MLM, or Multi-level marketing, is are often promoted as passive or residual income opportunity. By leveraging the power of network marketing, most MLM companies boast the opportunity to make money by enabling other people to sell more with the idea that the more people you get to join the business, the more you will make. But reader beware.
Is MLM illegal? An MLM (Multi Level Marketing) is illegal if it is based on a pyramid scheme. A pyramid scheme is a business model that, instead of selling products or services, is based on recruiting other members with compensation based on the promise of payments or services. This business model is recognised as illegal in most countries.
Whereas a legal MLM would consist in a marketing strategy based on selling products or services, not recruiting other sales people.
With MLM marketing, there is an opportunity to make passive income, but not right away. Maybe in a couple of years, and that only if you choose a company that is not trying to scam you. Of course, you need to choose a legitimate company, work hard and convince a lot of people to buy the products for sale. It is crucial to sell a product or service you believe in. Advertising and selling skills are key to having success in the MLM industry. You also need to have strong persuasion, sales and coaching skills in order to succeed. Let’s take a look at some of the practical steps involved in making passive income with multi-level marketing as a beginner, but also some of the things to look out for.
Please take note we do not endorse or recommend any companies listed on this page and we are not recommending the MLM businesses model. This is just a passive income idea that may interest some of our audience. So here are some things to keep in mind about this passive income idea.
1. Is MLM a Scam? Understanding How it Works
The first thing you need if you want to be successful with MLM is to grasp the concept of what it is. A legal MLM company encourages you to sell legitimate products or services to people who are genuinely interested in buying them. An illegal MLM is based on a pyramid scheme, where people make money by recruiting other people. A product may be involved, but the focus of a pyramid scheme is still recruiting people for money. Be careful because some of these companies may be deceptive in how they present themselves. You may have the impression you will be selling a product, but soon realize you are encouraged to recruit other people to make more money. If the company is focused on your recruiting other people, you may be in the presence of a pyramid scheme. Watch the video above to learn more of what you should look out for and some warnings before jumping head first into this passive income idea.
2. Choosing the Right MLM Company for You
This is one of the most important aspects to joining an MLM. You should be 100% sure that you are choosing a reputable MLM company to work with, one that offers you all the support needed to succeed. Do not get caught in the hype and the money the companies promise. Sift through all the information you receive and carry out our own due diligence Look for a stable company that has been in business for a long time and has a proven track record of success. Talk to current and former members. Look for products you are passionate about or you can get behind. Some of the most well known MLM companies include Amway, Avon, Herbalife, Mary Kay or Tupperware. Each company is unique and offers a certain revenue plan, so you need to choose one that meets your needs and interests.
Beware Not choosing a legitimate company, or choosing one that has a bad rep can be detrimental to your personal finances and reputation. Have a look at this video that covers an example of a famous company that ruined some people’s lives. Watch the video below to learn more.
Investigate the integrity of the company you want to work with and see if their products are appealing to you. You want to sell products that you love, because you probably will not succeed trying to get others to purchase products if you are not excited about them yourself. Ultimately, research the compensation plan and try to see how much and how long it would take you to get to a level where you make 100% passive income.
3. Understanding The Passive Income Opportunity
You are here because you are interested in making passive income, so make sure that the MLM you are considering actually offers that opportunity. If you cannot eventually make passive income from the MLM, it may not be for you. Some MLMs offer the opportunity to make passive income with:
- Direct Sales / Retail
- Commissions from recruiting
- Commissions on team member sales
- Production Bonuses
- Special promotions
Here are some income values of people working for some of the most famous MLM companies in the world. According to Paysa, Avon Sales Representatives make an average of $3,900/month (source), Mary Kay Cosmetics Recruiters make an average of $6,000/month (source), and Herbalife Recruiters make an average of $8,500/month (source). However, this source does not state how long it took these people to achieve such numbers or how passive the income is. Also, these numbers do not take their expenses into consideration. Some of that money may go to expenses, travel, fees to the company, product purchases and more. And not everyone is making that money. Also take note that those numbers are subject to change over time so click on the links and check out more websites offering estimates in your area for more info.
Also, even if those are big names, you should still be careful. Herbalife was sued by the FTC and ordered “to pay $200 million to people who lost money trying to run an Herbalife business.” The settlement consisted in a refund to Herbalife distributers who worked for them between 2009 and 2015 and gave at least $1,000 to Herbalife during those years, but got little or nothing back from the company. The FTC is a consumer protection agency in the USA and provides resources that can help you distinguish MLM’s with illegal business models from those that are running legitimate businesses. Learn more on the FTC’s site. You could also check the Better Business Bureau for more information.
Check out this document by the FTC that covers the probability of making money with an MLM, you will see, the chances are not high for most people. The document contains tips on what to look out for when interested in joining an MLM company.
Create your financial plan before you get started to evaluate if you can financially sustain yourself while you are starting up your MLM business. Should you keep your 9-5 job, or can you afford the risk of quitting? Do you have enough money saved to sustain yourself while possibly not making any income for six to eight months? How much money do you want to make from MLM? Are you willing to work for five to ten years to build this active income stream into a completely passive one? We will talk more about income and your personal business plan below. Learn more about how much passive income can make you “rich” in the article on our blog (opens in new window).
4. Becoming a Master Recruiter, Trainer & Sales Manager
Working for an MLM requires key social skills including marketing, selling, coaching and training. The YouTube video below offers a very honest review of the skills MLM entails. It also covers the income you can make depending on dedication, motivation and personal investment.
“You don’t accidentally part-time turn a multi-level thing into a million dollars. It’s not like you just show up and you go get three of your friends in this thing and it turns into a million dollars. It’s seven to ten years of very hard work as a Master Recruiter Trainer and Manager of Sales People. Those are the people that make seven figures. I’ve got several friends that make a million dollars a year. And I’ve got a like a thousand or two thousand or ten thousand people that I’ve met that we’re in it for three months that are not anymore. Okay, but I actually know more than five people in network marketing they make that have made a million dollars a year at one time or another, but they didn’t do that part-time, and they didn’t do that part-time for three years and then full-time for two years. They became professional motivators, professional sales trainers, professional managers and hires or sales people, and they have Rhino thick skin because people come and go every 20 minutes. And they don’t get their feelings hurt when everybody’s mad and turning they just go get another one. They just go get another one. And that’s that business. There’s nothing evil or wrong with the business. But if you think you’re going to hire three people and they’re all three going to be with you ten years from now you are kidding yourself.”
Once you are part of the business, it is essential to learn as much as possible and get better at these key skills. You need to be ready to earn nothing for the first few months. You’ll probably make no sales and you’ll earn nothing. However, you’ll invest plenty of time in learning all the tricks of the MLM business you joined. You’ll test products and learn the best techniques for approaching prospects.
During this process, you need to start creating your personal and business strategy. Identify your target market and understand who the people more likely to buy from you are. How much do they earn a year? What are their hobbies and interests? What problems do they face? How can your products or services solve their problems and exceed their expectations? How will you reach these people? Also train yourself to become a better salesperson, trainer and coach. Learn about online marketing and hosting events. YouTube can be a great place to learn more about selling, marketing and training others.
5. Marketing Your Products
Some people make passive income from MLM online and/or offline. If you are selling physical products, you probably want to meet with your prospects face to face and show them how the product looks and works in reality. However, if you sell a digital product, you can transform this source of income into an online method of passive income. You can basically stay in front of your laptop and convince people to join your business, and then sell your products online using social media and other digital channels.
Depending on the MLM you join, a variety of marketing techniques may be applicable. You can host home parties, host team events, attend trade shows, send envelopes with promotional material, send greeting cards, interview people on the street, speak at civic group events & business meetings, go strong on social media by creating a YouTube channel and Instagram account, create a blog and leverage the power of cold calling. If blogging interests you, we highly recommend this blogging course.
While you want to sell your products and get revenue, it’s also crucial to build a strong downline. This means you need to create a strong network of people eager to sell these products themselves. The bigger the network and the more successful it is, the more passive income you’ll make.
6. Standing Out on the Market
To be successful, you will need to continue innovating, learning and perfecting new skills. Find new approaches to grow your network and to find new customers. Do not be content with just the information you receive at training sessions, but go above and beyond and try to experiment by yourself. Enable people to choose you over all other representatives by offering extra perks and benefits to your clients and network. You can do that by offering personalized services, creating your own reward program or giving out something of great value if that is allowed in your MLM.
How Passive is MLM?
MLM has the potential to be passive. You need to make sure you choose a reputable company that allows you to create a strong network of people that can actually generate passive income before joining if that is your main goal. Take note that it may take years to turn this very active method of making income, to a passive one.
You will probably need to invest money in the beginning. Many MLMs offer paid training materials or products/starter packages that can cost upwards $2,000. Some are more expensive than others depending on what you choose. You can start with a couple hundred dollars and try to make profit right from the start by promoting products to your family members and friends, but this network will probably get bored and annoyed so you will have to broaden your network quickly. The startup costs vary from one MLM company to the next so look into this before joining.
Becoming successful with an MLM business is quite complex and could prove to be harder than most other passive income methods. In addition to the immense amount of time and energy you need to dedicate to your business, there is always the risk of failure and losing money. An MLM involves using all of your marketing, sales and management skills together in order to attain success. This may not be for everyone, especially if selling, marketing and training people are not in your skillset, and if you are not interested in learning these skills.
In terms of time involvement, you need to dedicate hours and hours for many years to turn an MLM opportunity into passive income. During the first few weeks or months, you might need to spend entire days discovering all the products and learning how to promote them. And you may not make any income during that time. The great news is that once you get to a point where you make money only from your downline, you can spend a few hours a week to grow your business, or even less. However, this may take years to build.
An MLM is a high-risk passive business opportunity. It costs money and a lot of time to start, to build, launch and maintain. Think twice before venturing into an MLM if this kind of risk is not for you.
You can join an MLM business anytime, in any season. Most businesses work all-year round and sell products that can be used every single day of the year.
Return on Investment
If you build a successful MLM team, you can gain a precious source of passive income. While in the beginning the ROI from what you sell will probably be low, once you have a successful team your ROI can increase. However, to get to that point, you need to work hard for several years and to not give up.
Can I make passive income from MLM? You can make passive income from MLM, however it will take time to transform an active MLM business into a passive one. Some ways to do so include recruiting a larger sales team and focusing on more residual income such as commissions, royalties and bonuses.
How much can you make working for an MLM? According to Paysa, Avon Sales Representatives make an average of $3,900/month (source), Mary Kay Cosmetics Recruiters make an average of $6,000/month (source), and Herbalife Recruiters make an average of $8,500/month (source). However, these numbers do not cover expenses and are subject to change over time so click on the links and check out more websites offering estimates in your area for more info.