Facebook0Tweet0Pin0

Is Amway a Pyramid Scheme? Is it Legit or a Scam Business Enterprise?

This post may contain affiliate links. Please read my disclosure for more info.

Does this sound familiar to you: A friend contacts you and tells you about an exciting new opportunity to make money. Once you all meet, they give a big presentation about how you too can work part-time with company X and make money.

Sounds too good to be true, right?

This kind of setup is the classic pyramid scheme setup. One company that has been accused of being a pyramid scheme is Amway. Making money with Amway sounds good but might feel suspicious to some.

Is Amway a pyramid scheme? We will answer all those questions and more in this Amway review.

What is Amway?

Amway is an MLM company that is based out of Ada, Michigan. The company sells health, beauty, wellness, and nutrition products directly to consumers through its network of affiliates and representatives.

In fact, one could say that Amway is the pioneer of the modern MLM business structure. It currently has over 17,000 employees and operates in over 100 countries.

Amway does not publish official figures on how many affiliate representatives are in their network, but some estimates put the number around 3-4 million.

Amway is actually one of the biggest private companies in the country and is ranked 44 by Forbes magazine. 

Amway started back in 1959 with founders Jay Van Andel and Richard DeVos. The company started off marketing products from Nutrilite, a nutrition company. Nutrilite was one of the first companies to sell a multivitamin in the US.

Due to popularity in sales, Amway quickly became a very successful distribution company. Eventually, the company parted ways with Nutrilite and started making its own products. The first product the company launched was Legacy of Clean, a household cleaner brand.

Nowadays, the company has tons of original products in their listing and makes billions in sales every year. They have been named by several publications as the number-one nutritional supplement brand.

Also read: 35 Hobbies That Make Money

How Does Amway Work?

Amway is a “direct selling company” that primarily relies on its network of “Independent Business Owners” (IBOs) to sell products directly to consumers.

This is the pretty standard MLM model: Individuals buy products from distributors and distributors try to recruit more people to sell Amway products.

Affiliates make whatever retail markup from sales they can make and also get incentives based on how many other associates they have sponsored.

Anyone who has been part of an MLM scheme before might start seeing red flags here. Amway manages to make tons of sales every year, and they are very comfortable bragging about those sales.

However, they fail to mention how much of those sales come from selling to distributors, not actual customers. The company sells to distributors, who then sell to customers. Distributors can keep any retail markups that they get.

The problem is that the vast majority of distributors don’t manage to sell much at all.

Not only do you have to buy products as samples and for examples, but you also need to have stock on hand to sell directly to customers.

So, the real money comes in when people get others to sign up below them, and so on, and so on.

The money starts to flow upward as you get people working below you, with people working below them, and so on.

Interestingly enough, this means that the company does not make most of its money from actually selling its products to consumers.

Instead, they make most of their money through the fees and products that associates and IBOs pay when they sign up, and the other business materials and programs they sell to associates to turn them into a “direct sales powerhouse.”

Also read: Best Freelance Apps and Websites

Is Amway a Pyramid Scheme?

We hate to say it, but Amway functions a lot like a pyramid scheme. Obviously, the company does not say that they are, but of course, you wouldn’t expect them to say so.

It is actually kind of funny because if you go to their website and look at graphics showing the business model, everything looks like pyramids.

Sure, they try to make the structure not obvious by changing the shape of the units and where things are on the page, but the business model clearly has the same kind of hierarchical structure that pyramid schemes have.

The main reason why some would call Amway a pyramid scheme is that the vast majority of people who join up (those at the “bottom” of the pyramid) never make any money and in fact end up losing money instead.

The only way to make money is to have a long chain of distributors below you, and distributors below them, etc.

The dictionary defines a pyramid scheme as: “a form of investment in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones.”

So taking this definition into account, Amway’s business model looks a heck of a lot like a pyramid scheme.

Those who start early and have a big chain of people below them are the only ones that really end up making money, and even then, most of that money does not actually come from selling products to consumers.

In 2012, the average earnings from associates were just $84, so we don’t exactly hold the company in high faith.

Also read: Phone Apps To Make Money

Is Amway a Legitimate Business? Is it a Scam?

The answer to this question depends on how you want to phrase things. Is Amway a real, registered company, with actual money and products? Yes. Is it a scam? There are many who think it is.

Amway’s business structure is technically not a pyramid scheme and everything they do is legal, but it is very difficult to give their business structure any other name than a pyramid scheme, especially considering that their business model is literally in a pyramid shape.

In other words, unless you are in the very lucky 1% that is near the top of the pyramid structure, then it is likely you won’t make any money and will actually lose money.

In fact, several investigative journalists have dug into the kinds of techniques that Amway uses to capture associates.

Probably one of the worst ways that Amway hoodwinks people is tricking them into buying all their promotional and “business education” materials like workbooks, courses, conferences, etc. These things cost a lot and most people never see any return

Critics of the organization have described associate loyalty as “cult like” and the company has come under fire for the shady tactics it uses to recruit distributors.

According to some former Amway associates, the company tells followers to cut people out of their lives that disapprove of their association with the company.

Authors and journalists have written books about the kind of cult-like mentality that big MLM organizations like Amway foster and promulgate. There are many stories online about people who have lost friends and families to Amway.

The company is technically legal, but that does not mean that they do not engage in questionable tactics and take advantage of people who actually want to become entrepreneurs.

So if you see anything related to Amway, we recommend you steer clear.

Also read: Best Personal Finance Apps

Amway FAQs

What is Amway?

Amway is an MLM company based out of Ada, Michigan. The company is a direct seller of health and nutrition products and sells products through its network of distributors and individual business owners.

How does Amway work?

Amway sells its product line to distributors, who then sell directly to consumers and customers. Distributors have to pay for products then they can keep whatever retail margins they make through upselling to consumers. Distributors also get bonus rates and payments for sponsoring other distributors.

Can I make money with Amway?

You can, but it is highly unlikely. The structure of the business makes it so anyone except those near the top of the hierarchy ever seen any real money. In 2012, the average earnings per associate were just $84, not exactly enough to retire on.

Is Amway a pyramid scheme?

By every definition except legal technicality, yes, we would consider Amway to be a pyramid scheme. The company is a legal, registered entity with a license and everything, but they are nonetheless an operation that promises what it hardly delivers.

Conclusions

There is always someone who has a story to tell you about a long lost relative who made a killing working for Amway, but the absolute vast majority of people end up losing money.

So if a friend calls you up about an opportunity to make extra money from Amway, we would highly recommend passing and looking at other options to make a side income.

Pin0
enochogravatar

Enoch Omololu

Enoch Omololu is a personal finance expert who has a passion for helping others win with their finances. He has a master's degree in Finance and Investment Management from the University of Aberdeen Business School and has been writing about money management for over a decade. Enoch has been featured in several leading personal finance publications including MSN Money, The Globe and Mail, Wealthsimple, and the Financial Post.

Leave a Comment