One of the more frustrating aspects of covering MLM regulation and litigation is a tendency for people to ignore what’s currently happening, in favor of past legal opinions and decisions from the past.

Some of these opinions and decisions are decades old but people still cling to them as gospel.

One of the more common citations I run across is a
2004 staff advisory
issued by the FTC. Yes that’s
2004
, some thirteen years ago.

In the advisory the FTC reiterate the legality of internal consumption, that is affiliates purchasing product from the MLM company they’re in.

The amount of internal consumption in any multi-level compensation business does not determine whether

or not the FTC will consider the plan a pyramid scheme.

Somehow this got turned into “you can have as much internal consumption as you want, no worries.”

While internal consumption is of course legal, in the absence of retail sales it’s a good indicator of a product-based pyramid scheme model.

Internal consumption alone might not be a determining factor for the FTC, but retail sales certainly are.

Retail revenue and affiliate revenue (internal consumption) are part of the same revenue chart pie. If you were to graph out an MLM company with little to no retail activity, you’d find revenue would primarily be sourced via affiliates.

Proponents of pyramid schemes have argued this isn’t illegal since 2004.

Unfortunately the FTC advisory didn’t clarify as much and aside from common sense, the only clarification the industry has had in the last thirteen years has been a handful of regulatory actions.

The most prominent are
Herbalife
and
Vemma
, large well-known MLM companies that have been around for years.

These two settlements were so prominent that it was impossible for even the 2004 advisory supporters to ignore.

What we’ve since been left with is a state of confusion. Not that there wasn’t confusion before, it’s just that now most rational people have come to accept that internal consumption is not a substitute for genuine retail sales activity.

For whatever reason the FTC have been sluggish to clarify this matter outside of lawsuits filed against specific companies.

That ends today, with a new Business Blog entry clarifying the need for retail sales in MLM.

At the heart of a legitimate MLM are real sales to real customers.

For companies acting within the law, the business is driven by selling products to real customers.

Who do we mean by “real customers”?
People unaffiliated with the company who actually buy and use the product the MLM sells – real retail sales
, in other words.

And by “real sales,” we mean sales that are both profitable and verifiable – retail sales that can be confirmed.

Contrast that with MLMs built primarily on bringing in more and more recruits and racking up sales to other insiders. Very few people are going to make money and most participants will be left in the lurch.

Forget about what you think you know about MLM compliance. Here

🤖 Quick Answer

What is the FTC's position on internal consumption in MLM businesses?
The FTC clarifies that internal consumption—affiliates purchasing products from their MLM company—does not determine whether a plan constitutes a pyramid scheme. The amount of internal consumption is legally irrelevant to pyramid scheme classification under federal regulations.

Why do outdated FTC guidance documents continue influencing MLM discussions?
Industry participants frequently cite older legal opinions, including a 2004 FTC staff advisory, as definitive guidance despite their age. This practice creates regulatory confusion, as stakeholders prioritize historical precedents over current enforcement standards and evolving legal interpretations.

How has the interpretation of the 2004 FTC advisory been misapplied?
The advisory's statement regarding internal consumption legality was incorrectly transformed into justification for unlimited internal purchasing within MLM structures, misrepresenting the FTC's original position on acceptable compensation

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