Hey Girl! Let’s Talk About Income Disclosure Statements
Next on our journey to dismantling MLMs: understanding the income disclosure statement.
What is an income disclosure statement?
It is a yearly document that every MLM must put together and make available to the public. It gives a breakdown of how many distributors made how much money in that year. Most of the companies break it down by ranks within their companies (each company has their own rank system and cannot be categorized/generalized for that reason).
And they must do this to stay in compliance with the FTC:
“At the most basic level, the law requires that an MLM pay compensation that is based on actual sales to real customers, rather than based on mere wholesale purchases or other payments by its participants. In evaluating MLM practices, the FTC, in accord with established case law, focuses on how the structure as a whole operates in practice, and considers factors including marketing representations, participant experiences, the compensation plan, and the incentives that the compensation structure creates. The assessment of an MLM’s compensation structure is a fact-specific determination that the FTC makes after careful investigation.”
Ok great. The MLM puts this out, it’s available to the public and compliant with the FTC. Why should anyone actually care about it?
Well, this is where you really get to see the enormous discrepancies between the lowest and highest rank in each MLM. In the table above, Young Living reps have a gigantic financial difference between the first/lowest rank and the top/highest rank. Keep in mind, those averages are how much a distributor made PER YEAR. Not a single person in the U.S. can live on $3/year. Not a single person in the U.S. can live on $852/year.
Here is the full breakdown of all ranks for all the companies listed in the chart above, per each company’s website and reporting.
Those are some of the easier to read and understand income disclosure statements. There are others, like this one from doTERRA, that really doesn’t want to give a straight forward answer as to how much anyone makes.
Rodan and Fields also doesn’t make it easy to quickly decipher.
Additionally, and something that’ll be expanded upon later in the series, is in regards to making income claims. I’m only bringing this up because making income claims and the company’s income disclosure statement are two different things, and the differentiation is important to know.
An income claim is when any distributor says that they made a certain amount, be it $1 or $1 million, or that you can make a certain amount, also be it $1 or $1 million. A false income claim can be made by the company, however that is less likely, but still not out of the question. This is absolutely never allowed, and on October 26th, 2021, the FTC sent out notices to more than 1,100 businesses (not just MLMs) about this very subject. To pull from the beginning of their press release:
“As the pandemic has left many people in dire financial straits, money-making pitches have proliferated and gained special attention. From multi-level marketing companies offering the dream of owning a business, to investment “coaches” with promises of secrets on how to beat the odds, to ubiquitous “gigs” that pitch a steady second income, Americans are bombarded by offers that often prove to be less than advertised.
As a result, the FTC is deploying its Penalty Offense Authority to remind businesses of the law and deter them from breaking it. By sending a Notice of Penalty Offenses to more than 1,100 companies, the agency is placing them on notice they could incur significant civil penalties — up to $43,792 per violation — if they or their representatives make claims about money-making opportunities that run counter to prior FTC administrative cases.”
I encourage you to read the full press release, linked above, as well as the Notice of Penalty Offenses, that was sent to those 1,100+ companies.
Check out additional income disclosure statements from other MLMs. Some are easy to find, while others take quite a few clicks to get to. See you tomorrow for more dismantling.