Today, I want to educate you about the MLM binary compensation plan. There are many types of compensation plans in our industry to include the unilevel, break away, forced matrix, hybrid plans, and the binary compensation plan.
The binary compensation plan is a fairly new concept, probably around 20-25 years old (at the time of this writing). Some of the first network marketing companies to use this type of compensation plan, that I know of, include Market America and USANA.
Very few, if any of the top 20 biggest companies in the industry use this form of compensation plan, but it is a growing trend. These compensation plans are VERY popular.
I should quickly add that many of the top companies in the industry are 30+ years old, and existed BEFORE the binary compensation plan was in existence. I believe that in the years to come, companies utilizing the MLM Binary Compensation Plan will eventually be the largest companies in our industry.
What is a MLM Binary Compensation Plan?
The MLM binary compensation plan is designed for you to build TWO teams in your network marketing business: a right team and a left team. Rather than go out and build 10-20 groups/legs of distributors, like many companies require, you only have to build TWO teams.
You can still personally recruit as many people as you want to. Your first two recruits will be placed on your left and right. This makes you qualified for commissions. After that, you can place your new recruits wherever you want to, typically at the bottom most position of each leg: the bottom left of the left leg or the bottom right of the right leg.
With a MLM binary compensation plan, you normally get paid off your smaller leg in your organization. For example, if one leg is doing $20,000 per month in volume and the other leg is doing just $1,000 per month in volume, you would earn your commission from the $1,000 leg. For example, you might earn a 10% commission from your smaller leg.
On the other hand, some companies do a ratio, instead of paying you off the smaller leg only. For example, once you do 200 points in one leg and 100 points of volume in the other leg, you have a cycle and earn a commission (this is just an example). These ratios do vary by company and can range from a 1:2 or 1:3 ratio.
Compared to other MLM compensation plans, a binary compensation plan is relatively straightforward and simple to understand. In a binary plan, a sales representative’s front line is limited to two downlines, but the depth is unlimited. This means that in order to start earning, each sales representative needs to recruit just two representatives who will make up her “front line.” When a representative recruits more than two members, it’s known as “spillover.” The additional spillover sales representatives are placed in tiers under the initial front-line members.
As representatives are recruited, and the binary structure within the MLM software fills in, a two-leg downline is created of two-by-two tiers. There is no limit to the number of tiers included within an MLM binary compensation plan. The structure is also known as the MLM company’s genealogy because of the way it depicts the hierarchical relationships between the organization’s sales representatives. ~ By Design.com
The Truth About Compensation Plans
Let me start by telling you that no compensation plan, or type of compensation plan is perfect. Everyone thinks their company’s compensation plan is the best, but all compensation plans have pros and cons. To think otherwise is foolish.
More importantly, all compensation plans in our industry pay out somewhere between 30 and 50 percent of the total sales. Companies must make a profit to stay in business. They have employees, overhead and operating expenses to pay each month. If they paid much more than 45% of sales to their distributors, they wouldn’t stay in business long.
In addition, most network marketing companies pay distributors based off some type of point value, which is a percentage of the wholesale cost of the item. Each product is assigned a point value based upon the product’s profitability, and how much the company can afford to pay out on that item.
For example, $100 worth of products might be equal to 50 points. When you factor in all of the different bonuses, a company would normally pay out somewhere between $30 to $50 for every $100 worth of products sold.
Pros of the MLM Binary Compensation Plan
# 1: Only Build Two Legs
There are a few REALLY good things about a MLM binary compensation plan that stand out to me. First and foremost, you only have to build TWO teams: a left team and right team. Most other companies require at least 5 to 15 teams to max out the compensation plan.
Keep in mind the average distributor in our industry is part-time and ONLY sponsors 2-3 people. That’s it. In my opinion, they have a better chance of achieving success in a binary compensation plan than they do in a company where they need to build 5-15 legs/groups. Hey, if you can’t build two groups, how could you build 10-15? Seriously.
# 2: Synergy
This might just be the most powerful part of the MLM Binary Compensation Plan. Synergy is when a group of people work together toward a common goal. In most compensation plans, you have to build your own team and no one in your upline puts people on your team (because it is not in their best interest to do so).
Because each person only has two teams, and has to place people they personally sponsor in a left or right leg, there is a good chance you will get some spillover from your upline and sponsor. If you join someone who is a good recruiter, you might get LOTS of spillover. That means people in your upline put people on YOUR team!
Best of all, the people they place in your team count toward your volume, which means you can get paid on it.
I can’t speak for you, but when I login to my back office and see new people on my team that someone in my upline put there, I find it VERY exciting. I know other people feel the exact same way.
# 3: Infinite Depth
Most matrix, breakaways and unilevel compensation plans limit how many levels you can get paid on in your team. This is typically between three and seven levels, depending on the company that you work with. Anyone in your team below these designated levels, in most cases, you won’t get paid on.
That might not sound like a big deal, but if you are serious builder, you are leaving LOTS of money on the table doing this. You must realize that each level of your team will be bigger than ALL of the levels above it (it should anyway). In many cases, your level 7 (as an example) will have more distributors in it than levels one through six combined. That is the power of geometric progression.
With a MLM binary compensation plan, there are no levels. You simply have two teams. Each of those teams has a volume that you are eligible to be paid on. It doesn’t matter if someone is on level 1 or level 900, their volume still counts toward your commissionable volume. Isn’t that exciting?
Some network marketing companies have restrictions, such as how many cycles you can earn per week before you are capped off and can no longer collect on that leg. Normally, when they do that, they also have a rule where you can reenter the organization and form a new business center in depth, so you can collect on it. Or, it just carries over to the next week (or month).
# 4: Banked Volume
This is a feature I LOVE about the MLM Binary Compensation Plan. Every company does it differently, but most companies let you bank volume each week. What does this mean? It means that if there is volume in 1 of your 2 legs that you didn’t get paid on that week, the volume carries over to the next week. This is very powerful once you understand it.
In most companies that use the MLM Binary Compensation Plan, all you need to do is order a certain amount worth of products each month to be eligible to have the volume carried over. This volume continues to carry over each week, until you are eventually paid on it.
Some companies flush this volume after a year, or if you miss a month of ordering a certain dollar amount worth of products. Other companies continue to let the banked volume carry over indefinitely.
# 5: Paid Weekly
In modern society, most people are paid weekly, or at least twice a month. Just about every company in our industry pays people once a month. The only companies I know of that pay weekly are companies that use the binary compensation plan.
I believe this motivates people to work harder. It creates a sense of urgency, because people like instant gratification and want to be paid quickly.
Some binaries even pay people DAILY!
# 6: Matching Bonuses
Some network marketing companies that use the binary compensation plan offer matching bonuses. This varies by company, but it often includes check matching of the people you personally sponsor.
For example, if you sponsor Joe and Joe earns $100 in binary commissions that week, you might get a 25% to 50% check matching bonus.
If you have the ability to sponsor a lot of people, or a few really good people, your check matching bonuses could easily exceed your binary commissions. I can’t speak for you, but I find this very exciting.
These are the pros as I see it. Listed below I will talk about the cons.
Cons of the MLM Binary Compensation Plan
Here are a few things I don’t like about binary compensation plans, just to keep things fair.
# 1: Welfare Mentality
Binary compensation plans often create a welfare mentality with your team. Most people who have any experience whatsoever in the network marketing industry will DEMAND to be part of your power leg or they won’t join your team.
In addition, many of your team members will sit back, do nothing and expect you to build their team for them. Even worse, some people will join and have a power leg get built for them, but then have the audacity to complain that they aren’t getting paid off anyone in the power leg.
In reality, these folks didn’t sponsor anyone themselves, and didn’t qualify for any type of commission. That’s why they didn’t get paid.
# 2: Balancing Your Legs
Another problem with the binary compensation plan is that you have to balance your two legs to make maximize the payouts. For example, if you have $100k in volume in one leg and $1k in volume in the other leg, you would be paid off the $1k in volume. Each company does it a little bit differently, but you normally only get paid off the smaller of your two legs.
# 3: Caps on Payouts
My final problem with the binary compensation plan is the caps that companies make on their payout. Once again, every company does it differently. Since the company can only pay out so much money and stay in business, they often cap how many CYCLES you can earn per week. To make up for it, companies carry over your volume and/or let you create another business center once you max out the weekly payouts.
Tips for Success with a MLM Binary Compensation Plan
My best tip for success is to partner up with someone who is VERY serious in the company, and knows what they are doing, and already has a Power Leg. That way, you can benefit from spillover.
Put your first three people that you sponsor in your power leg and then focus ALL of your efforts on building your other leg. Just like any other type of compensation plan, you are going to have to sponsor A LOT of people to build up a big paycheck. Most of the top earners sponsor at least 100-500 people personally, even if they are doing a binary plan.
Whenever you sponsor someone make sure you place them at the bottom most point of your leg. For your left leg, you stack people on the outside left leg. For the right leg, you put your new person on the bottom right.
You never, under any circumstance, put anyone you sponsor anywhere else in your group. Just focus on placing people at the bottom of each team. As you build your own team, help each of them do the same thing!
I should also chime in and tell you to look for QUALITY people: LEADERS. At the end of the day, you are really looking for TWO good people: one on your left team and one on your right team. Two good people can make you a lot of money with a binary compensation plan.
Companies That Use the Binary Compensation Plan
There are tons of MLM Companies that use a binary compensation plan. Here are a few of the more popular companies.
- Essante Organics
- Market America
- World Ventures
- Total Life Changes
There you have it folks. This is my overview of the MLM Binary Compensation Plan in the network marketing industry. Like any other pay plan, it’s not perfect, but I like what the binary compensation plan has to offer, and I highly recommend it.
What do you think? Do you like binary compensation plans? If so, why? If not, why not? Leave a comment below to share your thoughts. I look forward to hearing from you.