MLM schemes can be appealing to consumers looking to make extra cash. Many offer easy income and the opportunity to build wealth. However, these companies are now facing an investigation by the Federal Trade Commission over their income claims.
The FTC report looks at the income claims of 70 multi-level marketing (MLM) companies. According to the findings, many of these income statements contain problems, with the majority omitting details when calculating the earnings of members.
In an MLM model, participants join to sell a product or service directly to consumers, earning a small profit from those sales. They are also encouraged to recruit others to sell, earning a portion of the recruits’ sales. Those who join earlier in the MLM cycle tend to make the highest earnings.
According to the report, many of the reviewed income claims fail to include participants with little to no earnings, distorting the overall picture. Additionally, the statements often neglect to consider the expenses participants incur, which can exceed any income they generate. These gaps in disclosure are typically not made clear in the earnings statements.
The FTC staff also noted that many disclosure statements present earnings data in ways that may confuse potential recruits, such as showing average earnings for groups with widely varying incomes or using annual figures that don’t accurately represent what most participants earn in a given year.
The report concludes that based on the data reviewed, many MLM participants received no payments at all, with the vast majority earning $1,000 or less annually—less than $84 per month on average.
Before getting involved in an MLM, experts recommend asking key questions. For instance, is the company more focused on selling products or on recruiting new members? If recruiting is the priority, it may be problematic unless you’re highly skilled at bringing in others. Also, consider whether building a team is essential to making an income—if so, what seems like a side gig may turn into a full-time commitment.
