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You are here: Home / Compensation Plans / Compensation Plans: Focus On Binaries

Compensation Plans: Focus On Binaries

November 17, 2017 By admin Leave a Comment

The binary compensation plan is popular because it does what no other compensation plan type can do, and that is, it pays the upline on an unlimited number of levels of downline volume.

Does that mean your plan should be a binary plan?  Perhaps and perhaps not.  In this article, I will explain the pros and cons of this type of compensation plan.

No Perfect Compensation Plan

Every compensation plan type has its strengths and weaknesses, just like people.

For decades the mainstay of the direct selling channel was the generation breakaway compensation plan with stair-step compensation, but that plan is fading away like the horse and buggy did after automobiles were invented.

Today, new direct selling companies have unilevel, unigen, and binary hybrid compensation plans.  In this article, I’ll share with you the good and the bad about the binary plan.

Today’s Question

“To binary or not to binary?”, is the question.  So, let’s answer it!

Binary Basics

A binary compensation plan is structurally similar to a two-wide matrix.  However, the compensation method for a binary plan is totally different.

Unlike other compensation plans that pay bonuses using percentages of a single commission period’s sales volumes, binary compensation plans pay threshold bonuses based on the accumulation of unpaid volumes on the “left” and “right” sides of a representative’s two-leg organization.

“The Good”

Pays To Unlimited Depth

Binary compensation plans pay to unlimited depth.

All other types of multilevel compensation plans pay compensation upon the volume of a limited number of levels or generations of downline representatives.  For top leaders, this means their downline organization will grow beyond the limits of their payline when they are not paid through a binary compensation plan.

Power Legs

Because in a binary compensation plan there are only two spots to fill on an independent representative’s first level, there is spillover. Spillover is the placement of a representative not on one’s first level, but instead on the first level of a downline representative in your placement tree.

A power leg is defined as a leg that contains significantly more volume than the other leg.  A power leg occurs when one of two situations is present:

  1. Your upline representatives are placing representatives into one of your legs; this is spillover.
  2. The representatives in one of your legs are building their businesses much faster than the representatives in your other leg.

When a representative has a power leg, he or she can focus on building just one leg of their placement tree, which makes the compensation plan easier for the representative with a power leg.

If you want to know more about power legs, read Three Flavors of Binary Compensation Plans – Which Is Best?

Weekly Compensation

Most binary compensation plans pay compensation weekly, which means people get paid more often than other plans which pay most often monthly.

Pays On Unpaid Volume

All other types of multilevel compensation plans pay compensation upon the volume generated in a commission period, most often monthly.   When a new commission period starts, the volume generated in the past is irrelevant.  With all other types of plans, you get paid only upon the volume generated in each commission period.

Binary compensation plans pay threshold bonuses based on the accumulation of unpaid volumes on the “left” and “right” sides of a representative’s two-leg organization.  Unpaid volume this week is the sum of unpaid volume carried forward from the last period plus new volume generated this week.

Volume is carried forward from the last commission period when a company pays in cycles or when an independent representative has a power leg, but only when the representative is active.

Golden Handcuffs

When a representative isn’t active, any volume carried forward from the previous commission period and any volume generated in this period is “flushed”, which means it is removed from the system so that representatives inactive during this period won’t be paid upon it when they are active in future pay periods.

This effect is a golden handcuff.  When you are paid through a binary compensation plan, you can lose more than just this pay period’s income when you are inactive; some of your future income may be lost as well.

In all other compensation plans, if you are inactive in one commission period, it simply means you are not eligible to earn compensation upon the volumes of other representatives.  The damage done to your future income is zero.  The effect of your inactivity is limited to the period in which you were inactive.

Pays Top Leaders The Most

Because compensation is calculated upon an unlimited number of levels of downline volume, binary compensation plans pay top leaders the most compared to other compensation plans.  If you wish to attract successful leaders to your company, having a binary compensation plan can be helpful.

People Will Join Because Of Your Plan

Many of the people who have been successful in a company with a binary compensation plan who are seeking a new home will like your company better if your compensation plan is a binary.  In fact, some of these people won’t join a new company without one.

Plan Appears Amazing

As explained in my article How To Slow Down A Runaway Binary Compensation Plan, unless you put into place a group of measures to slow down the payout, you will pay out too much.

One of the income limiting elements in a binary compensation plan is a cap on the number of binary bonuses that can be earned for each rank in your pay plan.  While your compensation plan chart identifies these limits as “maximum binary bonuses”, many in the field interpret these amounts incorrectly as “how much you can earn” at each rank. Curiously, they don’t see the amounts as limits even though they are labeled as such.  Instead, they see them as income potential.

So, while you publish these amounts as income limits, many in the field view them as good news, not bad.

“The Bad”

The Suffering of the Lower and Middle Class

While binary compensation plans reward top leaders the most, lower and middle-ranked representatives are not rewarded as well.

While First Order Bonuses and Fast Start Bonuses can help to raise the income of new representatives, binary compensation plans have larger deserts (periods without adequate sustenance) that hardy representatives must cross to make it to the promised land of higher incomes.  Like pioneers, many die on the trail.

Small Compensation For Sellers

In a binary compensation plan, the largest portion of total compensation (typically 90%+) is paid to the uplines of representatives who make personal purchases or sales to customers, which means there is relatively little money allocated for the purchasers or sellers.  If the majority of your total compensation is earned by those who purchase or sell your company’s products, a binary compensation plan is the wrong plan for your company.

Leg Volume Balancing

In a binary compensation plan, the volume in your weakest leg determines how you will be paid. This means to get paid, you need to increase the volume in your weaker leg.

The best ways to do that are to (a) place your new personally enrolled representatives into your weaker leg and (b) focus your efforts on helping the representatives in your weaker leg to build their businesses.

It is counter-intuitive to think of your downline organization as two teams and that you should focus your efforts mostly on helping your weaker team because your compensation is based mostly upon their productivity.

Balancing leg volumes can be difficult to do.

Income Limits Per Rank

Healthy binary compensation plans include income limits per title (to slow the payout down and to encourage the building of stronger enrollment tree legs).

However, in no other type of multilevel compensation plan is there a limit on how much you can earn per rank.  This is a negative attribute.

Unhappy CFO

Chief Financial Officers want to have predictable expenses.  When expenses are unpredictable, they get real crabby fast!

The total percentage of field compensation paid in a binary compensation plan can vary significantly from one commission run to another.  In addition, binaries are famous for their “creep”, the slow but steady increase in the average percentage of compensation paid out in each commission run.

Expect Compensation Plan Changes

It is very difficult to get the business rules of a binary compensation plan financially right the first time.  If you’d like to know why call me with your compensation plan in hand and we’ll talk about it.

While steps can be taken to slow the payout down, still it is common for direct selling companies with binary compensation plans to have the need to amend their plans later for three primary reasons:

  1. The payout exceeds the budget.
  2. The plan is paying out too much to the wrong people and not enough to the right people.
  3. Recruiting and selling activities are below expectations.

Do You Need Help With Your Binary Compensation Plan?

Sylvina Consulting designs and improves compensation plans.  We also professionally evaluate and improve compensation plans designed by others.

More Compensation Plan Articles

Compensation plans are complex systems, each component of which has one or more specific purposes. This is the 5th in a series of compensation plan articles.

The first four articles in this series are

  1. Compensation Plans:  Focus On Compression
  2. Compensation Plans:  Focus On Customers
  3. Compensation Plans:  Focus On Activity
  4. Compensation Plans:  Focus On First 30 Days

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Filed Under: Compensation Plans Tagged With: binary compensation plan

About Jay Leisner

P15Jay Leisner, the President of Sylvina Consulting, is a top compensation plan and direct selling expert, a trusted adviser to new and established network marketing and party plan companies. For more than 30 years, Jay has enjoyed assessing and improving party plan and network marketing companies across the globe.

Direct Selling Startup GuideJay Leisner and Victoria Dohr authored the top-rated book for new and young network marketing and party plan companies, "Start Here: The Guide to Building and Growing Your Direct Selling Company".

Available in English and Spanish. This startup guide contains 250 pages of wisdom that will guide you through the right steps to start and continue on your journey to build a successful direct selling company.

You will save thousands of dollars and hundreds of hours of your time using the information you will read in our book.

Direct Selling Edge ConferenceSylvina Consulting and Thompson Burton sponsor the pure education "Direct Selling Edge Conference Webinar" for new and young direct selling companies. The wisest direct selling executives never stop being students. They seek out opportunities to learn more. They understand that the long-term success of their companies depends on how much they know, so they make efforts to keep learning.

Broadcast live and with recordings included for later viewing, this powerful webinar will give you buckets of wisdom and guidance to help you on your journey.

In 1986, Jay began his career in direct selling by working for a major direct selling software provider. First as a software developer and later as a project leader and a business analyst, Jay worked closely with new and established network marketing and party direct selling companies to provide them with software solutions to meet their unique requirements.

Jay contributed in many ways to the success of large implementation projects for many companies. Jay also worked with dozens of smaller companies to assist each of them in various capacities to provide them with the systems they needed to help their businesses to grow faster.

Along the way while working with them, he learned the secrets of successful direct selling companies and the challenges faced by them. In true entrepreneurial spirit, Jay’s decision in 1999 to start Sylvina Consulting as a direct selling consulting company was driven by what he saw was a need for answers, advice, and solutions.

In 2004, 2006, 2009, 2014, and 2018, Jay gave presentations on compensation plans, recognition, and field leadership development at conferences held by the US Direct Selling Association.

He traveled to South Africa in 2015, 2016, and 2017 to conduct workshops on compensation plan design and recognition programs for member companies of the South African Direct Selling Association.

In 2017, Jay spoke at the Canadian Direct Sellers Association Meeting on the importance of recognition.

More than just a compensation plan expert, Jay is exceptionally skilled at advising new and established companies on business strategies. Before offering advice or solutions, he asks important questions to understand each client’s specific concerns and goals.

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