In the past many business opportunity sellers would use industry specific statistics on their Web sites, brochures and even in videos, which they would mail to potential buyers. The Federal Trade Commission looked into this and found that many business opportunity sellers overused these figures to sell their wares.
In the future this tactic of using industry statistics may become illegal and considered fraudulent due to a proposed rule that the Federal Trade Commission is considering which would govern business opportunities. In the rule business opportunity sellers would have to prove and have records to prove that the statistics they use are actual statistics of people who bought their particular business opportunity.
Why is such a rule being considered by the Federal Trade Commission? Well, because there has been fraud in the past uniform of unsubstantiated earnings claims, which has damaged consumers. Below is an excerpt from the rulemaking section report by the Federal Trade Commission on their potential proposed rule;
Proposed section 437.4(c): Industry statistics
“As noted above, proposed section 437.4(c) would address a problem that is prevalent among business opportunity sellers: the use of real or purported industry statistics in the marketing of business opportunity ventures. It is common for vending machine promoters, for example, to tout what are purported to be industry-wide vending sales statistics. A matrix of potential earnings based upon an industry-average sliding scale of “vends per day” is typical. The use of such industry statistics in the promotion of a business opportunity creates the impression that the level of sales or earnings is typical in the industry, and by extrapolation, that the prospective purchaser will achieve similar results.
To prevent this type of deceptive earnings claim, proposed section 437.4(c) would prohibit the use of industry financial, earnings, or performance information “unless the seller has written substantiation demonstrating that the information reflects the typical or ordinary financial, earnings, or performance experience of purchasers of the business opportunity being offered for sale.” Accordingly, before a seller could use industry statistics, it must be able to measure the performance of existing purchasers and document that the industry statistics reflect the existing purchasers’ typical performance. For example, a start-up business opportunity with no or very limited prior sales would probably not be able to use industry statistics because it would lack a sufficient basis to demonstrate that the industry statistics reflect the typical or ordinary experience of the start-up’s prior purchasers.”
If you are a business opportunity seller perhaps you may wish to contact the Federal Trade Commission on this proposed rule and putt in your own comments. For instance you might state do you think the rule is unfair or that it needs to be slightly modified or to be made fair. Perhaps you believe that legitimate industry associations, which put together data and reports should be allowed. But it is time now for you to speak or forever hold your peace. Consider this and 2006.
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