Passive income is a big part of the network marketing business model. Defined, passive income is money received on a regular basis, with little effort required to maintain it. Metaphorically, it’s no more luctrative but a more colorful. Passive income is …
“Like an apple tree. Once you have managed to grow the tree, it will grow bigger and produce fruits ever year after year.”
“Like getting paid for sleeping — you don’t have to work for the money!”
In multi-level marketing, passive income is directly associated to your downline — the recruits who join your company and sell under you, paying you a piece of their sales. Passive income can also be generated by your network marketing website.
The Internal Revenue Service categorizes income by three broad types, active income, passive income, and portfolio income. Active income is something most of us can relate to — income for which services have been performed. This includes wages, tips, salaries, commissions and income from businesses in which there is material participation. Portfolio income is less common — money made from investments, dividends, interest, royalties and capital gains.
The IRS defines passive income as only coming from two sources: rental activity or “trade or business activities in which you do not materially participate.” Passive income is usually taxable.
In the MLM world, passive income will generally come from work you have done once, i.e. signed up a propect, 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 and 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.
As you build up a customer base your monthly passive income increases, so although you have to do a lot of work in the beginning to build up this customer base, once established you can scale back this work if you wish yet still get paid from your earlier efforts. So in effect, to start you do a lot of work for less reward, but down the line you only do a little work and reap un-proportional rewards.