Examining the FTC’s Stance on Representations of Business Expenses in the Direct Selling Industry

In this piece for Edgeworth Economics, authors Branko Jovanovic & Juliet Belling Warren discuss the U.S. FTC’s increasing scrutiny of income disclosure statements (IDSs) used by direct selling and multi-level marketing companies. Prompted by recent enforcement actions against companies such as Forever Living and International Markets Live, Inc., the FTC has emphasized that earnings claims should reflect not only distributor revenues but also the expenses incurred in pursuing the business opportunity.

The authors review a series of recent FTC publications, including its 2024 guidance on multi-level marketing practices, a staff report analyzing industry income disclosures, and a proposed earnings claims rule issued in 2025. Across these documents, the FTC consistently argues that distributors’ net earnings—not gross revenues—should be reported, requiring companies to account for costs such as product purchases, training, conferences, websites, marketing materials, and other business-related expenses.

To address these expectations, the article outlines several methodologies experts can use to estimate distributor expenses. These include applying standardized assumptions for common recurring costs, identifying non-commissionable purchases through transaction data, and conducting detailed reviews of order-line information to isolate business-related expenditures. Each approach offers different tradeoffs between precision, cost, and the amount of data required.

The authors note that while the FTC’s position on expense disclosure has become increasingly clear, it remains guidance rather than binding law and has not yet been fully tested in court. Nevertheless, they recommend that direct selling companies reassess how their income disclosure statements account for distributor expenses, as more accurate reporting of net earnings may help reduce regulatory risk and align disclosures with the FTC’s evolving enforcement priorities.

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