Residual Income, a Myth?

I'm writing this in response to the every distributor in every company and program that tell you that the greatest things about MLM/Network marketing is the residual/passive/ongoing income that "keeps making you money forever" and they'll even try and convince you that it will "keep on growing" whether you do anything with your business or not. Why? Because it is misleading at best.

What is residual income? Well, essentially in the world of sales when you gain a customer of a company you get a commission on that sale. It's been going on since people sold things for other people. The idea of a residual income is that you get paid on an ongoing basis. Usually monthly. For instance if you sell a subscription to a service then you can get a cut of that service on a monthly basis. Another example being in consumable products such as shampoo or nutrition, each time that customer buy's their monthly supply - you get another cut of the profits.

What a lot of networking companies class as residual is the income you get from your downline. Especially companies that are based on recruitment of people who "shop for themselves" as "prosumers" and are totally based on self consumption with no sales outside the company at all. So yes, in this scenario you'll get a check on the efforts of others on a regular basis.

Why this page then? Purely because residual income is touted as the way to make your money and create a permanent income stream. People actually say you can sit back and do nothing for the rest of your life and the money will still come pouring in. Saying this turns a blind eye to many important things.

- Money from your own customers is higher

Firstly, i should say that any commissions you receive will be higher form your own efforts than those of your downline. So being on a manic recruitment drive of self recruiters could be earning you less money that building yourself a solid customer base and teach others to do so.

- Company can go under

Any company can go bust. I don't care how long they've been trading. If they're not profitable then they'll soon not exist. The government of your country could deem that their compensation plan is illegal. Perhaps your company might decide that they can get their own customers and allow people in through their corporate web site when you're not allowed to do the same. One company in recent times suddenly changed their minds and were not longer mlm!

- Company could change it's rules for qualifying for income.

You compensation plan isn't set in stone. Companies have often been know to have a change of heart when it comes to dishing out the money. Or you could find yourself in a situation where idle company reps lose out on all or a part of their commission unless they meet monthly quotas.

- Product could go out of fashion

The super whizzy products that your company promote could easily go out of fashion and no longer be what people want. Or be totally superceded by you competition. Result? A mass exodus of customers and recruiters.

- Attrition

Attrition can be a killer to your income. Basically attrition is the drop off rate from your customer and/or distributor base. After all, people change their mind and no longer want your products and or services. Even a growing business has to offset it's growth against attrition. Let's assume that each month you keep 90% of your downline/customers (and that's a high estimate!) and start at that magical six figure income value of $100,000. In just 8 months, your monthly income of $8000+ is down to just under $4000 and in another 7 months it will have halved again. Before long, this "retirement" income is looking pretty pathetic indeed.

Scary eh? Well, it needn't be. You should concentrate on building a great income and build up that passive income to great levels. Just don't rely on it being there forever. Take the money you're earning, supplement your income - pay off your debts - treat yourself and with what's left over build up your own income streams elsewhere. I'm no expert in investment, but there's plenty of sources of info on using your money wisely in building a rental properly portfolio, a share tracker investment account or even a private pension to look after yourself.

Just don't waste it all, okay?

Chris Andrews has a keen interest MLM and network marketing, but not in the way most people are. He writes about his experiences on the site http://www.wanttoknowmore.com/ and the blog http://christopherandrews.blogspot.com/