Ok, $50k sounds like a reasonable wage.
Could you comment on the claim that $50 000 is before taxes and expenses, and that expenses is so high it destroys any chance of profit?
Of course it's before taxes and expenses, legitimate businesses
have taxes and expenses. Pyramid scams do not. Does high expenses destroy the profit? Not usually, no. I know many people that have quit their full-time jobs at this level, and maintained that level for many years - clearly they could not do so if they had not replaced their incomes. It's possible of course if you're not careful with expenses - joecool for example reports quitting because he wasn't making much money, but also reports he was travelling from Hawaii to the US mainland for seminars regularly, as well as claiming costs for getting suits pressed etc. I had a couple in my group in Australia when we were starting who would always fly to seminars and stay in top hotels while the rest of us would catch the train and stay in camp grounds and cheap hotels. Not surprisingly after a year that couple quit because, they said, the business cost too much to operate!
That would explain why in 1984 the state of Wisconsin found that the income on the average Platinum IBO was about minus $900.
A while back I discussed this with the then Wisconsin assistant AG, Bruce Craig, who prosecuted the case and is vehemently anti-MLM. Frankly I was shocked at his lack of knowledge of Amway. First question I wanted to know was whether these were "profit-sharing directs" or "silver directs" that he got the data for.
He didn't know what the difference was. He just said they asked Amway for their "direct distributors".
Amway would have given anyone who was "silver direct" or above. Today that's called "silver producer". It's worth noting, by the way, that the data we are discussing is from
35 years ago, 1979-1980.
So what's the differences? Well, a "silver direct" in 1979 was someone who generated sales of 7500 points
for just one month. You then got the right to order directly from Amway (hence "direct distributor") rather than through your upline supply chain. You kept that title even if your volume was
zero the next month. It was reportedly not uncommon for people to make a big "push" selling Queen Cookware - a high ticket, high point product - in order to qualify for the benefits of being "direct". If you actually maintained the volume for 6 months you became a "profit-sharing direct", and for 12 months a "Q-12 direct".
An IBO from that era told me -
"Way back then, IBO's would qualify for Direct and then never re-qualify. I think the qualification for DD was so low because (1) we had so few products and (2) it was important to have new DD's pictured in the Amagram. (Maybe I'm being a little too harsh on #2.) Anyways, we would paste the qualifiers together and role out a year's worth of DD's to show skeptics that people really did make DD. We didn't even think that most of them were here today and gone tomorrow. We were just excited about the opportunity. It was a real revolving door."
So it's important to know if we're talking about people who qualifed as "direct" just once, pr people who actually had built a sustainable "direct" business. Wisconsin did not do this, so already you're talking about a diverse "non normal distribution" group where statistics like "average" are probably not even valid. You'll note when talking about incomes statistical authorities normally report
median not
average.
So what did they find? These directs actually had an average annual adjusted
gross income of $14,349 - roughly $40000 in today's terms. Now, given this was a diverse group of silver directs with likely very low incomes compared to this average and Q-12 directs with likely quite high incomes compared to this average.
So we'd have -
"cookware qualifiers" - they'd have low, perhaps very low, actual incomes
new silver directs actively building - they may have even qualified only in the last month of the year - they'd have fairly low incomes compared to the average and reasonably high expenses.
Q-12 directs -they'd have high incomes compared to the average, but likely similar expenses to the silver directs.
All things being equal you would expect this group to skew towards the new and "cookware qualifiers". Furthermore, Wisconsin reported there were 192 Direct Distributors in that state - yet their income statistics we're based on 139 Direct Distributors. What happened to the other 53? It's my suspicion (Bruce Craig didn't know the answer to this either) that - just like today - the people treating the business seriously, and developing serious incomes, aren't declaring their Amway incomes on personal taxes - they're operating them as incorporated businesses (LLCs etc).
So you've got a skewed dataset where the actual high income earners have been excluded, leaving you with the "cookware qualifiers" and the new qualifiers - the latter of which
virtually by definition as "startups" are going to have higher expenses relative to their incomes.
Think about it -
every business person goes out of their way to try and keep their
taxable income as low as legitimately possible. One of my companies has made a loss for each of the past 3 years - not deliberately, we're in development stage. Has it failed? No, it's generating money, and it's also supplying me with a very nice car, business telephones, high speed internet to my home office, business dinners etc. If I had a less nice car, less nice phones, and slower internet the business would probably not be making a loss. It's not an issue, we're on track for profitability with that venture next year.
On top of that, in 1982, the same year Wisconsin filed the case, the Wall Street Journal in reported -
"AMWAY DISTRIBUTORS' BIG TAX BREAKS STIR INVESTIGATIONS BY CONGRESS, IRS. This investigation was headed by Representative Pete Stark of California. Allegations were that distributors were using all sorts of innovative tax deductions as instructed by an ex-IRS agent. The IRS said the ex-agent was "out of line" and that the deductions claimed by distributors were "game playing.""
The investigation was dropped, but clearly at least some Amway distributors were taking advantage of some loophole or another.
So what can we learn from the Wisconsin case? Pretty much nothing. We have no idea of the quality of the data collected, and we know even the person who did the data collecting doesn't know! We also have no idea what expenses, tax breaks etc the distributors in question were using.
What
do we know? It was 35 years ago. Since then Amway has not only significantly increased their bonuses, they've also tightened up qualifications considerably - you now need to qualify at the top of the volume discount scale for 6 months to be the equivalent of "direct", and income disclosure statements and marketing all emphasis 12 months of qualification.
My guess? Some people are making money, some people are making losses. Just like any other business.
