"Buy things from your own business that you are already buying at retail stores and save 30% off retail, Bwaaachk!... Buy things from your own business that you are already buying at retail stores and save 30% off retail, Bwaaachk!... Buy things from your own business that you are already buying at retail stores and save 30% off retail, Bwaaachk! Buy things from your own business that you are already buying at retail stores and save 30% off retail, Bwaaachk!"
One of Amway's big draws into the business is that it offers thousands and thousands of different products and services from thousands of top manufacturers through a handful of catalogs. In perfect innocence, I'm sure, Amway distributors constantly parrot, "Buy things from your own business that you are already buying at retail stores and save 30% off retail, Bwaaachk!
Reality proves this to be a misleading statement and sleight of hand. Here's what they're really saying: "Buy things from your own business that you are already buying at retail stores and save 30% off Amway retail, ie. Manufacturer's Suggested Retail Price (MSRP)." Most people shop for bargains, and don't pay MSRP. Stating that people with these kind of buying habits can buy the same things from Amway and save 30% is downright falsehood.
Let's look at a few things:
- The claim of "30% savings" is misinformation, and a classic example of Amway distributor deception. Here's why you won't receive "an average 30% savings."
Products are marked up on either wholesale, or retail cost. Markup on retail cost is widely used because of its accounting simplicity - markup equals discount. Example: if something that wholesales for $100 is marked up 50% it's retail cost is $200 (100/0.5). If you buy at the wholesale cost of $100 your savings are 50% of retail. Notice that markup equals discount. Markup on wholesale cost makes more sense, but is harder to track from an accounting standpoint because markup does not equal discount. Example: if something that wholesales for $100 is marked up 50% it's retail cost is $150. If you buy at the wholesale cost of $100 your savings are 33%, not 50%, of retail. 50% of $150 retail is $75.
Amway markup is based on wholesale, not retail, cost. Most of the items in Amway's catalogs are made by someone else and have an average 17% markup. Distributors buy products from Amway at "wholesale" prices, before they're marked up. People who are not Amway distributors can buy the same products, but at prices an average 17% higher than "wholesale". A 17% markup is not a 17% discount. A 17% markup translates into about a 15% savings if you buy at "wholesale".
The products Amway manufactures are marked up 10 to 50% (Amway distributors like to use the 50% figure because it better serves their purposes). A 50% markup is not a 50% discount. A 50% markup translates into about a 33% savings.
The "average 30% savings" figure you hear Amway distributors throwing around comes from averaging the reputed 17% savings on non-Amway-made items and the reputed 50% savings on Amway-made items. The average of 17 and 50 is about 30% (33% actually). But this 30% number is the average markup, not savings. Let's assume all Amway's products are marked up 50% (which is not true). Buying something with a 50% markup at distributor cost corresponds to a 33% savings over retail.
The real average savings from 15% and 33% discounts equals 24%. Since Amway's markup on it's products averages less than 50%, your total savings from Amway's retail will be even less than 24%. It's probably not unreasonable to say the average markup on Amway-made products is probably about 35%, which corresponds to a 26% savings if one buys at distributor cost. Thus, the real average savings from 15% and 26% discounts equals 21%.
- Now even if you already shop from catalogs, you're probably not going to save anything buying from Amway catalogs. Amway's distributor magazine, the Amagram, runs ads claiming that some high percentage of the items in its Personal Shopper's Service catalog have prices less than or equal to those of comparable items in comparable catalogs (Land's End, Spiegals, JC Penny). At distributor cost the number jumps even higher.
"Oh boy! Amway really is competitive!", thinketh the aspiring early retiree.
Think again. What you're not being told is that you will have to pay state sales tax on anything you buy (Amway has to charge sales tax in every state that has sales tax because it has distributors in every state). This may or may not make a difference where you live. For example, in a state with 6% sales tax add 6% to your invoice. Also, add $1.95, the non-refundable handling charge added to every order. Let's say the average order is $200. $1.95 is 1% of $200. Add another 1% to your invoice (if your order was $50, $1.95 would be 4%!). So really, it can be argued that in a state with 6% sales tax, buying from Amway catalogs is 7% (minimum) more expensive than comparable catalogs. This pattern would apply to any state with sales tax. Also, keep in mind that Amway's claim that its prices are less than or equal to comparable items in comparable catalogs are based on its own survey - not one conducted by an independent agent.
- Now, subtract 7% from 21% and you come up with 14% savings. That's less than half of what Amway distributors are telling you. This figure will vary depending on where you live and what you buy. It's probably not unreasonable to say this figure could adjust downward, to maybe 10%. That's a third of what you're told you'll save.
"Yeah, but people have to pay sales tax wherever they shop", an Ambot might retort.
- Not when they shop from catalogs (usually). OK! Let's not add in state sales tax, but add in shipping costs instead. Subtracting 5% (minimum) (4% - minimum - for shipping plus 1% - minimum - for the $1.95 non-refundable service fee) from 21% leaves a 16% discount - almost half of what Amway distributors are telling you. Again, this figure may adjust downward, making it closer to one third of what you're told you'll save.
"Yeah, but people have to pay shipping costs wherever they buy from catalogs", an Ambot might snip.
Yeah, but not if they shop at local stores! People either order from catalogs and don't pay sales tax (usually), or they buy locally and don't pay shipping costs. When you buy from Amway catalogs you have to pay both! Plus a $1.95 non-refundable service fee! Goodbye savings!
Here's what appears to be going on. Many people think that Amway, for the most part, doesn't compete in the open market. It's probably not unreasonable to say that their profits are largely derived from distributor consumption of Amway products. Their loyal distributor base seems to be brainwashed into thinking that if they buy Amway products they'll be rich someday. Distributors seem to exchange objective reasoning (ie., comparison shopping) for pie-in-the-sky hope-based consumption of Amway products, no matter what the cost or quality. To do otherwise would be heresy against the Amway Early Retirement doctrine. It's possible that the Amway catalogs are designed, not so much to compete in the open market, as to appeal to this distributor base mentality of consuming anything as long as it's Amway. The more things Amway offers, the more things devotees buy.