Residual Income in MLM – What is it?

Many Network Marketing companies have Residual Income as part of their compensation plan, but what exactly is it?

Wikipedia calls Residual Income Passive Income and with the definition "an income received on a regular basis, with little effort required to maintain it". The full definition is posted below for clarity:

"The American Internal Revenue Service categorizes income into three broad types, active (earned) income, passive income, and portfolio income. It defines passive income as only coming from two sources: rental activity or "trade or business activities in which you do not materially participate."[1][2] Other financial and government institutions also recognize it as an income obtained as a result of capital growth or in relation to negative gearing. Passive income is usually taxable.

Some examples of passive income are:

Earnings from a business that does not require direct involvement from the owner or merchant;

Rent from property;

Royalties from publishing a book or from licensing a patent or other form of intellectual property, such as computer software product;

Earnings from internet advertisements on websites;[3]

Dividend and interest income from owning securities, such as stocks and bonds, is usually referred to as portfolio income, which may or may not be considered a form of passive income. In the United States, portfolio income is considered a different type of income than passive income;

Pensions.[4]

The IRS has a specific definition of passive income that excludes some of the incomes listed above. Royalties, for example, are, according to the Service guide, generally non-passive in nature. Additionally, interest, dividends, annuities, and gains from stocks and bonds, lottery winnings, salaries, wages, commissions, retirement income, guaranteed payments for services are considered by the IRS to be non-passive. [5][6]"

Residual Income & Your Compensation Plan

So how does residual income, or passive income, fit into your Network Marketing Companies compensation plan? Well for starters have you read the details of how you will, or are currently, getting paid? Do you understand the break down of exactly where your income will, (if you are looking at getting involved with a MLM company) come from? If you don't understand then you should ask for a meeting with your up-line & get them to explain it to you.

In MLM Network Marketing residual income will generally come from work you have done once, ie signed up a customer, but is paid on an ongoing, normally monthly, basis. In practice this may mean that your customer has signed up to receive a product or service on an ongoing basis & as long as they keep paying your company for that product or service, you will get your commission every month, without the requirement for you to do any more work. An example of this is the supply of Utilities, Once you as a

distributor have signed a customer up to take your companies utilities ( Energy or Telecommunications ) then every month when that customer pays their bill you are paid a % of their spend as a commission.

This is where the full benefits of being involved in MLM Network Marketing are reaped. As you build up a customer base your monthly residual income increases, so although you have to do a lot of work in the beginning to build up this customer base, once it is established you can scale back this work ( if you wish to ) but still get paid from your earlier efforts. So in effect at the beginning you do a lot of work for very little reward, however further down the line you do a little work for un-proportional rewards.

Residual Income- Exponential Growth

The main reason why your income grows exponentially is down to how you leverage your time in MLM, at the beginning of your journey in Network Marketing you will perhaps put 5-10 hours per week into building your business. However as time goes by you will recruit "team members" - people who also want to make some money on a part time basis, also some of your customers will join you and become part of your "team". So months into your business you will still be putting 5-10 hours a week in but you will have say, 3 team members, also putting 5-10 hours a week into "your business". Although these team members are building their own businesses they are also helping you build your business. John D Rockefeller once said "I would rather earn 1% off a 100 people's efforts than 100% of my own efforts". This in my opinion is what makes MLM such an attractive proposition. As long as totally buy into the ethos of MLM in that you must help others achieve what they want in order to achieve what you want. It is most definitely not a case of recruit as many team members as possible & sit back & wait for the money to roll in. If you have this rather short sighted one way idea of what MLM is, then you are doomed to failure.

Pension Plan

Lots of people who join Network Marketing companies do so to build up the residual income to use as a pension. It seems everywhere we go in the UK today you can see people of pensionable age still working, in shops & restaurants, because their pensions are too small to live on. We are all now getting used to the fact that we are going to have to work longer before we are eligible to even qualify for a pension, not to mention the fact that in all likelihood that pension will not be enough to live on. So what do we do? Carry on working until we drop seems to be the only alternative, however more & more people are now turning to Network Marketing as they see this as a practical, if not the only, alternative to working until we die! MLM is one of the fastest growing means of doing business in the world. In 2010 Direct Selling companies ( Network Marketing ) were responsible for more than $125 Billion in Revenue across 150 countries ( Source - The Wall St Journal ) so you can see that there is an awful lot of residual income being generated out there, maybe it's worth looking at! For more info please go to http://mlmuk.net

References;

1&5 http://www.irs.gov/businesses/small/article/0,,id=146330,00.html

2 "Topic 425 - Passive Activities-Losses and Credits". Retrieved 2009-06-18.

3 Ernest R.Larkins; "International applications of U.S. income tax law" John Wiley & Sons 2004 P.288

4 Clarence F. McCarthy, Billy M. Mann, William H. Gregory; "The Federal income tax: its sources

and applications" Prentice-Hall, 1971 page 746

http://www.law.cornell.edu/uscode/uscode26/usc_sec_26_00000469----000-.html