MLM Binary Compensation Plan is the simplest and one of the most successful MLM plans in the MLM industry.
As the name binary indicates, Binary plan is specified on number 2.
Every member is restricted to add more than two members in the first level or business center of the binary plan, but, there is no limitation on the depth of the network that a distributor can develop.
In the primary stage of the binary plan, there will be two legs, left leg and right leg. These two legs can grow in any way, inside and outside.
The outside growing leg is another way known as power leg and the inside leg known as profit leg or week leg.
The power leg benefits from the auto placement of new distributors from the current recruiter as well as from the previous recruiters.
Since the front line of the binary plan limited into two members only, the third member whom you sign up will spillover to available spaces in your downline’s power leg. But in the case of profit leg there will be no spillover.
Because profit leg will only grow with the individually sponsored down-lines. One of the main variations of Binary technique is that it is quantity inspired in contrast to level inspired.
This also indicates there is an inspiration to help new affiliates in your organization.
How Does Commission Calculation Work?
In MLM Binary compensation plan, commission calculations are carried out based on business volume points, not levels.
A formula, which calculates the business volume in the left leg with the right leg is used here to calculate the commission here.
The payable commission is equivalent to the lesser percentage of the sales volume leg, Known as weak-leg. For example, if left leg earns 500 points and the right 1000 points.
Then, the commission is calculated as 10% of the left leg. that is, 10% of 500. And right leg will have a carry point for next the commission.
Some companies introduced a specific point value system, which follows different carry forward rules to calculate the commission. The over-payment is regulated using ceiling (Limiting the daily/weekly Business Volume or Sales Volume ).
Features of MLM Binary Compensation Plan
In a binary compensation plan, each person usually has to make a qualifying sale or purchase.
Each person has to also sponsor one person in his or her left leg and one person in his or her right leg of his or her downline who also meets that qualification.
Since everyone only has two persons on their first level directly under them (thus the binary name), the two people they sponsor may not end up on their first level.
Someone above you may have had to place someone they have sponsored in that position, since their front two positions were filled or because they keep sponsoring others as they build their sales organization.
This is called spill. Some authorities don’t like the concept of people getting paid override commissions on sales generated by someone they had little or nothing to do with.
So let’s call these people placed under you “upline support” instead. Authorities like the concept of uplines supporting their downlines, so that’s OK. I know it is the same thing. Just don’t tell the authorities that!
Therefore the basic structure of a binary is like a two by infinity matrix. That is, everyone has two people on the first level. Those two have two each, giving you four on your second level. Those four have two each giving you eight distributors on your third level and so forth.
The main difference between a two by “something” matrix and a binary compensation plan is that in a matrix plan, you get paid a specified percentage per level for a specified number of levels.
In a binary plan you get paid a specified amount for a specified sales volume regardless of the number of levels needed to achieve it.
Weak leg pay
Most companies pay the commission based on the leg with the least amount of sales volume.
Some companies pay based on you having a 50 percent/50 percent balance in sales between your two sale legs. Some companies pay based on a one third/two third balance between the legs.
Frankly, once you know the rules and adjust your efforts, it does not really make a big difference.
Some plans pay commissions based upon the weakest leg and then wipe out the excess sales volume of the stronger leg. This is called “flushing.”
This is usually not a good thing for distributors, especially if the company flushes after each “cycle” or even flushes more than once a month.
Cycle is the period or how often a company checks everyone’s sales volume and pays a commission. In general, the more often you can cycle, the more potential commissions you can earn.
If a company cycles continuously, that is, as soon as a sales volume is met, income potential can be the highest.
However, in reality, more cycles do not create any more sales volume, so this means little to most distributors and companies usually put a limit per week or month that you can earn per “profit center” anyway.
It is this limit that determines the income potential more than the number of cycles.
Profit centers are like having more than one distributorship. Usually each profit center must be qualified and you earn commissions as if they were separate.
Since your other profit centers are placed in your downline under your first profit center, you can earn multiple commissions on the same sales volume. You may be thinking that sounds good.
It is and it is one of the things that network marketers like about binary plans. However authorities don’t like this feature. There are no specific laws against it.
Authorities don’t see a need for one person to have more than one profit center, other than just to make more money. For some reason, authorities think that is a bad reason. Authorities think that one person should work only one distributorship.
However, it is OK to own and work more than one franchise, to own and work more than one company, to have more than one job. Why would you do that? To make more money, of course. But more than one profit center could cause authorities to investigate your company.
Many companies with binary compensation plans have come under scrutiny and been shut down. However, authorities also like a high ratio of retail sales to the number of distributors.
Companies that have tied retail sales qualifications to obtaining additional profit centers have appeared to get a “get out of jail free” card. It also increases retail profits, override commissions and stabilizes the sales force. So this policy is good for business anyway.
Since everyone in a sales force above a particular sales volume counts that sales volume as part of his or her own and is eligible for commission based on that sales volume, in theory, you could have a million people above that sales volume earning commissions from the same sales volume.
This would cause the company to pay out many times more in commissions than it took in as revenue. This has actually happened to companies who did not understand binary compensation plans.
Needless to say, they are no longer in existence. Because of this possibility, companies must place a “cap” on the total payout paid. This is usually stated as a percent of net revenue.
When the company uses a binary compensation plan as its only compensation structure, the cap is usually set between 40 percent and 60 percent.
The cap may be lower if the company uses more than one compensation structure, such as a binary on the front end and a uni-level plan for the residual or back end.
Once the commissions are calculated, they are compared to the net revenue. If the percent of commissions are more than the cap, the commissions are prorated down. This prorating may be done evenly across the board or the company pays the people closest to the sale and up, until all allowed commissions under the cap are paid and those above lose out. So much for earning commissions from searching for sales volumes on unlimited sales.
Many companies don’t freely explain their cap or how it works. They usually will tell you if you ask. Even though caps are totally necessary for the survival of the company, they are also one of the main reasons that a company with a binary plan may have a short life cycle.
When one of your two legs have several business builders in it and becomes a lot larger than the other, it is called a “power leg.”
This is a frequent occurrence and can happen no matter if the company is using a 50 percent/50 percent balance system or a one third/two third balance system.
However, you may earn more with a one third/two third balance system if you have a power leg. Often the two-third leg is also called your power leg.
On the other hand, you may earn more with a 50 percent/50 percent balance if you don’t. If a power leg does occur, a distributor is forced to strictly work their weak leg to catch up so they can get paid on more of the sales volume under them.
Usually power legs create a huge amount of “breakage.” After each cycle they move your unpaid sales volume and balance your two legs. This greatly reduces breakage and helps you maximize your commissions.
Breakage is commission on sales volume that the company does not have to pay usually because a distributor has not met a specific qualification or there are not enough levels of uplines to pay out the full commissions, etc.
It has been said that companies with binary compensation plans live on breakage. All compensation plans have some breakage, but because binary plans usually only pay out on the weakest leg, there is almost always a lot of breakage.
Many smaller distributors may never earn any commission if they have one very weak leg. Various qualifications can further increase breakage.
This does not mean that the company does not pay out any commission on the sales volume. In a binary plan, your sales volume is usually also the sales volume of several people above you.
The breakage simply helps the business builders to keep earning more commissions without the company’s cap prorating their commission down.
So far I have only explained several of the primary characteristics and workings of the binary compensation plan. I have briefly mentioned some benefits and shortcomings of them.
Advantages of MLM Binary Compensation Plan
Here we are listing some of advantages and features of binary mlm plan:
- Binary MLM Plan is the most exciting Plan among all types of MLM pay plans because of much more payouts.
- Binary Plan is a MLM Plan which pays to infinite downline. That means that a member will be paid by downline, even if the downline are 15 level deep in your structure.
- With a binary model, your upline will place their new members under you into what’s called your power leg.
- This is referred to as spillover. Your power leg will usually grow quite quickly.
- Binary plan is great plan for nurture teamwork in a MLM organization. It plays an important role for you and your downline success. This build a team unity and cooperative energy.
- Binary Plan offer the greatest potential generational earnings depth of any of the four basic compensation plans in network marketing.
- You really only need to concentrate on building one let of your business- your “Money Leg”. The other leg of you downline matrix or “Power Leg” is usually being built by those in your organization that are above you, and more experienced that you.
- The initial Binary Compensation Plan is much easier to understand and maintain qualifications for than other plans created before its’ inception.
- Binary MLM Compensation Plans help the average and even more than average network marketers to be able to achieve success, and realize the potential for financial freedom.
MLM Binary Compensation Plan Properties
- Binary MLM Plan is the most popular MLM Plan launched by many Multi Level Marketing companies, hence easy to understand for new MLM joiners and easy to explain by the MLM companies for their customers or members.
- Binary MLM Plan may be 2:1 or 1:1 based. It means the Multi Level Marketing companies can have variation for their profit sharing ration amongst customers.
- MLM Company can promote their business by growing one side new joiners that called power leg for their customers.
- With Binary MLM Plan the Multi Level Marketing companies can introduce other earning options for their customers or members like re-purchase MLM plan, Mobile, DTH recharge facility and many more features with Binary MLM Plan.
- Lots of earning options with the Binary MLM plan both for the customers and Multi Level Marketing companies.
- Multi Level marketing companies can introduce binary capping hence profit sharing can controlled through binary capping.
- Binary payment released may be daily, weekly or monthly basis depends upon the Multi Level Marketing company concept.
- Binary Placement with Extreme Left and Extreme Right Concept to create power leg in Genealogy.
Binary Placement with sponsor id and Placement id to get extra binary income through which member / Leader can place ids with his/her choice to build powerful team.
What Type of Compensation Plan is Best for You?
I wouldn’t suggest to anyone that they choose their company based on the compensation plan alone. It may come into consideration, but there are more important things to consider when picking a network marketing company.
Over to you. Do your MLM company use the MLM Binary compensation plan? How is it working for you?