systems” in North Amereica?
MichMan,
(1) what does this have to do with the post?
(2) up until at least a few years ago, Amway’s official processes were approving materials that used the term “Private Franchising” (eg Greg Duncan’s Private Franchising in a High Tech High Touch World). The official approval process trumps a blog post for accuracy, though the blog post is more recent
(3) if Amway thinks it’s deceptive I disagree with them. Why do you think it’s deceptive?
(4) have you reported the cases you have seen? bcr@amway.com
I’m not sure what your comments on Platinums has to do with Founders Platinum income? The average income statistic given by Amway is for currently qualified Founders Platinums, not Platinums, and not unqualifying platinums.
If they’re not qualifying then Amway doesn’t report data on them. Amway does however report percentages of IBOs at different levels, and Founders Platinums and Platinums are reportedly separately. That also shows that in 2010 there are more than twice as many qualifying Founders Platinums (0.53%) as there are Platinums (0.26%). Of course there could be people moving up and down within those groups, but it does show that there is a significant amount of requalifying.
Interestingly the percentage of Founders Platinums in 2010 is *double* that reported for 2009. Clearly the significantly increased bonuses for Q-12/Founders has had the desired effect!
Regarding the plan, Amway requires that the Amway Business Opportunity Brochure be given to everyone who is shown the plan, and it clearly gives Founders Platinum income. If they’re not giving approved income figures, then please report them.
I just checked the “web presentation” of one large North American group and they don’t even mention Founders Platinum. They give an example of a group doing 7500PV, spread over 4 teams and personal volume with an associated income of $2500/mth. Nothing like the $70,000 you’re claiming to have seen recently.
So again, I encourage you to contact Amway and give them details.
According to the most recent statistics, Founders’ Platinums in the US earn an average of $40,125/yr.
First of all, Amway only publishes the income of the very top tier Platinims. For instance, Amway does not release any information as to how many of the Platinums are actually Platinums today. (As you know, Amway has a policy of “Once a Diamond, always a Diamond.” … which works the same way with Platinums. “Once a Platinum, always a Platinum.”) So we don’t know what percentage of Platinums are even qualified at 7500 for six months out of the year.
The fact that somebody in the past 5,10 or 20 years had volume of 7500 for six months out of a fiscal year qualifies them to be recognized currently as a Platinum, even if their volume is only a small fraction of that today. (It does not however, qualify them to be PAID as a Platinum)
Secondly, Amway does not release any information as to how many currently qualified Platinums (six month qualifiers) go on and qualify each month for an entire year.
So, are even half of today’s Platinums currently qualified as Platinums? Or a third? We don’t know.
And of those that did qualify for six months, how many of them were able to keep up that amount of volume for 12 out of 12 months? Half of them? A third of them? Ten percent? We don’t know that either.
So these figures do need to be seen in context. Founders Platinum represents only a fraction of the Platinums who are in the Amway business.
If only half of the Platinums are currently qualified, and only half of them qualify for the 12 months it takes to be “Founders” level, then Amway’s statistics are representative of only 25 percent of Amway’s Platinums.
Also, Amway statistics show a Founder’s Platinum making only $40,000 per year? I realize this will vary from group to group, but how is a Founders Platinum income represented in the plan shown to new distributors? I have seen the plan presented in the last few years with Founders Platinum income at over $70,000. If Amway knows that the average is much less, why are groups showing it so much larger than it is?