How To Slow Down A Runaway Binary Compensation Plan

November 17, 2016 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.

How can you do that? Won’t you pay out too much?

Unless you put into place a group of measures to slow this runaway train of a plan down, you will pay out too much.

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 organization.

Compensation is paid to representatives when the volume of both legs meets or exceeds specific thresholds (50/50 approach) or when the volume of the lesser leg meets or exceeds specific thresholds (1/3, 2/3 approach).

Active representatives with unpaid volumes have their left and right side volumes rolled forward to the next commission period. Inactive representatives “lose” the accumulated unpaid volumes. Binary compensation plans count on the presence of representatives who go inactive to limit payouts.

How To Reduce Payout

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. Earnings caps and flushing are employed to limit the total payout, which is somewhat unpredictable.

Here are the steps you can take to slow down a runaway binary compensation plan:

pay bonuses upon weaker leg volumes using cycles instead of a percentage of all weaker leg volumes
limit weekly income by paid-as title
flush strong leg volumes in excess of a specific value
when representatives are inactive, don’t accumulate new volumes for them
flush carryover volumes of inactive representatives
cap total commission period payout as a percentage of commission period new volume

About The Total Payout Cap

The purpose of the commission period payout cap is to give a direct selling company the power to set a budget for compensation plan earnings as a percentage of a commission period’s volume.

Interestingly, most independent representatives don’t think of the payout cap in the same way a company sees it. Reps read it as “you will pay out this much” instead of “you won’t pay out more than this much.”

It is never good news when a company chooses to enforce a payout cap because when this happens, reps experience an undeserved “pay cut”.

How to Calculate Maximum Payout

In addition to implementing the steps above, it is important to model the payout of your binary compensation plan to calculate the maximum payout.

More About Binary Compensation Plans

If you’re wondering which binary flavor is best, read our post Three Flavors of Binary Compensation Plans.

Jay 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 network marketing, party plan and referral marketing companies across the globe.

Jay Leisner and Victoria Dohr authored the top-rated book for new and young network marketing, referral 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.

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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