Probably the first question that is asked by an individual who is being recruited for a network marketing business opportunity is: How much can I make? The truthfulness of the answer is indicative of the quality of the opportunity.

First, keep in mind that network marketing is only a second job for most people, so huge earnings for the average participant should not be expected. Only 10-20 percent of distributors are full-time, and 80-90 percent are part-time. This is not to say that big potentials are not possible in this business. The stories of distributors earning $20k, $30k, and $40k a month in network marketing are not uncommon, and they are true. There is no cap on possible income, because those incomes are the result of hard work, talent, and good fortune. But they are not the everyday case. A more realistic goal is $300 to $500 a month. Network marketing is no different than other endeavors. After all, how many youngsters who roam the basketball courts of America end up in the starting lineup of an NBA team?

What should be told about earnings possibilities? What can legally be told? Where can prospective distributors get useful information? Since marketing companies are not required to file earnings information with any governmental agencies, and since most state and federal laws severely restrict earnings projections in company materials, the best source is one-on-one discussions with other distributors. They should be asked how long they have been in business, what they earn, and what they had to do to accomplish their earnings.

Prospective distributors shouldn’t be mad at companies if they say very little on earnings. They will be in trouble under a myriad of laws if they do. The rules are clearly more restrictive for what companies can and cannot say in this area. For instance, many states have adopted MLM legislation to specifically prohibit companies from making any earnings projections based on hypothetical possibilities. Companies are also prohibited in such states from presenting past earnings of distributors. The presentation on how the compensation plan works; however, is perfectly acceptable everywhere. A frequent practice of allowing potential distributors to fill in the blanks as to their own projections does not appear to be as objectionable as well.

Major MLM states have developed their own approaches on this subject. For instance, the state of California has pursued a number of companies with respect to earnings representations. The State of California particularly objects to any inflated earnings representations and find the so-called “check waving” deceptive and misleading. Representing to potential distributors that it will be easy to find other distributors for the MLM program is not approved. Of particular interest in states such as California are earnings testimonials of distributors which present the flagging of checks showing gross earnings, when in fact the net earnings of the distributor should reasonably take into account many other costs or costs of purchase of inventory, rebates, or commissions paid by the distributors to others, etc. If the distributor’s gross earnings check shows $20k, but the “real” net earnings are $10k, the statehas a problem with the $20k claim.

In other major MLM states, such as Texas, “pie in the sky” earnings claims have also been referred to by the attorney general’s office as “airborne pastry.” As with many states, you will find little guidance in the statute books. Understanding the lay of the land must come from experience. As with California and some other leading states, Texas prohibits earnings projections by companies, but allows more leeway when it comes to distributor testimonials. When giving an earnings testimonial in such states, a distributor should give relevant information that places his or her earnings testimonials in a proper perspective – for instance, the distributor should indicate how long he or she has been in the program, what specific geographic area they have had success in building their organization and earnings, and a “fair” representation of what their actual earnings history has been.

Perhaps the state which has been most active in this area is the state of Wisconsin, which actually took Amway to task on this particular point. It is the position of the Wisconsin Attorney General that the use of income representations, which do not accurately portray the income experience of persons who have participated in the given business opportunity program, or do not indicate the percentage of persons who actually achieve that level, are violations of Wisconsin’s trade practices law. The Wisconsin Attorney General demands that income representations, which reflect the actual earnings of participants must also be accompanied by affirmative disclosures which place such representation in context. For instance, the Attorney General indicates there should be a disclosure of the time frame on which the representation is based and an indication of the percentage of persons who actually achieve that level of income. The Wisconsin Attorney General obtained a consent judgment against Amway Corporation requiring payment of a fine as well as permanent injunction, which required the firm to disclose actual sales and income or profit experiences of active distributors in conjunction with the use of hypothetical income examples. For example, where the hypothetical example used a potential of gross income, the judgment required Amway to dislose the percentage of distributors who actually achieved the performances illustrated. Amway was further required to disclose the percentage of its active distributors versus distributors who have become inactive.

Finally, the FTC has vigorously enforced restrictions on earnings claims. From the FTC’s standpoint, it is a “deceptive trade practive” to make any earnings representation unless a simultaneous disclosure is offered which outlines the percentages of distributors who achieve various levels of earnings as well as the average earnings of distributors.

For more information, visit www.mlmlegal.com or www.mlmattorney.com.

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