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 […]
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 should we care?
The FTC works to make sure that things are fair, there is no fraud, and to protect consumers. These guidelines lets us know what the FTC has decided to be bad and why. Companies that violate these guidelines are bad for consumers, business, and in some cases could end up in trouble with the government.
If you are recruiting participants, these guidelines are a great way to think about the best way to share an opportunity. New recruits will be well informed and on their path to success with no regrets. These guidelines from the FTC are not the law but they are help to understand the law and to follow it.
FTC Guidelines on Sharing Business Opportunities
The FTC explains that, to follow the law, you must tell the truth and not be misleading to recruits and participants about the opportunities. A company violates the law if they say or show things that are false or misleading about the business (including about how much you can earn). This includes making claims when there isn’t really proof or evidence for them.
“An MLM’s representations and messaging concerning the business opportunity it offers must be truthful and non-misleading to avoid being deceptive under Section 5 of the FTC Act. An MLM’s representations about its business opportunity, including earnings claims, violate Section 5 of the FTC Act if they are false, misleading, or unsubstantiated and material to consumers.” (FTC Business Guidance Concerning Multi-Level Marketing)
This all seems great. When evaluating an opportunity, you want to make sure that the things you learn about it are true and accurate. Claims that are false or fake shouldn’t be allowed. The FTC makes deceptive practices illegal.
Must be a “reasonable basis” for claims
The first guiding principle (here under #13) says that companies must have objective evidence that supports the claims they share. If you are evaluating a business opportunity you can (and should!) ask for the evidence.
Claims to get rich are deceptive
“Some business opportunities may present themselves as a way for participants to get rich or lead a wealthy lifestyle. They may make such representatives through words or through images such as expensive houses, luxury automobiles, and exotic vacations. If participants generally do not achieve such results these representations would likely be misleading to current or prospective participants.” (FTC Business Guidance Concerning Multi-Level Marketing)
The FTC gives other example claims that are misleading unless they are “generally” achieved. These are just examples and similar claims could also be misleading.
- Making income that is similar to a career or job
- Earning thousands of dollars each month
- Become a stay-at-home parent
- “Fire their boss”
The FTC says that if participants don’t generally get these things then claiming participants could is misleading.
Many companies and leaders will share their own success. The guidance says this is okay only if they include information about how much is earned or lost by most participants.
When talking about business opportunities, talk about real results of most participants. Our research has shown that vacations, big paychecks, quitting a job, and free cars are usually very rare. Check out our income disclosure analysis pages for some examples. Ask for these disclosures. The disclosures we’ve looked at do not include expenses or losses which makes it hard to tell how many people lose money and how much they lost.
Examples should tell the whole story
People sometimes explain an opportunity with a hypothetical: “if you recruit this number of people” then you will get a big commission check. These examples need to include any assumptions for the “typical participant.” That means, for example, if any people you recruit also need to sell a certain amount of product that requirement should also be shared.
If assumptions and additional requirements that make the earnings example true for most people are not included then it’s misleading. This is the 5th principle listed under #13 in the Business Guidance Concerning Multi-Level Marketing.
This, again, is pretty common sense. It is important to get the whole story when hearing about a business opportunity. It would be bad to invest and do a lot of work and then learn there were extra requirements. That would be misleading and unfair.
The company should tell participants not to make false claims
Most MLMs will pay people to recruit new distributors and that gives them a good reason to make false claims. MLM companies should have rules and check up on participants to avoid false claims.
“[An] MLM should (i) direct its participants not to make false, misleading, or unsubstantiated representations and (ii) monitor its participants so they don’t make false, misleading, or unsubstantiated representations.”
Usually, a good place to look for these rules is in the contracts that new recruits sign. Sometimes they will be in “Rules and Regulations” or “Guidelines and Procedures.” You can ask for these documents. Participants often violate on social media, during opportunity meetings, or in one-on-one conversations. Some companies are very strict but others allow a lot.
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. Source: https://media.doterra.com/us/en/flyers/opportunity-and-earning-disclosure-summary.pdf 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 […]
We need your help! We’re looking for earning or income disclosure statements from the following companies:
- Paparazzi Accessories
- Senegence (Lipsense)
These documents do not tell the whole story. However, this data helps people decide if it makes sense to join and sell the products. It is a red flag when company doesn’t publish or provide an income/earning disclosure.
For the companies above, disclosures haven’t been published or we haven’t found them. If you have information about income, expenses, costs, or number of distributors, please share the information with us.
Essential Oils can be dangerous. People selling the essential oils for companies create articles and guides in order to sell more oils. This can make it difficult to find good truthful information about safe ways to use oils. Additionally, members selling dōTERRA and Young Living […]
Pyramid Scheme Allegations CBS News story with detailed information around the $1 billion lawsuit filed in October alleging LuLaRoe is a pyramid scheme. Also references LuLaRoe’s own legal action against critics. https://www.cbsnews.com/news/lularoe-is-accused-of-being-pyramid-scheme/ Fortune.com article explaining LuLaRoe and referencing the lawsuit filed in October alleging LuLaRoe […]
According to the official dōTERRA compensation plan, advocates make profits on the dōTERRA items sold to retail customers or preferred members. Profits are the amount sold over wholesale costs. Additionally, advocates can make money on bonuses paid based on the wholesale purchase volume of the advocates and teams they sponsor.
The compensation plan is based on sponsor bonuses rank level achievements
To participate in the bonus program an advocate must at least:
- A qualified LRP (Loyalty Rewards Program) order for $100
- This means purchasing inventory even if you haven’t sold inventory that month.
- Maintain some number of personally sponsored qualified advocates or customers (at least 3 per “leg”)
- To be “qualified” each of these customers/advocates must also be purchasing $100 each month
- Often, this leads to sponsors encouraging advocates and wholesale customers to purchase month after month
- Total amounts of team or organization volume sales
- If the team is under the necessary amount, sponsors will encourage advocates to purchase extra inventory that month even if they cannot sell it
At higher bonus levels, there are bigger and bigger requirements to get the bonuses. It becomes harder to continue getting the bonuses each month, and most of the bonuses are based on sponsorship and team building.
An extremely small number of people (almost no one) will get to the highest bonus levels (leadership). People at the highest bones levels make a lot of money. dōTERRA’s own disclosures show that these top earners make up less than 0.5% of the members.
As a matter of fact, dōTERRA only paid bonuses to 25% of members. Most advocates didn’t make any commissions at all.
Consider the following questions:
It’s hard to tell if Du North is a pyramid scheme… and that’s not a great sign. Du North Designs sells leggings directly and through distributors. Most of their business and their stated business model is “Multi Level Marketing.” MLMs share many qualities with Pyramid Schemes […]