Amway Business Model

Amway, a contraction of “American Way”, is a company with a core focus on the sale of home care, beauty, and health-related products. It was founded in 1959 by Jay Van Andel and Richard DeVos, school friends who had started several business ventures together.

Amway sales reached $8.5 billion in 2020, with 80% of the company’s 100 worldwide markets experiencing growth despite the COVID-19 pandemic. With that in mind, let’s take a look at the business model of Amway and the reasons for its success.

Multi-level marketing

Amway is primarily a multi-level marketing (MLM) company where goods are sold to distributors and salespeople. There are two core components of the Amway business model:

  1. First, an individual is recruited by a distributor.
  2. Once recruited, the individual becomes a distributor themselves, which the company calls an Independent Business Operator (IBO). IBOs can purchase Amway products at wholesale prices, sell to consumers, and sponsor new distributors. For these privileges, Amway charges a registration fee.

While the company has been associated with Ponzi schemes for much of its existence, it’s important to note the differences between these scams and Amway’s MLM strategy.

In a Ponzi scheme, for example, the individual on top of the pyramid makes more money than everyone else by referring new people. In Amway’s business model, an individual down the pyramid can earn more than someone above them. Indeed, the amount of income is not based on referrals but on how hard they work and how many products they sell.

Other characteristics of the Amway business model

The profitability of Amway’s MLM model is helped by the following characteristics:

  1. IBO flexibility – independent business owners can make money in several ways. The most obvious way is via selling products to non-affiliated customers, but IBOs may also receive bonuses for exemplary sales volume or travel incentives to exotic locations.
  2. Low investment – most individuals irrespective of nationality can become IBOs for as little as $100. Aside from the obvious status afforded by the IBO title, the low investment means Amway product sellers can recoup their costs more easily.
  3. Higher product prices – the aforementioned seller bonuses are paid in the form of points-based commissions. In order to pay these commissions to increasing numbers of sellers, Amway must charge a premium price for its products to make a profit.
  4. MLM network expansion – like any business, Amway must grow its customer base to survive. However, since Amway considers both the end-user and individuals in its network as customers, it must prioritize the expansion of its MLM hierarchy in addition to product development and marketing.

Key takeaways:

  • Amway, a contraction of “American Way”, is a company with a core focus on the sale of home care, beauty, and health-related products.
  • Amway is primarily a multi-level marketing (MLM) company where goods are sold to distributors and salespeople. Unlike a Ponzi scheme, individual income is based on sales volume and not on how many new people they can refer.
  • For Amway to profit from its MLM model, it allows independent business owners to earn money in three different ways for an investment as low as $100. To ensure it can continue to pay commissions to an expanding network, the company’s products also tend to be more expensive.

Read Next: Successful Types of Business Models You Need to Know

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