Part of the guide: Network Marketing Lead Generation
I’ve been in this industry part-time since 2002, and in over twenty years I’ve watched hundreds of people join companies based on a hype video and quit eighteen months later based on their bank statement. Almost none of them ever read the one document that would have told them the truth up front: the income disclosure statement.
An income disclosure statement (IDS) is the document many MLM companies publish showing what their distributors actually earn. Some companies are required to produce one under specific legal settlements. Others publish one voluntarily. Plenty don’t publish one at all — which tells you something by itself.
The problem is that these documents are usually written by lawyers and formatted by marketers, which means they’re technically accurate and practically misleading at the same time. So here’s the checklist I use every time I evaluate a company, including when I write reviews like my Melaleuca review and Color Street review.
First, the ground rules
The FTC is blunt about this category. Its business guidance on multi-level marketing says compensation claims must reflect what participants generally achieve — not what a handful of top earners achieve. And its consumer guidance on MLMs and pyramid schemes recommends asking exactly the kinds of questions this checklist covers before you join anything.
If a recruiter gets uncomfortable when you ask these questions, that’s not a personality clash. That’s data.
The checklist
1. Does the company publish one at all?
If there’s no income disclosure statement anywhere on the corporate site, your due diligence just got harder and your skepticism should go up. It’s not automatically disqualifying — but combined with heavy income hype from the field, it’s one of the classic MLM red flags I’ve written about before.
2. Median or average?
This is the single biggest trick in the document. An average (mean) gets dragged upward by a few massive earners at the top. If one person makes $2 million and 9,999 people make $50, the “average” looks respectable while the typical experience is terrible.
Look for the median — the number where half of distributors earn more and half earn less. If the company only publishes averages, mentally assume the median is far lower. If they publish both, compare them. A huge gap between average and median tells you the money is concentrated at the top.
3. Who got excluded from the math?
Read the footnotes. This is where the document earns its lawyer fees. Common exclusions:
- “Active” distributors only. Many statements only count people who hit a purchase or sales minimum. Everyone who signed up, bought a kit, sold nothing, and quit — often the majority — vanishes from the denominator. That makes every percentage look better.
- Wholesale or “preferred” customers reclassified out. Sometimes this is honest (they really are just customers). Sometimes it’s a way to shrink the pool of “business builders” so the earnings-per-builder look stronger.
- Dropouts. If the statement covers a calendar year but only counts people still enrolled at year-end, the churned majority disappears.
Whenever you see a percentage, ask: percentage of whom? The answer changes everything.
4. Is this income gross or net?
Almost every IDS reports gross commissions — before the distributor’s own expenses. It typically does not subtract:
- Product the distributor bought to stay “active” or qualified
- Starter kits and renewal fees
- Event tickets, travel, and hotel for conventions
- Tools, apps, samples, and marketing costs
Most statements include a disclaimer admitting expenses aren’t included. Take it seriously. A distributor “earning” $1,200 a year while spending $150 a month on autoship qualification is losing money. This expense-versus-commission gap is exactly why I’ve argued the industry needs a customer-first reset — I broke down how qualification requirements quietly turn reps into the company’s best customers in my post on the complexity trap and the real customer.
You have been paid late before
You have watched the number on the dashboard not match the number in your account. What is different now is simple: it settles on a public contract you can check yourself, not a dashboard I control.
Read the contract →Most participants earn little to nothing. No income is guaranteed. You can verify every payout on the public smart contract.
5. What time period does each number cover?
Watch for unit-switching. Some statements show annual figures for top ranks and monthly figures for lower ranks, or report “average monthly income among months in which a commission was earned” — which quietly skips all the zero months. Convert everything to the same annualized basis before comparing. A “$500/month average for months with earnings” might mean two commission checks all year.
6. What percentage of people reach each rank?
The compensation plan brochure shows you what a Diamond Executive earns. The IDS shows you how many Diamond Executives exist. Usually the top ranks are a fraction of one percent of the field, while the bottom rank — the one you’d actually start at — holds the overwhelming majority of participants.
Do the multiplication yourself: (percentage at rank) × (typical earnings at rank). That expected value is your realistic forecast, not the stage testimonial.
7. Does retail selling show up anywhere?
An IDS reports commissions paid by the company. It generally does not capture retail profit from selling product directly to customers — but it also can’t hide the structural question: does this company’s model make retail selling plausible at all? If prices are so high that the only people who buy are distributors chasing qualification, the disclosure statement is documenting a recruitment economy, not a sales business. That distinction — real customers versus a closed loop of participants — is the core of the FTC’s pyramid-scheme analysis in the guidance linked above.
8. Compare the field’s claims against the document
Last step: take whatever your recruiter or their upline claimed — “six figures is realistic in two years,” “most people earn back their kit in a month” — and check it against the company’s own published numbers. When the field’s story and the corporate document contradict each other, believe the document. It was written under legal review; the Instagram story wasn’t. This gap between marketing and math is a big part of why I stepped back from doing network marketing seriously after 2017 — and why the same playbook keeps resurfacing in new costumes, as I covered in the MLM playbook that bought crypto.
The quick version
Before you join anything, run these eight questions:
- Is there a published IDS at all?
- Median or just average?
- Who was excluded from the denominator?
- Gross commissions or net of expenses?
- Are all figures on the same time basis?
- What fraction of people actually hold each rank?
- Is there evidence of real retail customers?
- Do the field’s income claims match the company’s own document?
If a company passes this checklist honestly, it doesn’t guarantee you’ll succeed — your work ethic and skills still decide that. But if it fails, no amount of hustle fixes a broken denominator.
Reading an income disclosure statement takes about twenty minutes. It’s the highest-ROI twenty minutes in this entire industry, and after two decades in it, I wish someone had handed me this checklist in 2002.
If you’re new here and want the bigger picture on how I evaluate opportunities and build income streams that don’t depend on a comp plan’s fine print, start here.
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Most affiliates earn little, and that is disclosed up front. The difference here is not a promise about what you will make. It is that you can verify every payout yourself, on a public contract, in about twelve seconds.
See how the payout works →Most participants earn little to nothing. No income is guaranteed. You can verify every payout on the public smart contract.
I read this and immediately wanted to build a spreadsheet cross-referencing all eight questions before I’d even picked a company to apply them to, which, yes, I’m aware is exactly the over-preparing thing I always do instead of actually deciding anything. Twenty minutes, the post says. I’ll allocate a week to prepare to spend the twenty minutes. I see what I just wrote.
Davey, the checklist itself takes twenty minutes like the post says – that part’s true, I’ve timed people doing it. What eats the week isn’t the checklist, it’s the getting-a-straight-answer-from-the-recruiter part beforehand. In my experience the honest ones will hand you the document unprompted. The ones who stall when you ask are giving you the answer to question one before you’ve even opened a PDF.
Ran this against three companies in April. Two handed me the document same day. One took eleven days, and sent a comp plan brochure twice before the actual disclosure showed up. The gap told me more than any of the three PDFs did.