The MLM Residual Income Myth

One of the deceptions that is used to get people to join a MLM scam is the myth of long term residual income generated by recruiting people for 3-5 years into the scam. The idea that you can work for a few years and then never have to work again, is a powerful motivation to join.

Here is a good example of this deception in action:

One residual income idea is network marketing. Network marketing has received a negative reputation throughout the years mainly because of a high failure rate. That is due to the fact that people who enter the profession don’t take their business serious or don’t know the first thing about marketing.

However, if done properly, it can produce incredible riches. In fact, there are more millionaires made in the network marketing profession than any other business industry in the world. And it is endorsed by moguls such as Donald Trump, Warren Buffet and Robert Kiyosaki.

Finding a vehicle that will produce residual income will get you on the right track to becoming financially free and creating long-term wealth for you and your family. – Source

Here is the sad reality of MLM long term residual income:

Residual income is income that continues to flow even after your initial work to create it has ended. Standard earned income stops flowing when you stop working.

Some activities that generate long term residual income include:

  • Rental Income or Note Income from Real Estate
  • Creating and Selling Intellectual Property
  • Business Income

So why is MLM not a valid source of long term residual income?

It all comes down to the dropout rate for MLM representatives. In MLM your residual income is based on the sales and purchases of your recruited representatives. The dropout rate for MLM representatives is 60-90% in the first year.

There is a 90-95% failure rate for Herbalife distributors in the first year.
“… more than 90% of our distributors that are not supervisors turned over.” – Herbalife 2005 Annual Report

It is estimated that more than 80% of USANA associates drop out in the first year.
Associates earning as little as one commission check a month and associated with USANA for more than six months equal only 3% of all ordering Associates. – Source USANA Income Statement

Long term drop out rates for MLM scams are not revealed by the companies running these scams. With a 60-90% dropout rate in the first year, there will be few people around in 5 years to provide you with long term residual income.

You can’t build long term residual income with almost everyone you recruit dropping out.

Here is what one successful MLM representative said about the MLM long term residual income myth:

This is a touchy subject amongst some groups, but I want to share my take on it. I have been involved full time in the home business industry for 10+ years. Some of that time has been spent in MLM where the idea of working 3-5 years and creating a walk away residual income is promoted and sold. I have been very fortunate to have tremendous success in that arena, working in that type of compensation model for 7 of my 10 years. During that time frame I’ve had enough time to see trends and see that this promotion of walk away income doesn’t exist.

During that time I’ve met many top earners who you would think had achieved the mythical walk away income, but guess what…? They are still working today, some in their 2nd or 3rd company since I’ve known them! So where is the walk away income? I say it doesn’t exist. I have known reps who have had 100’s of thousands of distributors on their teams at one time and now they are rebuilding and doing it all over again still promoting walk away income. It makes me want to scream! They can’t see that 99.9% of the people can’t do what they do and they can’t even achieve the mythical income. – Source

The MLM Residual Income Myth Conclusion

The idea of long term residual income is a powerful one.  Who does not want to do work once and reap the benefits for years to come. The sad reality is this idea is used to convince people to join a business opportunity that can’t provide long term residual income. Don’t waste 3-5 years of your life for something that you will not find in a MLM scam.