A comparison & analysis of product sales, PV/BV, tools expenses, miscellaneous overhead and profits for Quixtar & Amway IBO's in North America

There is a great deal of material on the internet regarding the Amway/Quixtar tools and motivational and personal development systems.  Few look at it purely from a "numbers" point of view.

At the same time, after nearly a decade as a distributor/IBO, never once have I seen an itemized list of expenses and overhead related to building the business, except on my own tax returns.  (That would naturally tend to be de-motivational for some people, so it tends to not be discussed in those terms.)

Amway IBO's are not exactly encouraged to analyze things this way, but as I looked at my own experience in the business, I felt that breaking down the tools business versus the product business would reveal a lot of things.  

It may take a bit of patience to understand what is being presented, but the table below details product movement vs. tools investment.  Here's what you're seeing here:

The vertical columns show 7 different types of IBO's, going from "most committed" to "least committed" from left to right.  

As you can see, the most committed people show the plan more, purchase more products, generally purchase more tools, and generally incur more miscellaneous expenses such as tanks of gas and long distance phone calls.  The least committed, of course, do less of everything.

The 'proportions' of expenses, product purchases/sales and tool investment shown here is a conservative estimate based on my own experience.  However, I am open to hearing from other experienced business builders, who are interested in sharing their actual product volumes, tool volumes and earnings.  This chart is not authoritative by any means, it is only a generalized example of what is probably typical.

So take a look at this chart, see how things add up in the bottom column, then below I will offer some explanations of what these numbers really tell us.

Now let's take a look at this and see what it tells us about the dynamics of a typical IBO organization:

If you average the columns together, you get an average PV/BV per IBO of 40 PV / $80 BV based on 1 PV (point volume) = $2 BV (business volume).  I believe this is about the average for North America - someone correct me if I'm wrong.

Total The Numbers for a "Platinum" IBO

Now let's suppose we collect enough people to form a "Platinum IBO" or "Direct Distributorship."  In this example, this IBO has a total group volume of 8000 PV / $16,000 BV, which is just above the minimum requirement of 7500 PV for Platinum.

Here's what this "Platinum IBO" would have within his or her group, based on the example table above:

• 200 total IBO's (note: 1 IBO = 1 distributorship, which is sometimes one person, sometimes it is a couple)
• 8000 PV, or Point Volume
• $16,000 BV, or Business Volume = sales of products by the group and to the group
• 4 IBO's who show the plan 15 times per month or more and do 200 PV (Column #1 - "Mach 2 with hair on fire")
• 16 IBO's who show the plan 5 times per month or more and do 150 PV (Column #2 - "All Fired Up")
• 20 IBO's who show the plan 3 times per month or more and do 100 PV (Column #3 - "The Motivated Minority")
• 40 IBO's who show the plan 1 time per month or more and do 40 PV (Column #4 - "Thinkin' real seriously about this")
• 40 IBO's who don't show the plan and do 20 PV (Column #5 - "Goin' To Get Around To This Someday")
• 40 IBO's who are card carrying members and do 10 PV (Column #6 - "This Ain't A Bad Deal For A $25/Year Membership")
• 40 IBO's who do absolutely nothing and got in for no apparent reason (Column #7 - "Gee Martha, Didn't We Sign Up In Some Deal Awhile Back?")
• They move 120 tapes each week into this group
• They move 80 books each month into this group
• They have about 80 IBO's show up at rallies each month
• They sell $12,148 of tools to this group of 200 IBO's each month
• This group of 200 IBO's invests $16,480 into miscellaneous expenses such as gasoline, hotel rooms, babysitters, phone calls, etc.
• Based on $16,000 BV and 25% bonus chart level for 8000 PV, this group is paid $4000 per month in performance bonuses, plus some amount of special incentives, trips, and profit sharing paid to the Platinum IBO.  Let's assume the additional bonuses paid to the platinum IBO are $1000 per month.
• Let's also assume that 25% of the $16,000 sales volume is sold to customers at retail.  Let's assume the retail profit margin on these sales is 20%.  Therefore 25% x $16,000 x 20% = $800 retail profit going into somebody's pocket for selling retail.

So let's summarize:

• 200 independent businesses (perhaps 300 people) collectively sell or consume $16,000 of consumable products.
• This group of 200 IBO's presents the sales and marketing plan to about 400 prospects each month.
• They invest $28,628 in tapes, books, business functions, hotel rooms, restaurant tabs, babysitters, etc.
• Collectively, they get paid $5800 in bonuses and commissions: $4000 performance bonus, $1000 profit sharing etc., $800 retail profit.
• Therefore, a direct distributorship has $16,000 of product sales, $5800 of income and $28,628 of expenses, plus a substantial investment of time ("man hours").

Now this example only looks at things at the Platinum / Direct Distributor level and below.  It does not consider the following:

• Tools bonuses paid to the Platinum IBO himself/herself
• 4% bonus, 1% leadership bonus, Ruby Bonus, Emerald Bonus, Diamond Bonus, Q12, etc.
• Tools bonuses paid at the Emerald level, Diamond level etc.

I am not an authority on this subject, and I would like input from those who know more than me.  But this is what I generally believe to be true at these higher pin levels:

• An additional estimated 10% of BV is paid out, by Amway/Quixtar, to Platinum / Emerald / Diamond IBO's and above - in this example that would be $1600 in leadership bonuses for the $16,000 BV.
• I estimate that about 50% of the $12,148 of tools/function money is available to Platinum / Emerald / Diamond IBO's and above in the form of speaking fees, profits on ticket sales, and margins on tape and book sales.  For this group of 200 IBO's we've been considering, that would be $6074.  
• Note that "information products" like tapes, books and meeting tickets naturally have higher profit margins than "consumer products" such as soap, electronics and cosmetics.

ADDING IT ALL UP

So taking the higher level bonuses into consideration, here's what total bonus money we have from this same group of 200 IBO's:

• $16,000 of product is purchased, and $16,000 worth of product is received and consumed
• Monthly "expenses" (tools, gas, etc.) = $28,628
• Monthly "gross profit" = total bonuses paid out to everyone involved = $13,474
• Net profit / loss for the entire group = -$15,154 (loss)

Therefore, a Platinum level business (or "Direct Distributorship"), as a whole, taking all expenses and bonuses into account, loses $15,154 each month.

(Now let me clarify that the Platinum IBO himself or herself is probably making money.  Maybe a couple of thousand dollars per month, whatever it happens to be.  But you can subtract him, and his profits, from the group, and you end up with the rest of the group in the red.)

A few more observations:

• $4800 of these bonuses is available to IBO's in this group who are below the "Platinum" level
• $8674 of these bonuses is available to IBO's in this group who are at or above the "Platinum" level.
• 0.5% of the IBO's (1 out of 200) are at or above the "Platinum" level.
• Therefore 64% of the money is paid to 0.5% of the people.
• 99% of the expenses are incurred by the group of people who receive the remaining 36% of bonus money.

"OK, so how should I interpret this data?  What are you really saying???"

It is not my intent to pass judgment here; you as the reader are perfectly capable of doing that.  Is it OK for a Platinum distributorship, all things considered, to collectively lose $15,154 each month?  You decide.  Here are some things you should consider:

• You must understand that most business that are experiencing fast growth have "balance sheets" that look like this.  They lose more money than they make because it costs money to expand the business quickly.  Most businesses borrow this money from investors.  In the Amway / Quixtar business, the majority of funding for business growth is provided by individual IBO's instead of outside investors.  Of course, this is the basic principle of the Multi-Level Marketing concept.
• Please note that in an MLM business with a strong retail focus, there is a realistic opportunity for everyone to be profitable, even at the lowest levels.  When there is no retail focus, entry level distributors will invest more money than they earn.
• Consider www.amazon.com - Last year, their sales were something like $1 Billion, and they lost $350 million in the process.  That's very heavy losses compared to sales!   Is that OK?  The marketplace (and ultimately, Wall Street) are still deciding. 
• So far, Amazon stock is valued far in excess of its profitability, because investors believe that Amazon has enormous long term potential.  But Amazon must ultimately become profitable, because this high stock value cannot go on indefinitely without the company showing a profit.
• Is Amway experiencing the fast growth that would justify this heavy investment in tools, gasoline, etc.?  We can only look at the most recent sales numbers: 1996 - $6.3 Billion; 1997 - $6.8 Billion; 1998 - $5.7 Billion; 1999 - $5.0 Billion.  So during the last two years the company's sales have dropped 26%.  (Note that some of this loss is due to the Asian crisis, and Amway does not divulge sales figures specifically for North America.)  Amway has recently (May 2000) announced layoffs.
• It's reasonable to assume that IBO's and Distributor's profits have similarly fallen.  So at least during the last couple of years, the investment in tools etc. has not paid off for most IBO's.  
• How well will the new Quixtar brand do in Fiscal Year 2000?  Will fast growth return?  We don't know yet, but that's what IBO's are betting on.
• Is the Amway/Quixtar performance bonus plan fair in terms of how it distributes money?  You must decide for yourself.
• Is the distribution of money in the tool systems fair to everyone involved?  Again, you must decide for yourself.
• Do the tools, in themselves, have value above and beyond their ability to teach IBO's how to move products and make a profit in their business?  Most IBO's would say: Yes, definitely.  Others may disagree.  Again, you decide.

The webmaster encourages feedback from experienced business builders who can comment on the numbers presented here.  This is only a careful estimate based on my knowledge and experience.  Different distributor organizations use different methods, and specific cases can vary considerably in terms of tools to product ratios etc.  

Also, different tool systems have different bonus structures, and even different organizations within the same tool system distribute bonuses differently.  Email us with your comments diamondchallenge@usedtapes.com if you have credible data to share.  Unfortunately we are not always able to respond to each of the opinions submitted by the thousands of people each month who browse this website.

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The data presented above is only an example of the possible internal workings of an Amway / Quixtar IBO organization.  These are not intended to be representations or promises of actual income, nor is this in any way intended to be a formal presentation of the Amway / Quixtar sales and marketing plan.  You should request a copy of the SA4400 from Amway which discloses legal parameters and statistical data regarding the Amway sales and marketing plan.

Legal Notice: Amway is the registered trademark of Amway Corporation. The opinions expressed in this site are the opinions of various individuals and are not necessarily those of the Amway Corporation or its personnel. This site is NOT a product of the Amway Corporation, and has not been endorsed, reviewed or otherwise approved by the Amway Corporation. 

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