Binary Compensation Plan Explained
There are 3 common reasons why the binary compensation plan is quite attractive to both consultants and companies:
1. The “spillover” concept attracts new consultants because technically, they can receive commissions by sponsoring only two consultants and let uplines (those who signed up earlier) do the “spillover” for them.
2. Binary plans are quite simple to understand. This allows consultants to duplicate their effort easier, a necessary tool to succeed in network/multilevel marketing.
3. Binary plan offers fast-paced growth opportunities, which attract the segment of our population who wish to “get-rich-quick”. It is said that there are only two types of motivation — greed or service to humanity. Binary offers a potentially quick way to make money while providing a “service” that allows recruits to earn from the same method.
Given the above, it is understandable that more and more companies have adopted the binary compensation method to attract new consultants.
The best compensation plan will be fair and equitable to all distributors?
The best compensation plan will reward hard work. It should not matter when or where you enter the company’s compensation structure, you should have the same earning opportunity as everyone else. Remember if you are rewarded for getting in early that only makes it harder for everyone else that joins your team which is not sustainable. The best compensation plan should be the fairest and provide equal opportunity for anyone who wants to put in consistent effort.
The best compensation plan will be practical for you?
One final thing to consider when evaluating the compensation plan is whether you believe you are capable of meeting its requirement for success. Establishing your frontline is often considered to be the first milestone and therefore a good question to be asking is how many people will you need to personally sponsor to establish your frontline and earn a your first commission with the company?
With the Binary Plan less emphasis placed on personally recruiting new distributors (ie you don’t have to personally recruit as many new distributors to fulfill your frontline), but instead there is generally more effort required in helping (training and support) new distributors to establish their business. These plans are generally more supportive and rewarding for building teamwork.
Understanding the Binary Plan
Binary Compensation Plan
Despite the fact the binary plan is relatively new (90’s) to the network marketing industry it is already very popular among network marketing companies and members within the industry. As well as the simplicity of the design that the binary compensation structure offers there are a number of advantages that make it attractive to all network marketers including those new to the industry, part-timers, average networkers, and your more experienced gun recruiters.
How Does the Binary Compensation Plan Work?
The Binary Plan as the name suggests is based around the number 2, which represents the maximum number of frontline associates that any business centre can have. Any additional distributors must then be placed under one of your existing frontline members. This creates a very supportive environment for new members as the easiest way for associates to achieve success is by assisting their new members to build their organizations. This team approach makes the binary plan very attractive as there is a lot of support (both initial and ongoing) as all associates within your organization work towards achieving a common goal.
The main earning objective of the binary compensation plan is to balance the amount of leg volume flowing through either side of your business centre. For example if you had 800 sales points flowing through the left leg of your business but only 500 points flowing through the right, you are paid out on the highest common denominator which in this instance is 500 points. When the Binary Plan was first introduced any additional volume (ie the extra 300 points on the left) would be lost making it difficult for part timers however more recently most binary plans now allow any additional volume to be carried over to the following commission period. This “carry over” feature has proven to be very popular for part-timers as it means that you don’t ever lose any of the sales volume that you have acquired.
Because the goal is to balance the volume flowing through your organization this encourages associates to help their weaker downline members to build their organization (promoting teamwork) to achieve a better volume balance and a more consistent (and higher) commission check.
There are normally no depth restrictions to the binary structure and each level of your organization is paid out on a consistent commission percentage making it easy to understand. One of the main distinctions of the of the Binary Plan is that it is volume driven as opposed to level driven which means you do not have to have a large organization to be successful. This also means there is an incentive to help new associates in your organization no matter how deep they are.
In fairness, because there are no depth restrictions to the Binary Plan, each business center has a limited earning potential which maxes out to ensure that both distributors and the company earn a profit.
If each business center has a limit to how much it can earn, how is it possible to earn millions of dollars through a network marketing business using the Binary Plan?
For serious network marketers the profitable part of Binary Plan is that although each business center can only earn so much (normally up to a few thousand dollars a week, which is still very nice), there is generally no limit as to how many business centers each distributor can operate. Think of a business center like a shop, if you currently own a shop that is doing really well but no longer has the potential to grow, what do you do? Open a second shop, as this now allows you to earn profits on both businesses. Well it is exactly the same with the Binary Plan. Once you have achieve a certain level with your network marketing business where your organization has maxed out or has limited potential to earn you more money, the company rewards the consultant with a new business centre.
The company is happy because they have an experienced, successful consultant opening another business center and the consultant is happy because now they have a higher earning potential. The more business centers the consultant has the greater the earning potential of the consultant.
Binary Compensation Plan Helps Even the Average Network Marketer
Studies conducted into the network marketing industry have shown that the average network marketer sponsors between 2-3 new consultants into their business. These findings mean that it would be hard for the ‘average consultant’ to be successful using some of the older compensation models that required distributors to recruit at least 6 or more frontline consultants to see a return. These older plans started to give the industry a bad reputation as being "too hard", however fortunately most of these plans have since been modified.
After these studies started to appear in the 1980’s the Binary Plan was create to give everybody a fair chance of success. Because the Binary Compensation Structure only allows the sponsoring of 2 frontline distributors it meant that even your less than average network marketer still has the potential to achieve financial freedom using this compensation model. Additionally the binary compensation plan was developed such that as a new recruit if you’re really struggling to build your downline it is in the interest of your upline distributors to give you as much help as they can.
Although the Binary Compensation Plan is not the most lucrative, just like all other compensation structures this model does offer the potential to earn a very high income if you are willing to put in the work. When combined with the supportive teamwork that is generally found within companies using this compensation model, there is a lot to like about the Binary Plan.
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