Sunday, 19 October 2014

Why a Multi Level Marketing (MLM) Company isn't a source of Passive Income






Recently, I met up with an old friend from high school for dinner. Over dinner we chatted about our school life, our plans for army and the future. He told me he recently joined a MLM Company called WorldVentures. I was quite shocked, but I refrained from commenting about anything as he was pretty excited about the whole thing.

It's shocking to be approached twice to join this company in the time span of 2 months. I refuse to be a downline however.

Read post on WorldVentures here. WorldVentures

Anyway, he tried to get me to join, but I politely declined of course. Of course, he kept talking about the passive income he would earn. His exact words were "Bro, it's so easy to get rich. I'm earning money while I'm talking to you."

But when I asked him about the full compensation structure, he was unable to answer me. Apparently, his friend only told him he would be getting passive income and that's all he knew.

So essentially, he paid SGD$400+ on a single sentence. That got me wondering. How many joined MLM companies and then realised the compensation structure only after that? Or are they even clear about it at all?

As their distributors, their plan determines how you get paid. So it's extremely worrying that my friend joined based on trusting his friend and not understanding and approving of the structure.

Usually MLMs distributors get their "passive income" by sourcing for new members. Or essentially, their "Downlines".

The problem I have with is this. The concept of "Passive Income" is all wrong.

Tip: If people tell you that you can get passive income from a business opportunity or selling a product or whatever... Run. Run and don't ever look back.

Passive Income - Passive income is an income received on a regular basis, with little effort required to maintain it. It is closely related to the concept of "unearned income". (Wikipedia)




Little effort is required to maintain it. There's a difference between passive income and earned income.

When you source for downlines, you're making an effort. Not everyone you meet is willing to join. It requires much time and effort just to get 1 downline. Some MLM distributors are doing this full - time.

To make passive income usually requires having assets that generate income for you. So technically the products/memberships you're selling on behalf of the company isn't your asset. 


If you stop selling, chances are your income would decrease. Maybe you would continue to receive a commission depending on your downlines. If you stop working, eventually your passive income would decrease day by day. The turnover rate of downlines in MLM companies are tremendous. I should know, having worked in a MLM company before. People are quitting everyday and new downlines are joining.

Think of it this way, can you leave your job for a extended period of time and expect to receive the same income everyday?

Truth is what you get from MLM companies is Earned Income.

You earn this with your own hard work and effort. There's nothing passive about it.

To build a sustainable business based on selling, you would have to sell memberships constantly. And there's only so many people that are willing to join, aren't they?


In fact, do read this post wrote by Lionel Yeo, the Admin of Cheerful Egg.com


I really like and agree with this quote: "I’m sorry, but there’s no such thing as a magical switch you can flip and instantly watch ten thousand dollars roll in every month."

Signing off,
Teenage Investor

10 comments:

  1. I thought this article would be about the evil of MLM companies instead of the semantics of 'passive income'. Good article and blog anyways.

    ReplyDelete
    Replies
    1. Hi Anon! Personally I disapprove of MLM companies, but I focused more on addressing the misconcept of passive income.

      Thanks for the compliment!

      Delete
  2. Hi TI,

    Thanks for sharing. I hope your old friend will not be shocked when things turn out harder than he thought.

    Some argued MLM is good training ground for sharpening selling skills, but to think of it as an easy source of passive income would sadly be a mistake.

    ReplyDelete
    Replies
    1. Hi SSI!
      He's very adamant about the whole thing. And to be honest, he is too "emotionally involved". He feels that this will bring him financial freedom.

      Delete
  3. Teenage Investor,

    " I should know, having worked in a MLM company before."

    I love these kind of posts as its from personal experience, not parroting what we have read or heard from others ;)

    The MLM craze during my time was Noni Juice.

    MLM is a hunter profession. If someone wants to try at it, might as well consider insurance or property sales - at the very least, they don't "charge" you for $400 ++ like you young friend has paid.

    Well, that $400 ++ is active income for that person who recruited your friend, and somewhat passive income for the uplines above the recruiter ;)

    Ex-snake-oil salesman

    ReplyDelete
    Replies
    1. Hi SML!
      Noni Juice? Haha never heard of it. Is it closed? I have worked in various MLM companies (not named because may involve legal issues not sure) but the way they persuade based on a constant steady stream of income is not to my taste.

      Delete
  4. WorldVentures has been pretty aggressive. I've been brought to one of their talks. Those robotic members clapping and standing on cue. Good write up.

    Regards,
    JW

    ReplyDelete
    Replies
    1. Hi JW! Thank you for the compliment. I agree it's very aggressive. I was tricked once into going, listening to their talks if you're not careful you would be very tempted to part with $400++ only to regret later.

      Delete
  5. If you would like to stop wondering about whether you’ll ever realize your financial goals, and build a plan to actually reach them, I can help. Solo 401k

    ReplyDelete
  6. ACN is one of the current biggest MLM out there scamming people. Make sure to look into it before signing up...

    http://acnpyramidscheme.com

    ReplyDelete