Why You Should Avoid Income Claim Marketing

There is a trend in business marketing in the past few years and that is to talk about your 6, 7, and 8 figure business. This is called income claim marketing and it’s a bad idea. First because most income claims are wrong and misleading because they are providing very general information that is meaningless. Second because there are rules and laws about how business can advertise and income claim marketing breaks quite a lot of them.

And it is just poor form to present an unrealistic picture of how much a business makes to attract customers who will think that they can arrive at the same figures. Income claim marketing is not a substitute for genuine business experience and expertise and it should be avoided, as well as the people who use this kind of marketing to make themselves look more successful than they actually are.

In the 21 years that I have been in business I have never talked about how much money I make. I don’t think it is appropriate and to be honest, it adds no value to my credibility, my customers, or to what I do. As a privately held company I do not have to file public documents every year and as a business and legal professional I know that these kinds of claims must be done with care and with plenty of documentation so they are verifiable. Knowing this, I have been rather annoyed by the people who claim to have ‘6 and 7 figure’ businesses and making other income claims lately, which are frankly rather unbelievable and very unprofessional.

The problem with income claims is that they are generally greatly overstated and they do not accurately reflect the person’s financial standing. They are also no substitute for professional credentials, expertise, experience, or authority.  

I will give you a few examples of bad income claims in this podcast because if you are going to be choosing a coach or mentor based on their income claims, thinking that you can replicate them in your life and business, you should probably know the truth and be prepared to ask relevant questions.  Or better yet, find someone who has actual business credentials.

The other problem with income claims is that they can get you in trouble with the Federal Trade Commission in the US, the government agency that oversees and regulates truth in advertising laws. Making an income claim is a form of advertising and all businesses, regardless of size, have to follow these laws. If you are investigated by the FTC for false advertising, which they can do if they feel your advertising is fraudulent or misleading, the penalties involve hefty fines and possibly jail time, as well as financial restitution to anyone they feel you have defrauded or misled by your claims. Do you see why this is important?

I have been wanting to do a podcast about this for a while because of the amount of scamming and fraud in the coaching industry today. It is absolutely shocking how many people think it is Ok to steal others’ content, something I have been the victim of from top name marketers and coaches, to post phony income claims to appear successful, or to mislead people into believing that ‘manifestation skills’ will make you a million dollars a year. And yet so many people get scammed by these and other phony claims every year. I want to help you avoid that.

 I can speak authoritatively about this because I am an experienced and educated business professional with decades of business, legal, and technical expertise. I also have degrees in finance, economics, and business administration, with additional master’s level work in statistics and quantitative analysis so when I see income claims I look at the numbers and do the research. And what I find is that the actual numbers and business activity do not support the income claims.  I have to admit, it surprises me that people who want to be seen as professionals and taken seriously use these underhanded, fraudulent tactics. For them it’s all about the short term money and how much they can make.

Aside from misleading people and selling them on promises they can’t keep  – and I won’t even mention the people who advertise a program and then don’t deliver on it – there are very real laws around this and you need to know what they are because all businesses are subject to truth in advertising laws. Whether you are a single owner, home based business or you have a staff of 30, you are held to the same level of legal scrutiny regarding your advertising by federal agencies.

So what are some of these fraudulent claims and how are they fraudulent?

Let’s talk first about monthly income. Someone says, ‘I make $400,000 a month on Instagram’. And they show you the proof. Yes, their gross  revenues are $400,000 but what do they spend on expenses because that is the important information. A few talk about it but most do not.

Quick sidebar – gross revenues are revenues before expenses are deducted. Net  revenue is revenues – expenses, and profit is what is left over after all expenses are deducted. For income claim advertising to be accurate (and legal), they should talk about net revenue, profit,  and income per headcount because the more they make the more they spend on advertising and they need staff to take care of their business. And advertising spend is a big factor in revenue. You cannot make a lot of money without also spending money on advertising, at least not over the long term. Yes you can ‘go viral’ but that generally refers to a quick burst of popularity that does not last very long.

Let’s get back to our $400K a month business owner.  They make this revenue claim (which they erroneously call an income claim) and then they talk about spending at least 25% of that on advertising. That’s over $100,000 spent on advertising alone, in one month. This begs the question what percentage of their revenue is dependent on advertising. If they spent less on ads would they earn less? And how many of their customers are one-time buyers vs long term buyers?

You see, if they have a ‘blab and grab’ marketing strategy then they are spending a lot on marketing to just generate sales but those customers are one-time buyers, they are not spending any more money with them.

So they are spending more and more on marketing to attract new customers every month but are not even attempting to keep customers in their long term sales path. Eventually they will experience the ‘law of diminishing returns’ and they will have a harder and harder time attracting new customers once they have gone through their available pool of customers who want their products and services.

Then they mention that they might have a dozen contractors who work for them that they pay every month. That’s another $40,000 or so in expenses.

Then there is the amount they spend on credit card fees, at least 3% of their revenues, software services, and other business expenses. By the time all of their expenses are deducted the total revenue has been reduced by over 75%.

And here is the basis of this false income claim – they say that ‘they’ make $400K a month but with a dozen people helping them, that revenue is possible because they have staff who manage a lot of their business administration work. So the $400K is possible because of the efforts of 12 or more people, plus a large advertising budget. And ‘they’ are not actually making $400k personally, which is what they imply.  Even with a general breakdown, it is misleading to someone who does not understand accounting and finance.

I am not being nitpicky here; this is what the FTC considers when it looks at false advertising claims. And what makes this really annoying is this person saying ‘I make this money every month’ when it would not be possible without the assistance of many other people plus a really large advertising budget. And they are speaking to people who are just starting a business or who are trying to grow a business.

Let’s look at another one. I had a little online tiff with this person who was talking about her ‘7 figure’ business and asked her about her numbers. She said that she made $2 million that year and then when I asked her about her profit margin she said it was 3%. That’s ridiculously low for an online business with very low overhead. So what I found out  was that she was spending the maximum amount she could on advertising and had a staff of 18 contractors. That’s ridiculous.

When I questioned her low profit margin she said that amazon had a 3% profit margin and they considered themselves profitable. Well she runs a business from home and does not have the same kind of business amazon does so there is no comparison. She does not have capital costs, utilities, thousands of employees, equipment, leases, rent – there is no way to compare her business to amazon. She really mismanages her expenses by spending far too much on advertising and contractors because, based on what she does, sell programs, coaching, and digital products, her profit margin should be at least 60%.

She does not have a big audience and is not a well known person, which may be why she has to spend so much on advertising.

Here is a third example. A ‘money manifestation coach’ says she made a million dollars in her business in a year. I looked at her business activity and she tripled her membership group audience, she did sell some products, and she may be close to a million but that’s probably not a long term number. She has already lost 50% of her membership subscribers within 4 months, and her offers to populate that membership means that most of the remaining members are not paying any monthly fees. Her other registrations are down and  it is unlikely that she is maintaining those numbers.

Is this false advertising – yes it is and she should be very careful because people complain about this and this is how the FTC is alerted to consumer fraud in advertising.

Finally, there is $100 million online marketing magnate who uses these numbers to promote her programs to teach you how to do the same. Of course there is an income disclaimer in the fine print, if you scroll far enough down the sales page to read it. There is a big problem here because this person never reveals the administrative costs in her business, including the 30 plus employees on her payroll, including a CEO, and the millions she spends in marketing every year, plus the amount of her sales that is paid to affiliates, which represents 50% of each sale. While $100 million sounds like a big number, and I question the validity of that number because it changed frequently in the past 6 months, making that claim without providing proof or a revenue and expense breakdown, is misleading.

Here’s the bottom line ( a play on words here). Income claims are not proof of any kind of credential. Bernie Madoff made a lot of money for some of his clients but he went to prison for financial fraud. He attracted clients by making phony income claims too.  The people who use income claims to market their business  are engaging in very misleading advertising.  And they use very questionable methods to push numbers and tell you how successful they are but can they substantiate and prove the numbers?

I doubt it. And most of them are doing this in a way that is not only fraudulent and illegal and is in violation of truth in advertising laws.

What they should be doing is marketing using their credentials, the experience and expertise, knowledge and know-how, the skills, gifts, and talents they have which make them credible mentors and coaches for you. 

This is what you should be looking at when you choose a business coach.

You should be questioning revenue claims, and instead, look for mentions of their business education and training, what kind of experience do they  have, what do they really  know about business?

That’s why my professional credentials are what I market first because I have them and they are what makes me a real business expert. I do not have to share my income, and I would not do that anyway, because it is not relevant. What is relevant is whether I know enough to advise you legitimately about how to start and grow your business and that, not some phony income claim, is part of the criteria you should be using to choose which business coaching is best for you.

FEATURED PRODUCT for this episode of the Goals Profit & Soul Business Podcast

The Expert Skills Audit is your resource for discovering and leveraging you know and can do into multiple revenue streams. This is a program to assess your ‘7 expert revenue skills’, your experience and expertise, knowledge and know-how, gifts, talents, and skills’ and how to turn them into revenue.

You will discover your Credibility Matrix and then receive dozens of suggested uses to turn them into cash flow. 

Video lessons with worksheets, lifetime access. Only $97 and the value is priceless.