The home business space has legitimate opportunities and outright scams. The challenge is telling them apart before you've invested months of effort and thousands of dollars. This 7-step checklist gives you a systematic way to evaluate any opportunity—whether it's an MLM, affiliate program, or direct sales business.
Run every opportunity through these seven steps. If a business fails even one step, think very carefully before joining. If it fails multiple steps, walk away.
Step 1 — Find and Read the Income Disclosure Statement
Every legitimate MLM and network marketing company should publish an Income Disclosure Statement (IDS). This document shows what their distributors actually earn. It's the closest thing to truth in an industry full of inflated income claims.
What to look for:
- Percentage who earn nothing: Many IDS documents reveal that 50-90% of participants earn $0 in commissions
- Median income (not average): Averages are skewed by top earners. Median shows what the typical person earns
- Whether expenses are mentioned: Income figures should be gross, but expenses (autoship, events, tools) often aren't deducted
Red Flags
- • No income disclosure statement exists or isn't publicly available
- • Format is confusing or hard to interpret
- • Document only highlights top earners without showing the full distribution
- • Numbers exclude "inactive" participants (a way to hide zeros)
Real Data Examples
Young Living: Median annual earnings of $4 (yes, four dollars)
Amway: Median annual earnings of $657 among active distributors
Step 2 — Calculate the Monthly Minimum Cost
Most MLMs require ongoing purchases to remain "active" and eligible for commissions. Add up all the costs you'll face:
- Autoship/monthly minimum: Required product purchases to stay commission-qualified
- Enrollment/starter kit: One-time upfront cost (divide by 12 months for monthly impact)
- Tools and subscriptions: Websites, marketing systems, CRM subscriptions
Now compare this monthly cost to what the IDS says typical participants earn. If your monthly cost exceeds the typical monthly income for 80%+ of participants, the math simply does not work.
Example: doTERRA
doTERRArequires 100 PV/month in their Loyalty Rewards Program (approximately $100-150 in purchases) to qualify for commissions. Yet their income disclosure shows 91% of Wellness Advocates earn $0 in commissions. For most participants, they're spending $100+/month to earn nothing.
Step 3 — Understand the Comp Plan Type
Compensation plan structures determine how money flows through the organization. Each type has distinct advantages and risks:
Binary
You build two legs (left and right). Commissions based on the weaker leg. Risk: Imbalanced legs mean you may not get paid on volume in your stronger leg.
Unilevel
Simpler structure—everyone you recruit is on your first level, their recruits on your second level, etc. Typically earn decreasing percentages on deeper levels.
Stairstep Breakaway
Your best performers "break away" when they hit certain ranks. Risk: Your most productive people leave your earning group just when they become valuable.
One-Tier Affiliate
The cleanest model—you earn commissions only on customers you directly refer. No recruiting required, no multi-level complexity, higher commission rates because there's no upline split.
Key question to ask: How many levels of people earn money from my sales? The more levels, the less you keep from each transaction.
Step 4 — Check Regulatory History
Before investing time or money, spend 10 minutes researching the company's regulatory history:
- Google "[Company name] FTC" to find Federal Trade Commission actions
- Google "[Company name] settlement" to find lawsuit settlements
- Check the Better Business Bureau for complaint patterns
Major Red Flags
- • Pyramid scheme findings or determinations
- • FTC consent decrees (agreements to change practices)
- • Income claim violations or false advertising findings
- • Multiple state attorney general actions
- • Pattern of distributor lawsuits over unpaid commissions
Step 5 — Test the 2-Customer Rule
Here's a simple test: Can you cover your monthly costs with just 2 customer referrals?
This matters because most people can realistically find 2 interested customers. If your business model requires 20+ people just to break even on your monthly costs, the math is stacked against you from day one.
Fails the Test
Monthly cost: $150
Commission per customer: $5-10
Customers needed to break even: 15-30
Passes the Test
Monthly cost: $10
Commission per customer: $8+
Customers needed to break even: 2
Home Business Academyis an example that passes: $10/month cost, with commissions that can exceed $8 per referral. Two referrals and you're already in profit.
Step 6 — Check the Comp Plan History
This is the step most people skip—and it's cost thousands of people their income.
Ask: Has the compensation plan changed in the last 5 years? If so, how were existing distributors affected?
Case Study: Beachbody (November 2024)
Beachbody eliminated their entire MLM compensation structure overnight, transitioning to a traditional affiliate model. Thousands of coaches who had spent years building downlines lost their recurring team income with no warning. A team that took 3 years to build became worthless in a single announcement.
Critical question to ask any promoter:"What happens to my income if the company changes the compensation plan?" If they can't give you a straight answer, that tells you something.
Step 7 — Talk to Real Participants, Not Just Promoters
The person recruiting you has a financial incentive to paint a rosy picture. Balance their perspective with people who have no stake in your decision.
Where to find honest perspectives:
- Search Reddit for "[Company name] quit" or "[Company name] honest review"
- Look for Facebook groups of former distributors (they often share candid experiences)
- Ask promoters to show their actual income statements—not screenshots of others' earnings
Red Flag
If no one can show you their real numbers—their own bank deposits, their own commission statements—that's a warning sign. Legitimate earners are usually happy to prove their income. People showing you screenshots of other people's earnings may not be earning much themselves.
The Bottom Line
The companies that pass all 7 steps are rare. Most MLMs fail on step 1 (poor income disclosure numbers), step 2 (costs exceed typical earnings), or step 5 (impossible break-even math). That doesn't mean opportunity doesn't exist—it means you need to be selective.
When you find a business that passes all seven steps—transparent income data, low monthly costs, clean one-tier structure, no regulatory issues, easy break-even math, stable compensation, and real people willing to show real results—you've found something worth your time. Home Business Academy is one program that consistently passes this checklist, which is why it ranks as our top-rated opportunity.
See how our top-rated program scores on all 7 steps
Home Business Academy passes every step of this checklist—transparent earnings, $10/month cost, one-tier affiliate model, and real members sharing real results.
See how our top-rated program scores