How does mlm and residual income work

What does words like MLM, Residual Income and Pyramid Systems mean and how does it work.

Many uninformed people believe that mlm (multi-level marketing) or network marketing is a pryramid system and that it is illegal.

The structure of a mlm payment system looks a lot like a pyramid and therefore they think that only the top people make money. This could not be further from the truth.

People also believe that it is wrong to pay money to make money.

If you are invited to join a program and only have to pay once you must be careful. Ask the person who invites you where the money comes from to pay the other people.

Why? If there is no money coming into the system from sales of a product, where is the money coming from...have you asked yourself this question.

The only source it can come from is from new investors who are told that they can make huge profits by investing a large amount into a specific system...and they only have to invest once.

MLM is nothing else than sharing commission on a product that is sold. There has to be money coming into a system on a regular monthly basis...that can be from sales or membership fees, etc.

This is the big difference between a legal MLM and an illegal Pyramid System...

When you have a product that can be sold independently without the mlm system you can investigate it further because that will already be proof to you that the product can work without the mlm payment structure and that is a good sign.

The mlm payment structure gives the owners of the product the opportunity to save on big advertising costs in the media, television, radio, etc because they make use of the oldest and best advertising method there is and that is word of mouth...people telling people.

Let's look at an example....

Direct Selling
John is a sales rep and sells product A. He gets 10% commission on every product he sells. At the end of the month his sales gets calculated and he gets paid for all his sales. In the new month he has to start selling again because if he does not sell anything he will not earn anything.

Product  A   10% Commission
R100.00            R10.00

MLM

You get Product A to sell but instead of only you selling, you get other people to help you.

John joins the mlm program (Level 1) and gets somebody ( Mary) to help him (Level 2). Mary gets somebody to help her...(Scott) Level 3.

In the meantime you get somebody else to join as well (Peter) (Level 2)

Example

Level 1                                                       i  John
Level 2                                           i Mary           i (Peter)
Level 3                                           i Scott      i              i
Level 4                                           i           i        i            i
Level 5                                           i     i      i         i    i       i
Level 6                                           i    i   i    i     i   i   i   i   i

Now the commission is split into the different levels and depending on the product owner (company) who decides how much commission is paid on each level you can earn a lot of money from the people below you...depending on who works and who does not work.

You will earn a residual income from all the people below you. This is where a lot of people think residual income, sometimes referred to as passive income means you do not have to work....please wake up....there is no such thing as a free lunch.

Passive Income means you have worked hard to refer Mary.  Mary is also working hard and pays her monthly fee for the use of the product. That fee is then split up in different ways. The cost of the product is deducted...overhead costs (just like any other business) are deducted and the commission is split into the different levels.

That is in short how mlm works. You get paid every month for the work you put in the beginning because as long as every member who join, pays their monthly fee for the use of the product (whatever it is) you will receive an income from the members you referred as well as the members they referred for several levels below you. This mean you can receive a substantial income from several members over a period of time without doing the same work every month. It also means that your income does not start at zero every month but grows as the amount of members in the levels below you, grows.

It also means that you do not have to do all the work yourself but if each person does their little bit of work and refer only one person per month you will have a group of people of more than 2 000 below you in 12 months....imagine the amount of income you will receive from that amount of people.