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Happy Friday: Passive Income

August 29, 2008

It’s Happy Friday again! In this pre-Labor Day post, I will talk about the Myth of Passive Income in the Amway business. Many people join Amquix because they are sold on the idea that this can generate ongoing, residual or passive income that will-able to their sons and daughters.

According to Wikipedia, passive income is a rent received on a regular basis, with little effort required to maintain. There are other definitions of passive income that you can look at too.

In all cases, initial work is involved to set up the passive income stream. After that, the money should just continue to roll on in. Here are examples of passive income:

  • I write a one-hit wonder. Tapes and CDs are sold, and it’s played over and over on the radio. I get money each time it’s played and for each CD/MP3 that’s sold.
  • I write a software program. I sell through PayPal and watch the money come in.
  • I write a book. My publisher sends me checks on a regular basis.
  • I put money into a bank. I let the interest rate increase my money.
  • I have a role in a movie. I get the occasional residual check.

In all these cases, I do the work once and nothing afterwards1. My question to ponder in today’s Happy Friday post is:

Is your Amway/Quixtar business producing passive income?

I would argue no for the majority of Amway businesses today. Amway businesses are fundamentally retail businesses. Because constant work is required in retail — advertising and selling products, it does not qualify as a passive income stream.

An IBO might object to this and say, “Wait, I have a large organization. The work that I did is duplicated by my downline! That’s creating passive income for me!”

I would counter by saying, no, all you have done is offload the work to someone else. Consider the following questions:

  1. What happens if you stopped working the business? Will your downline just continue to do their thing without your constant encouragement, training, and motivation?
  2. What happens if you (and your downline) stopped listening to System tapes, reading System-recommended books, and attending System functions? Would you (and they) continue to purchase products on a regular basis?
  3. What happens to your retail customers if you stopped contacting them about re-orders? Are they trained enough to purchase the products on their own? Have you set them up with automatic shipment through Ditto?
  4. Why is it that IBOs who quit the business typically do not purchase products after leaving?
  5. If you were a Diamond and decided to retire from the business, what amount of side volume do you need to produce in order to qualify for the performance bonus checks?
  6. What happens if you run afoul of the corporation and they terminate you? Where does all of your income go?

The Systems are there to keep you purchasing — not only their System tools — but products from the Amquix business. Without the System, IBOs would have to look at their businesses as a real retail business. There’s nothing wrong about having a retail business, but people don’t join Amway to run a retail business. They join because they think they can create passive income. An Amway business can produce a side income and can even replace your primary income, but is it passive income? Is little effort required to maintain the income on an ongoing basis? I argue no, that constant effort is needed to maintain and grow the income. Be definition then, an Amway business does not create passive income.

You can read a thread about the myth of residual income in the Amway business on the QBlog Forums here.

1 Granted with software, you might do additional work with bug fixes and updates. With books, you might release a second edition or an errata.

One Comment leave one →
  1. Joecool permalink
    August 29, 2008 9:46 am

    A serious question for IBOs is whether their quixtar businesses actually produce any income or are they at a net loss after paying for tapes and seminars?

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