Welcome to the Simplifying Legal podcast, brought to you by Businessese. I’m your host, Danielle Liss.
Many years ago, someone told me I was the least lawyer-y lawyer she’d ever met because I helped make legal easier to understand. To this day, it’s one of the best compliments I’ve received in my professional life.
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In each episode, we’ll do a deep dive into a legal topic and give you concrete next steps so you can apply it to your business.
My goal is for you to walk away from each episode thinking, oh, that was easier than I thought it would be.
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Hey there, I’m Danielle. Welcome to episode 46 of Simplifying Legal for Small Business Owners. Today, I’m talking about using income claims in your marketing.
Disclaimer: As always, before we get into today’s topic, a quick disclaimer. This podcast is meant to provide you with legal information only. It’s not legal advice and doesn’t create any type of attorney-client relationship between us. Please don’t take any action without consulting
your lawyer first.
What Small Businesses Need to Know when Marketing Income Claims
In the past couple of episodes, I’ve been looking at different aspects of marketing and there’s been a lot of discussion of the FTC. Today’s episode will be similar as I tackle the use of income claims.
One thing I do want to be clear about – this episode is not going to focus on any type of multi-level marketing, or MLM, types of business. They have special rules and regulations that they need to follow. I’m also not covering Business Opportunities, like the “work-from-home opportunities.” I will, however, link to a couple of resources from the FTC on these types of businesses and what to look out for.
Additionally, there has been a lot of discussion on the efficacy and ethics behind using income claims. I’m not getting into those topics either.
Instead, I’m focusing on small businesses and the legal side of what they need to know if they use income claims in their marketing. I’m also going to give you some tips on what you can consider if your business is in the role of consumer for services that use these types of marketing claims.
Quite simply, income claims are very heavily used in marketing. In the online business world, I see it constantly in online courses, group programs, coaching, and from service providers. But, there are definitely things you need to know before you incorporate it.
How to Identify Income Claims in Marketing
If you aren’t sure what I mean by an income claim in marketing, let’s walk through an example. I swear, this isn’t based on any particular product or service, but I would not be surprised if you can find it nearly verbatim in someone’s marketing.
For this example, let’s say you are a small business owner who provides consulting services to other businesses. Your business has grown and you are making about $150,000 a year in revenue. You want to continue to grow, but you’ve started to plateau. So, you start searching for business coaches. As you scroll through the websites, you see:
I help consultants increase revenue. My exclusive framework will help your service business make an additional $100,000 in the next year. Here’s what my client Sandy had to say.
Then, it moves into a testimonial from Sandy that says, “I used the exclusive framework and increased my gross income from $200,000 to $300,000 in a year. I couldn’t have done it without Coach.”
That’s a fairly blatant example; however, some are more subtle and may say things like:
- Are you ready to earn six figures?
- How to shift from a six-figure income to millionaire, or
- Are you ready to earn $50,000 each month in your business?
It can even include things like: I only work three days a week and tripled my income.
What do you need to know about using these types of claims from a legal standpoint?
Federal Trade Commission
First, we need to talk about the FTC again.
As I’ve discussed in the last couple of episodes, the Federal Trade Commission is a federal agency with two main goals: to promote competition and to protect consumers. As part of this, the FTC protects consumers from unfair or deceptive practices in advertising.
Under the FTC Act:
- An advertisement must be truthful and non-deceptive. It can’t contain a statement or information that will mislead reasonable consumers.
- The advertisement must also be fair. This means it can’t cause consumer injury.
- The advertiser must have evidence to back up their claims. I’ll be talking about this in-depth later in the episode.
If an advertisement doesn’t meet these criteria, it may be found to be unfair or deceptive.
So how does this impact usage of income claims? Since they are a form of advertising, you need to make sure they are not going to be unfair or misleading.
Income Claims in Testimonials
In the last episode, I talked about how to use testimonials in your marketing and what the FTC looks for. If you are using income claims in testimonials, you will need to consider both the FTC’s rules on testimonials and about claims. Before I dive into the discussion about advertising claims, here is an overview of what you need to remember about testimonials.
- First, they need to reflect the honest opinions, findings, beliefs, or experiences of the person giving the testimonial.
- The endorser also needs to be a bona fide user of the product or service if it is mentioned in the testimonial.
- The testimonial can’t make a claim that the advertiser can’t make, and I’ll get into that in a moment.
- Last, you need to ensure that you disclose atypical results featured in a testimonial.
If you want more information on testimonials and all of these points, please refer back to Episode 45.
I always learn better with examples, so let’s use one here.
Liz is a business coach who worked with Jen. Jen provided her with a testimonial that says, “Liz helped me increase my revenue by $50,000 in three months.” Liz wants to use these results to help drive people to a new service she is offering. What does she need to do?
- First, is the testimonial representative of her client’s honest experience? If Jen directly gave Liz the information and says it is true, then it’s FTC-compliant so far.
- Next, does Jen have experience with the service? She doesn’t. Jen’s experience was with a different service package. In this case, since Liz wants to use Jen’s testimonial and income claim to market a new service, Liz shouldn’t include Jen’s testimonial unless she plans to disclose that Jen’s results are related to a different service.
- And last, can Liz show that these are typical results? They aren’t. Liz knows that most of her clients see positive results from her services, but Jen’s results are much faster than usual and the increase in revenue is higher. If that’s the case, she needs to disclose that Jen’s results are atypical, along with stating that it was the result of a different service.
Whether it’s in a testimonial or a general statement in your marketing, I need to do a deeper dive into the use of claims in advertising.
An advertising claim is a direct or implied promise of a benefit or value of a product or service that can be objectively measured, evaluated, and proven.
And, if you are thinking, well, I’m using income claims only on my website and Instagram, please remember that these are online advertising vehicles for your business, so you need to follow the same rules.
Reasonable Basis and Interpretation of a Marketing Claim
When you make a claim in your advertising, which can include income claims, consider if you have substantiation for the claim. This means that you have a reasonable basis to make the claim.
Not only do you need a reasonable basis, but you need to have that reasonable basis for any reasonable interpretation of the claim you are making. So if it is possible it could be interpreted in multiple ways, you need a reasonable basis for both interpretations.
The FTC goes into detail about using a reasonable basis in their Policy Statement regarding Advertising Substantiation. I’ll link it in the show notes, just in case it’s something you want to review, but I am going to distill it for you now.
To determine if an advertiser has a reasonable basis for its claims, the FTC looks at the:
- Type of claim;
- Type of product;
- Consequences of a false claim;
- Benefits of a truthful claim;
- Cost of substantiating the claim; and,
- Amount of substantiation that experts in the field believe is reasonable.
Express or Implied Marketing Claims
All claims are either express or implied. An express claim is something that is explicitly stated or shown. For example, if your website says, You will make $10,000 in ten days, that is an explicit claim. An implicit claim isn’t explicitly stated, but it represents a fact indirectly. Remember, both explicit and implicit claims require substantiation.
After you’ve identified your income claims, both explicit and implicit, do you have a reasonable basis for making the claims? In other words, what would be required to reasonably prove the claim? And, as I mentioned, make sure you can show the reasonable basis for all interpretations.
This may come in the form of testing or gathering other data.
If you haven’t substantiated or can’t easily prove it, you will need to disclose to ensure it isn’t misleading or deceptive. And I’ll talk more about disclosure in a couple of minutes.
Legal Compliance when Using Income Claims to Market Your Small Business
Now that I’ve reviewed all of the background on testimonials and advertising claims, let’s talk about what you need to consider if you use income claims in your marketing. Then we’ll look at disclosure.
First, remember that an income claim doesn’t always have to be as blatant as “you will make X if you use my services”. Something like a screenshot of a PayPal balance that has $50,000 displayed from a past client, and celebrating their win, can also be an income claim that you are using to implicitly state that your services allowed them to reach that milestone.
Then, you need to consider the aspects of FTC compliance as they relate to your claims.
- First, you need to be truthful, not misleading.
- Next, you need evidence to substantiate any claims you are making. Do you have a reasonable basis for making the claim? What can you prove? And, remember, it isn’t just proving that one person had the result. Does the product or service usually yield the same result?
- Next, your claims must be fair.
- And, finally, if there is a possibility that your claim may be misleading, including if it is unsubstantiated, you need a clear and conspicuous disclosure near the claim.
How to Include Disclosure about Advertising Claims
I’ve referenced the potential need to disclose in a few circumstances. To prevent an advertisement from being deceptive or misleading, you may need disclosure.
So here’s more on how to disclose. If you listened to the episode on FTC Disclosures in sponsored content and affiliate marketing, this will be familiar.
First, your disclosure can’t directly contradict the claim itself. That’s the first thing you need to consider. If the disclosure will be a contradiction, you probably need to remove the income claim from your marketing because it will be misleading or deceptive.
As long as it isn’t a contradiction, then you move to adding a disclosure. The disclosure must be clear and conspicuous, which means you should:
- Use clear and unambiguous language. Here, it may be that income results aren’t typical.
- You need to place the disclosure near the claim.
- And don’t try to hide it with lots of links or using small type.
Some businesses like to include an earnings disclaimer to give a full statement about their use of earnings and income claims. Please remember that including this disclosure in a link in the footer of your site is good to provide supplemental information, but it doesn’t replace a clear and conspicuous disclosure near the claim.
How to Approach Income Claims as a Consumer
Now that I’ve tackled how your business can use income claims in your marketing, I also want to look through the opposite lens.
Because even though you’re a small business owner, you’re also a consumer. You’ll hire service providers and consultants. You might buy courses or programs to help you improve your business with the goal of increasing your income. And those products and services may use income claims in their marketing.
So how should you evaluate them? My most important tip is to simply be aware of income claims and don’t assume they will have the same impact on your business. Ask yourself: What are they claiming their product or service can do? Does it seem remotely realistic? Do you see disclosure? Look for earnings disclaimers or some form of substantiation.
If you are seeing income claims in testimonials, remember that the results may be atypical.
If you are going to be working with someone, ask questions if you have a discovery call.
- What are they basing the claims on? Ask for examples. If they can’t provide it, consider whether or not you think it seems remotely possible in your business.
- Are the claims simply examples of what might be possible? If so, remember that when making your decision.
- Is achieving results one of the deliverables in their agreement? Most of the time, it won’t be. Most service providers will state that they are providing you with tools and it is up to you to achieve the results. So don’t assume results are guaranteed.
Not to be a cynic, but if it seems too good to be true, it probably is. When you are a consumer on behalf of your business, make prudent choices, especially if it involves a significant investment. But, most importantly, go into your research as a savvy consumer and know how to review advertising claims with a critical eye.
This wraps up my tips on income claims in marketing. Now let’s talk about today’s action steps.
- If you are making income claims in your marketing through testimonials, have you walked through the steps to ensure that they are compliant?
- When you are making income claims, either as a standalone claim or in a testimonial, can you substantiate them? If not, are you disclosing it? If you aren’t disclosing, this is something you should add. Or consider whether or not you want to use the income claims in your marketing.
- Do you have an earnings or income disclaimer policy listed on your site? This may be something you want to consider to provide additional information to your audience, in addition to the disclosures.
- Last, as always, if you have questions about the proper usage of income claims or you want to get a disclaimer for your site, please contact your lawyer. I’d be happy to discuss the services we offer at Liss Legal, if you’d like to see if we are a good fit to work together. Visit LissLegal.com to learn more.
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