FTC staff report: most MLM income disclosure statements omit the numbers that matter
Staff at the US consumer regulator reviewed 70 income disclosure statements and found that most left out participants who earned nothing, ignored expenses, or presented figures in ways that flatter the highest earners.
What the report looked at
In September 2024, staff at the Federal Trade Commission published an analysis of 70 income disclosure statements issued by multi-level marketing companies, according to a post on the agency's Business Guidance blog.[^1] Income disclosure statements are documents that some companies publish to describe what their participants earn. They are not required by US federal law, and there is no standard format.
The staff report is the first time the regulator has looked at a large sample of these documents side by side. That makes it a useful benchmark for anyone trying to read one.
The main findings
According to the report, the statements shared several patterns:
- Participants who earned nothing were often left out. Many statements calculated averages only for people who received a payment from the company, which removes the largest group from the denominator.
- Expenses were rarely accounted for. Most statements reported gross payments and did not mention what participants spent on product purchases, fees, training or travel.
- Averages and top-earner examples were common. The report notes that presenting average income, or highlighting the highest ranks, can make large incomes appear more typical than they are.
- Terms were sometimes undefined. Words like "active", "income" and "earnings" were used without saying what they measure.
Four questions to ask of any disclosure
The report's observations translate into a short checklist:
| Question | What to look for |
|---|---|
| Who is included? | Whether the denominator counts every participant or only those who were paid |
| Are expenses deducted? | Any mention of costs, or a statement that figures are gross |
| Is a median shown? | A median tells you what a typical participant earned; an average does not |
| What period is covered? | Annual figures are comparable; monthly figures for "active" months are not |
If a statement fails on the first two questions, the headline numbers cannot be compared with anything else.
What DirectSellingStar does with this
We are normalizing income disclosure statements into a common format: share of participants earning nothing, share earning under $500 per year, median annual earnings, and the top one percent's share of payouts. Where a company's statement does not allow a figure to be computed, the field stays empty rather than estimated. The methodology page explains how each figure is derived.
The FTC's own guidance for multi-level marketing businesses says that compensation should be based primarily on sales to real customers rather than on recruitment.[^2] A disclosure that separates retail income from recruitment-based income is more informative than one that does not.
- ftc
- income-disclosure
- regulation
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Sources
- FTC staff report analyzes 70 MLM income disclosure statements · Federal Trade Commission
- Multi-Level Marketing Businesses and Pyramid Schemes · Federal Trade Commission