Multilevel marketing (MLM) income disclosure statements drew the attention of the Federal Trade Commission in 2024, leading to a September 2024 report examining the accuracy of earnings communications across 70 MLM organizations. Parties involved in regulatory challenges or litigation over allegedly misleading MLM income disclosures could conduct consumer survey research to assess how consumers understand their communications.
What Is Multilevel Marketing?
Multilevel marketing is a business model in which participants sell products and profit from recruiting other sellers. This makes MLMs unlike a pyramid scheme, in which participants generate profit primarily by recruiting others to become salespeople rather than through actual product sales. In an MLM, participants are compensated through two revenue streams: a percentage of the products they sell directly, and a percentage of the wholesale purchases made by other sellers they recruited. Those other sellers are called downline distributors.
Participants in MLM organizations recruit downline distributors through social media, product promotion, and earnings-based incentives. Advertising how much money distributors can earn is a common recruitment tool, but how individuals disclose earnings and the use of earnings data in recruitment marketing have attracted substantial public criticism, including in widely viewed documentary productions such as LulaRich.
FTC's 2024 Report on MLM Income Disclosure Statements
In late 2024, the FTC issued a report on its investigation of 70 MLM organizations and their income disclosure statements. The investigation was prompted by responses to an Advance Notice of Proposed Rulemaking the FTC issued in 2022, which requested public comment on whether the agency should regulate earnings claims. The majority of comments received in response to that notice related to MLMs. Since recruitment earnings represent one of two primary revenue streams for MLM participants, and many MLMs use earnings disclosures as recruitment marketing, the report focused specifically on those communications.
FTC staff examined 70 publicly available income disclosure statements that included at least some data on dollar amounts. Their findings were as follows:
- Most income disclosures did not include data from participants who made little to no income.
- No income disclosure accurately disclosed all business expenses incurred by participants.
- Most disclosure statements emphasized income data from the top earners — a relatively small number of participants.
- Many statements presented data in an ambiguous or potentially confusing way.
- Many presented important information in an inconspicuous manner.
- Several made claims with no clear basis.
- A close analysis of the data showed that most MLM participants reported little or no income.
These findings were not connected to any existing rule or law but may serve as a precursor to future FTC rulemaking. If such rulemaking follows, MLMs could face significant fines or legal action for using income disclosure statements found to be misleading or deceptive in their recruitment marketing.
Consumer Survey Evidence in MLM False Advertising and Regulatory Proceedings
According to the Direct Selling Association and the FTC Report, over 14.6 million people are involved in MLM sales in the United States. If an MLM faces litigation or regulatory scrutiny over allegedly misleading statements in its marketing or recruitment communications, consumer survey research can provide valuable evidence for either side.
A properly designed advertising claim substantiation survey can measure how participants and prospective recruits interpreted the income disclosure statements at issue; what they understood those statements to convey about earnings; and whether claims were material to their decisions to invest in or join an MLM.
MLMs must ensure that income disclosures and recruitment communications withstand regulatory scrutiny and comply with false advertising standards. IMS Legal Strategies provides reliable consumer survey research for any contested aspect of a marketing or recruitment communication. Contact our team to discuss your research needs.
