As an accountant or bookkeeping professional, if you engage in affiliate marketing or receive compensation for promoting products or services, it is essential to understand and comply with affiliate disclosure requirements. This guide will provide you with the necessary information to avoid hefty fines or further action from the Federal Trade Commission (FTC).
Let's clarify that I am referring to disclosures mandated by law when working with brands or receiving payment for involvement in an affiliate program, not website disclaimers that limit your liability to website visitors for their use of your content. It's important to note the distinction; many people use the terms "disclosure" and "disclaimer" interchangeably.
What is the FTC?
The FTC is a government agency dedicated to protecting consumers. Its role is to prevent companies from making false claims about their products or engaging in deceptive business practices. As consumers, we rely on having an agency that safeguards us from unfair practices.
In addition to regulating product claims, the FTC requires disclosure when you’re promoting a product or brand online; it is actually considered an advertisement. This was more straightforward before the internet era, so it was easier to identify traditional advertisements on TV or radio. However, with the rise of social media influencers, it has become less clear whether someone is genuinely endorsing a product or doing so because they have been paid to do it.
Understanding compensation
Compensation extends beyond monetary payments. It includes receiving free products for reviews, earning affiliate commissions, or even receiving discounts or complimentary items. If you receive any form of benefit from promoting a product or service online, it qualifies as compensation.
Why do you need an FTC disclosure?
Aside from the legal requirement imposed by the FTC, disclosing your relationships with the products or brands you promote helps build trust with your audience. Imagine your favorite blogger recommending an accounting product, but you later discover they were paid to endorse it. Wouldn't you feel more skeptical about their recommendation? By disclosing that you may receive compensation from promoting the product, you demonstrate transparency and maintain your audience's trust.
Who needs to disclose?
Anyone who has a relationship with a brand and receives compensation in any form must disclose it. The amount of compensation is irrelevant, whether it's $1 or $1,000. Similarly, whether you have 10 followers or 10 million, you must disclose any compensation received.
This obligation extends to personal social media profiles where affiliate links are shared. In addition, this applies regardless of whether this is a regular practice or a one-time occurrence. When in doubt, always err on the side of disclosure.
However, if you're genuinely discussing a product or brand without any form of compensation, there is no need for disclosure. Compensation is broadly defined, but if you aren't receiving anything for promoting the brand, you have no disclosure obligation.
What do you need to disclose?
Your disclosure should clearly state your relationship with the company or brand and the form of compensation you receive. It's advisable to specify how you are being compensated:
- If you received a free product for review, mention it.
- If you earn a commission when someone makes a purchase through your affiliate link, disclose it.
- If a company pays you a flat fee to promote their product or service, make that clear.
- If you work for the company or have an ownership interest, disclose that information as well.
When do you need to disclose?
Anytime you receive compensation from a company or brand, disclosure is required, regardless of the platform or medium used. Whenever you are being compensated, you must disclose it.
How should you disclose?
The FTC mandates that your disclosure be "clear and conspicuous." It should be easily understandable and prominently visible to an average person, without requiring expertise or specific knowledge of online advertising. Avoid vagueness or attempting to hide your disclosure from your audience. Not only does this fail to meet FTC requirements, but it is also considered unethical. If you're uncomfortable disclosing the relationship, reconsider the partnership altogether.
The disclosure should be placed as close as possible to the triggering claim—the statement that prompts the need for disclosure. Simply having a disclosure page on your website and directing people to it is insufficient. Your disclosure must be easy for consumers to find and understand the relationship between you and the promoted product or brand.
The FTC requires you to disclose the relationship before promoting the company. For sponsored posts, the disclosure should appear at the beginning, preceding any promotion. If you include an affiliate link, place the disclosure near the link. Your disclosure doesn't need complex legal language. In fact, it's better to keep it simple and understandable.
Working with brands can be a lucrative way to monetize your platform, but it's crucial to follow FTC rules and remain compliant. For more information, refer to the FTC's Endorsement Guides.
