Network Marketing Compensation Plans
The Binary Plan
The binary plan is a network marketing compensation plan wherein new distributors are placed in a binary (two legged) tree structure, or a left and a right sub-tree in the organization.
The plan is fairly new in the network marketing industry. Network marketing companies started using the binary compensation plan in the late ’80s to early ’90s.
The Structure of the Plan
The plan is based on the number 2, hence the name binary. Each distributor is permitted to have only two distributors on the first level – called business centers. There is no limit as to how deep a distributor can build.
Because of this limited width, the plan is sometimes mistakenly referred to as a ‘2 x infinity’ matrix plan. But the binary plan is not a matrix plan.
It becomes clear then that in a binary compensation plan there are only two legs, the left and the right. The two legs can grow on the inside and the outside, referred to as the inside leg and the outside leg.
The outside leg, also known as the power leg, benefits from automatic placement of new distributors not only from your recruiting efforts, but also from the recruiting efforts of your upline. This is known as spillover.
Because the width of your organisation is limited to only two members on the frontline, any new members that you sign up will ‘spillover’ to available empty spaces in your downline’s power leg.
On the other hand the inside leg, also known as the profit/income leg, is filled only by personally sponsored distributors. In other words there can be no spillover into the profit leg. This is an important factor to keep in mind when building a network marketing organisation if your company uses the binary plan to pay commissions.
Commission Calculation and Payments
Commission calculations in a binary plan are based on business volume points, not levels. The commission is based on a formula dependent upon business volume points in the left leg matching up with business volume points in the right leg.
For example, when the binary plan was first introduced, network marketing companies would pay a commission only if business volume points of both legs were equal. As it proved difficult for many distributors to balance the two legs, many network marketing companies changed this rule.
Today many companies pay out commission on a split of one third to two thirds of volume between the two legs. Thus if one leg has made 1/3 of the total sales volume and the other leg makes 2/3 you will be paid commission.
The commission payable is equals to a percentage of the lesser of the two sales volumes.
Balancing the Two Legs
The challenge facing many distributors in mlm companies using the binary plan is that of balancing the two legs such that the maximum possible commission is paid out. As you may have noticed from the discussion so far…
With the binary plan
balance is crucial
It is crucial because commission is paid on the lesser volume of the two legs. If one leg suddenly produces a substantially large sales volume than the other, you will lose a lot in commission payments.
For example, if one leg produces 500 points and the other produces 3000 points, your commission will be paid on only 500 points. You lose all the commission on 2500 points even if these points were generated by your organisation. Sounds unfair, doesn’t it?
So, how can you strike an acceptable balance between the two legs?
We have mentioned that the power leg benefits from spillover. If you are fortunate to have an upline that builds actively, you will have an increasing number of distributors spilling over into your outside leg.
Under the circumstances, your best option then would be to place everyone you personally recruit on the inside leg – the income leg.
But what if there is little
or no spillover from upline?
In that case you will place your personal recruits evenly into both legs. This brings to mind a crucial point which you should take note of, namely that…
A successful network marketing business is built by personally building a good, strong downline, and not by relying of one’s upline.
Reliance on upline for success has led many network marketers to failure. This is your business. Why rely on someone else to build it for you? Click here to learn how to build a successful network marketing business.
It may appear from the notion of ‘balance’ that making big money with the binary plan is grossly limited. At first glance, this is true, and companies have realised this too.
To alleviate this problem, some companies using the binary compensation plan allow their distributors to “re-enter” the binary tree via a new position on their downline. If you really work hard you may end up owning well over 15 business centers, earning commissions from each separate center.
Advantages of the Binary Plan
There are several advantages associated with the binary compensation plan.
- The plan is simple to understand
The binary plan is probably the simplest of the four commonly used network marketing compensation plans. This makes the plan easier to explain to prospects.
One way to explain it is “get 2, who will also get their 2, who in turn will get their own 2”.
Spillover is probably the most obvious of all the advantages of the plan. Many distributors actually use spillover as their bait to lure prospects into signing up with them. “Just sign up and your business will build automatically” is what many say.
And if you happen to be one of the lucky ones to be placed on a very active and successful upline’s power leg, your job could be half-done because you will most likely focus only on building your inside leg.
Spillover could be a double edged sword as I’ll explain a little later.
- Unlimited depth
The binary plan places no limits as to how deep you can build. It simply ignores levels. So if you manage to balance your two legs evenly, you can build deep and earn a lot of money doing so.
- The plan is entirely volume driven
Though the plan has limits as to how wide you can build, it does not matter how many distributors you have in your downline. Organisation size doesn’t really count. You can have few distributors who can generate big volumes and still make big money.
- The plan fosters team work
I’ve mentioned the inherent need to balance the business volume of the two legs. This need to balance encourages distributors to help their distributors in the weaker leg to achieve a better business volume balance.
- The plan allows for more than one business center
This is unique to the binary plan. No other network marketing compensation plan I know of allows for this. With more than one business center you are actually having more than one business.