• A distributor sponsors two people, creating two downline legs, and then builds a downline under those two legs.
• Some binaries allow distributors to have multiple business centers—usually three or seven.
• Traditionally, Binaries pay their downline commissions once a week; however, some still pay monthly.
• Distributors have to generate downline sales volume that is balanced between the two downline legs. When they reach specific levels of sales volume, they receive a commission check.
• Sales volume can be accumulated in one week or across several pay periods. Binary Commission Plans are different than any other sales plan. With most plans, whatever volume you accumulate in one pay period, you get paid on. If you don’t accumulate enough volume to get paid, it is just lost. You never get paid on it. But with a Binary, you can accumulate volume of profit for several pay periods. When you accumulate the set amount to get paid, you get paid. Binary has that cumulative effect. For example: If it takes $500 in volume in a week to get paid and you’re only accumulating $100 a week, or $100 per pay period, then on the fifth pay period—Bingo! You get paid.

Figure 1. Example: Binary (1 Business Center – Direct Income from Group Volume).

The challenge with a Binary Plan is trying to keep both legs balanced. If you get $100,000 on one side and $10,000 on the other side, then you’re going to get paid on the $10,000. If you have $100,000 on one side and $99,000 on the other side, you’re going to get paid on the $99,000.

However, today a popular variation of this Plan allows the volume to be split 1/3-2/3.Most Binary Plans pay a pool commission in a weekly pay plan. A distributor has two first levels and these two downline legs must each generate an amount of sales volume. If they do, the distributor gets his share of the pool. The challenge the Binary Commission Plan presented when it arrived on the industry scene resulted from its completely opposite approach to commissions. The difference was like between night and day. Every other commission plan up to that point had been built on the following two premises:

1. Commissions are paid on a limited number of levels of a distributor’s downline, but on an unlimited amount of sales volume.
2. All commissions for a given product order are paid in a single commission run.

1. Commissions are paid on an unlimited number of levels of a distributor’s downline, but on a limited amount of sales volume.
2. Commissions for a given product order can be paid across several commission runs, and in fact, it’s impossible to know when all the commissions on a single order have been paid.

Hitting the Cap

A fairly typical Binary Commission Plan would say if you have at least $500 in volume on the weak leg, then you would receive 10% of your weak leg in commission. However, one of the rules of Binaries is that almost all of them have a payout cap of from 40-60%. So, if a company adds up all of its payments and the total exceeds the payout cap, then everyone’s payment is reduced enough proportionally to keep total payout within the overall payout cap. This is called hitting the cap. All binaries hit the cap, so this is a very important feature to be familiar with.

Binary and the 5% Plus Theory

MLM companies build commission plans by dividing up their downline and deciding how much to pay each division. The purpose of the 5% Theory is to provide a standard for companies to allocate commission money. Most commissions today are built on the theory of the 5% plus curve. This theory says each upline distributor that receives commissions will receive at least 5% in order for the commission plan to be viable. [For further explanation of the 5% Theory, see, “Determining MLM Compensation,” by Mark Rawlins.]

How does a Binary Commission Plan create the 5% Plus Commission? Lots of Binaries use fast start commissions. The 5% aspect of the Binary Commission is the basic 5% commission, itself. Most Binary Commissions, if you actually look at them, are 10% on the weak side, so, if you balance your sales, then you’re making about 5%--10% on the weak side. This is about 5% on your total organization’s sales.

There is a plus aspect to the 5% theory, which consists of the challenge to create a segment of your downline that you can make a higher percentage on. These are the people you really want to incentivize. The plus aspect of the 5% Theory is, you pay the upline distributor, who is responsible for those sales. You don’t give everybody 5%. You give some people 5%, then you give others an additional percent. Most companies want to pay the 40-45% in commissions, and the rest in incentives like car programs and trips, plus global bonus pools. With the Binary Commission Plan, the plus aspect of the 5% Plus Theory is really the fast start commission, or if you have a second center, for those who are a multiple center. Lots of Binaries use fast start commissions. You can receive fast start commissions on a new recruit not because he moved up from one class to another, but simply because he was in for his first 30 days. This constitutes a time-based division, not a rank-based division.

Strengths of Binaries

• The initial selling feature of the Binary Commission Plan was that it is much easier to understand and maintain qualifications for than other plans of the day. What could be simpler? You simply sponsor two people and build those two legs. If those legs generate business, you receive commissions. If they generate a lot of business, you make a lot of money! A major selling point is that volume never moves out of your pay line, no matter how many levels deep your genealogy goes. Of course, when something sounds too good to be true, it usually is, and Binary Plans turned out to be more complex than they seemed.
• The Binary does an excellent job of paying the mid-range commissions. This is its strength and probably the reason it has survived these many years. It does not do well on very low-end commissions or high-end commissions, but does very well for the mid-range commissions. The Binary Commission Plan’s behavior is very well understood.

Weaknesses of Binaries

• Many of the original Binaries were built by promising distributors that their upline would build their downline. This created a welfare mentality.
• Most Binaries have a maximum upper limit on earnings—the payout cap. Some distributors don’t realize this. Binaries may be combined with other commission types to fix this capped earnings problem.
• Binary pays well but the structure aspects of the Plan can be difficult to deal with.
• A distributor moves through a chronology time as a leader does and may move to the other leg of the tree. If the distributor doesn’t get that bubble, that “plus” piece configured right, then that individual starves his/her organization for earnings.

Summary

It is a big plus that distributors no longer have to evenly balance the volume on the two legs, which characterize Binary Plans. All distributors sign up via the Internet and their sponsors place them. The company can’t make mistakes in placement. The focus now is on what Binary does well--pay the salesperson and the sales leader if the distributor builds an organization.

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