Income disclosure statements can help recruits evaluate the Jeunesse business opportunity. This disclosure report is very confusing and leaves out a lot of information. A lot more research is needed to understand what a participant can earn selling Jeunesse. Costs and Expenses The Income Disclosure […]
Income disclosure statements can help you to evaluate the Hempworx business opportunity. An income disclosure analysis is just one piece of a big puzzle. Costs and Expenses The My Daily Choice (aka Hempworx) disclosure statement gives a list of expected expenses and the results of […]
In January of 2018, the FTC released business practice guidance to multi-level marketing companies. As part of this guidance, the FTC described illegal mlm compensation structures. “Pyramid scheme” is another term for this type of illegal MLM.
The “unlawful MLM structure” description comes from court decision from the FTC’s case against Koscot:
“Characterized by the payment by participants of money to the company in return for which they receive (1) the right to sell a product and (2) the right to receive in return for recruiting the other participants into the program rewards which are unrelated to the sale of the product to ultimate users.”IN re Koscot Interplanetary, Inc., 86 F.T.C. 1106, 1181 (1975).
Illegal or Legal?
In order to be lawful, MLMs compensation plans should be based on actual sales. Here are some things to look for to tell if a compensation plan may be unfair, deceptive, and ultimately unlawful:
- Compensation based on mere wholesale purchases
- Compensation based on other payments by participants
- Participants buying products that are not resold
- Incentivizing/encouraging participants to purchase for reasons besides satisfying personal and customer demands (ex: opportunity to advance)
Therefore, consider any of the above serious red flags.
Myth: Pyramid schemes don’t sell products
Just because a company sells products doesn’t mean that they are legal. Some MLM companies that sell products are illegal and have been ruled pyramid schemes. The FTC has sued and won cases against MLMs selling products and found them to be illegal schemes.
Many MLMs encourage joining as a distributor in order to buy products at a discount. It is sometimes legitimate to purchase products at wholesale for personal use. In contrast, when the actual demand for these products was the minority of sales, the FTC has prosecuted and won.
What to look out for
- Commissions on wholesale purchases (not retail sales)
- Customers can’t buy directly from the company (only from participant’s inventory)
- Customers must sign up as participants in the business (they can’t just be customers)
The guidance gives suggestions for how companies have shown they followed the FTC act (see #8 in the FTC Guidance). Ultimately, this means showing evidence of sales of products to retail customers. Examples in the guidance include:
- Customers signing up as customers
- Customers buying directly from the company (participants simply refer or sign up customers)
- Commissions on retail sales rather than wholesale purchases
Why is the FTC involved?
The FTC has a goal to protect consumers. The FTC is supposed to go after MLMs that have illegal compensation structures. These MLMs harm consumers. The FTC guidance explains:
“Where such an unlawful compensation structure exists, a participant is unlikely to be able to earn money or recover his or her costs through selling product to the public. In such circumstances, participants will often attempt to recruit new participants who will buy product, and pressure existing recruits to buy product, with little concern for consumer demand. Where an MLM has a compensation structure in which participants’ purchases are driven by the aspiration to earn compensation based on other participants’ purchases rather than demand by ultimate users, a substantial percentage of participants will lose money.”2018 Business Guidance Concerning Multi-level Marketing
This means the money to pay older participants comes from the newer recruits and not from non-participant product buyers. Most of the participants will lose money, only the oldest (highest in the uplines) will make money.
It is dangerous to get involved with a company that has red flag policies. Remember that just because a company isn’t doing something illegal doesn’t mean the company is a good business opportunity.
Avoid buying from or selling products for companies which engage in bad practices. If it seems like a company is following FTC guidance, next ask questions to find out if it is a good business opportunity.
This is just for informational purposes and should not be considered legal advice. Be sure to check out the source material yourself, it’s from the FTC. Contact us with any feedback or corrections.
Income disclosure statements help explain how much money It Works pays people enrolled with the company as Distributors. These are released by the company, and don’t tell they whole story. However, they can give some important information to help evaluate the business opportunity. In October […]
Income disclosure statements also known as earnings disclosure statements help to understand the business opportunity selling Young Living. In 2017 Young Living released an income disclosure statement about the commissions and bonuses earned by Young Living members. Usually, when people think about a good business […]
Stories about participants in MLMs getting into debt are pretty common. We took a look and found lots of information. We learned how common debt is for MLM participants, why people turn to borrowing, and that it’s not a good idea.
In a survey of over one thousand participants, more than 30% reported using credit card debt to pay for multi-level marketing program expenses and inventory. Around 10% used a personal loan, and finally 20% borrowed money from friends or family.
Why is debt so common?
Distributors often join multi-level marketing companies in order to make ends meet, earn extra money, or otherwise earn money. Because people are looking to earn money from MLMs they often look to borrow (with credit cards or loans) to cover up front and operating costs.
There is usually a requirement that distributors purchase or sell an amount of product each month to maintain their rank. This is referred to as the personal volume requirement. Leaders will also have volume requirements for their team. This leads to leaders (uplines) pressuring their team to purchase even more. To make these purchases and meet these requirements people will often use debt and credit cards with the hope they will be able to eventually sell the products. These costs can lead to a spiral of debt.
Some uplines will encourage distributors to purchase extra products on credit because there’s no risk. Usually, they are talking about a company’s buy back policy. Be sure to read this policy carefully. They are often complicated and strictly enforced. Most companies will not pay back 100% of the cost. Policies will often have time limits and strict product condition requirements. They also may be subject to change.
MLMs commonly encourage participants to purchase excess inventory by using their credit cards or borrowing money. This inventory loading said to be good for the distributor but is really only good for uplines, or it’s unsustainable bonus buying. Avoid borrowing to purchase extra inventory or starter kits.
In January of 2018, the Federal Trade Commission of the United States released guidance on how multi-level marketing companies and participants should talk about business opportunities. The FTC is one of the government agencies which regulates all kinds of businesses, including multi-level marketing companies. Why […]
Costs to get started To get started a new consultant needs to purchase a starter kit. These include marketing materials, 35-200 pieces of jewelry, and “business tools.” The lowest priced kit is $99. Inventory costs The Paparazzi model encourages buying inventory for you to sell. […]
No affiliation with dōTERRA. Please contact us with corrections or questions.
Income disclosure statements also known as earnings disclosure statements help explain how much money people make selling DoTerra. They also explain which levels make money.
The statement doesn’t reference any of the costs associated with selling DoTerra. These costs include things like shipping, packaging, marketing, and the advocate’s time. The earnings discussed here seem to be the commissions paid by DoTerra and do not include the costs of doing business. To get a better idea of profit you should be sure to subtract any costs for the year.
Who is making money?
The disclosure statement includes that most advocates (a little over 63% of all advocates) do not make money selling DoTerra.
Entry-level wellness advocates account the bulk (76%) of the company’s advocates. Only 16% of those entry-level advocates make any money at all. The advocates who did make money, on average made on average $376/year. This average doesn’t take into account the people who lost money (remember to subtract those costs!) or broke even.
The next level, builders, account for 23% of all U.S. advocates. Leaders make up around 1%. These levels account for the most profitable ranks and DoTerra describes them as requiring significant part or full time investment. Very few advocates reach these ranks.
|Rank||% Advocates||Estimated Monthly Earnings*||
Average Annual Earnings
|Entry-Level (No Profit)||63.84%||$0||$0|
*Calculated by divided annual across 12 months
Most people (>63%) don’t make any money and are probably losing money when you consider costs. These are the people who join to sell, not just for discount products.
For those that do make money, they are getting a small amount of money. $375 in one year is $31.25 per month. When you consider expenses and how much time and work is required– there is unlikely to be much profit even at the higher ranks.
Notes on the Disclosure Statement
It’s good that doTerra releases an earning disclosure statement. However, it is not easy to understand and is missing a lot of information that other disclosure statements provide. For example it does not include:
- Any information on the number of advocates at each rank
- Ranges or medians for the annual earnings
- Information on how the earnings are calculated and what they mean
- Average costs and expenses, specific time investment
- Time to reach ranks
The way the numbers are presented are pretty confusing (in a way that is a bit misleading). The percentages are percentages of other numbers which makes them hard to compare without doing some math with a spreadsheet. These are great questions to ask when considering dōTERRA.
We need your help! We’re looking for earning or income disclosure statements from the following companies: Paparazzi Accessories Senegence (Lipsense) Younique These documents do not tell the whole story. However, this data helps people decide if it makes sense to join and sell the products. […]