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 organization 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 organization 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 organization. Sounds unfair, doesn't it?

So, how can you strike an acceptable balance between the two legs?

I 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 some companies have realized 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

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.

Organization 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.

Disadvantages of the Binary Plan

Spillover

Yes, spillover is an advantage of the binary plan as I explained above. But it can also be a major disadvantage.

A mistake often made by some distributors is that after signing up, they sit back and expect their downlines to be built through spillover from upline.  They believe (or have been told) that their downline will grow by the recruiting efforts of their upline.

If your upline is active, this is possible. But there is a problem...

You are not the only person on your upline's downline. You compete for this spillover with other distributors in that downline.

Your upline has more choices as to where to place new distributors. The tendency is for upline to place new distributors where they see some activity as a form of encouragement to the active member.

So you may not get any spillover if you are not active.

Let's say you were signed up by a really active distributor. You are one of her two frontline distributors. You and the person occupying your sponsor's other leg naturally compete for spillover from her and from others higher up on the structure.

Technically speaking, you should share her next four recruits on a 50:50 basis. You get two, and the other person also gets two. Unfortunately it does not happen this way because...

With the binary plan, spillover always flows through to the outside leg - the power leg.

Picture a glass full of water. If you keep pouring more water into the glass, any excess water will flow, or spill over to the outside of the glass. Never to the inside.

Such is the nature of the binary plan. Spillover will always grow the outside leg, which means that...

You are 100% responsible for building your inside leg.

I hope you can now see what challenges this may create for you. If you don't, this is what may happen...

If you were placed on someone's inside leg, you will have the mother of all problems on your plate because...

You will have no one from above you who will place anyone on that leg but the person who enrolled you. So your only hope of building from spill over is from that one person only.

If you are not actively involved, your inside leg - the income leg will lag behind the power leg.

The result?

You will earn little or no commission.

Recall that commission in the binary plan is based on the lesser of the volume points of the two legs.

Flushing

I have already said that balance is crucial with the binary plan.

Since the plan pays on the lesser of the two volume points, if your legs do not meet the required balance, not only do you lose the commission. You also lose all the points that you accumulated to that point. This is called flushing.

To sum up, the binary plan is much simpler to understand than other plans, but it requires due diligence on your part.

Understand the rules and you can make big money with this plan. The key is to know where to place your new distributors for maximum pay-out. Placing just one person on the wrong leg can make a big difference in commissions earned.