Five ways MLM income disclosure statements reveal less than they should

Business

Representative research on multi-level marketing (MLM) shows that most distributors invest significant time, money, and personal relationships without ever recouping their investments (DeLiema et al., 2018).

This month, the Federal Trade Commission (FTC) provided further evidence highlighting just how little MLM distributors actually earn. After analyzing 70 MLM income disclosure statements, the FTC concluded that “many participants in those MLMs received no payments from the MLMs, and the vast majority received $1,000 or less per year – that is, less than $84 per month, on average” (FTC, 2024, p. i). 

However, the FTC report also reveals how MLMs attempt to obscure their poor financial outcomes. In this article we summarize the key findings from the report on how MLMs misrepresent their income data.

Are income disclosure statements ‘transparent’?

Out of the hundreds of MLMs operating worldwide, only a small number publish ‘income’ or ‘earning’ disclosures. These reports are supposed to provide transparency and demonstrate that the MLM is taking responsibility by sharing accurate data.

Such transparency is crucial for two reasons: first, most distributors join MLMs with the hope of earning money, though most never achieve this goal (DeLiema et al., 2018). Second, MLMs are notorious for making misleading income promises. According to research from the consumer protection organization Truth In Advertising (TINA), 98% of 100 MLM companies investigated “used atypical and unsubstantiated income claims to promote the companies’ business opportunities” (TINA, 2024).

Relying solely on social media claims from companies or top distributors does little to clarify the true earning potential. But do MLM income disclosures provide the necessary transparency? The FTC report provides a clear answer: not really.

What does the FTC report include? 

In 2022 and 2023, the FTC reviewed over 600 MLM websites in the United States to find income disclosure statements. While many MLMs offered no such disclosures and some had ceased operations during that period, FTC staff identified and analyzed 70 statements for the report.

Five ways disclosure statements reveal less than they should

The FTC report uncovers several tactics MLMs use to manipulate their income disclosures. Here are five of the most common – most MLMs used all of them.

1) They exclude participants who make little or no income

Instead of presenting the income of ALL participants, most MLMs exclude in their disclosures those who do not earn anything or little when showing average earnings. While the income disclosures show how low the income is in MLM, if all included all participants, the average of 84$ per month would be even lower.

Instead of presenting data on all participants, most MLMs exclude those who earn little or nothing. This exclusion artificially inflates the reported earnings. While the disclosures already show how low MLM incomes are, including all participants would bring the average earnings below the already low figure of $84 per month. 

2) They don’t include expenses

While earning money is the main goal for most MLM distributors, true earnings are only those that exceed costs.

However, none of the 70 disclosures reviewed by the FTC provides a full account of participant expenses, and most do not include any expense data at all. For distributors, this lack of transparency is significant because expenses often surpass earnings, leading to net financial losses rather than profits.

3) They place emphasis on the very few high earners

MLMs are well known for promoting rags-to-riches stories, suggesting that anyone can achieve financial success. Even though income disclosures paint a much bleaker picture, MLMs still emphasize the large incomes earned by a tiny minority while downplaying or ignoring the limited earnings of the vast majority.

Here’s an example of this from Amway’s 2023 income disclosure statement. As you can see, the pull out box highlights the top earners:

4) They hide important data in the fine print 

Important data, such as the fact that many participants earn little or nothing, is often buried in fine print. While the few high earners are prominently featured, the reality that most distributors earn next to nothing is far less visible to (potential) recruits and the wider public.

Again, in the Amway income disclosure statement, the details about the number of IBOs who earned nothing (compared to the top earners above) are much harder to find:

5) They use confusing or ambiguous data 

Although income disclosures should aim for transparency, many present information in ways that are unclear or even misleading. Key terms like “income” and “earnings” are often left undefined or inconsistently explained, leaving prospective distributors confused about what the presented data actual means for them and what they can actually expect to earn.

MLMs’ income disclosures play a game of hide and seek

In theory, income disclosures could help consumers to make more informed decisions about whether to join an MLM – or avoid them altogether.

At the very least, they could temper unrealistic expectations. Because, as recent research shows, even aiming for “supplemental income” may be overly optimistic. As professor Stacie Bosley (2024) concludes “Does the typical MLM participant earn “supplemental income?” Simply put, no”.

Read more about MLMs

If you’d like to learn more about MLMs we have a number of articles on our own website:

You can also read more of our income investigations into the following MLMs:

Author: Dr Claudia Gross, an assistant professor at the Radboud University in Nijmegen, the Netherlands, at the department for Organizational Design and Development.