Binary Compensation Plans

Binary compensation plans are characterized by having two legs, and only two legs. This makes them very simple. Most binary comp plans will pay you commissions on your weak leg only – the smaller leg that has less volume. This keeps most people focused on building their weak leg, which is also known as the pay leg in a binary compensation plan.

Sometimes a binary compensation plan will say it pays on both legs up to the balance point. Technically it does – but – whether it’s $10 per person on the weak leg, or $5 per person in both legs to the balance point, the final commission number is the same, and the plan functions the same way – you are limited by the size of the smaller leg. In either case, here is what the structure looks like most of the time:

Binary Compensation Plan

Many companies are now beginning to use what they call a “hybrid binary” compensation plan. This type of plan adds a unilevel or other type of plan in addition to the binary plan. Unfortunately, there are usually many hidden catches built in to the plan in order to qualify for the hybrid portion. Most people will get most of their commission from the binary part.

Advantages of Binary Compensation Plans

The key advantage of a binary compensation plan is it pays based on volume. If you bring in orders, you get paid on them. There is no automatic cutoff beyond a certain number of levels as is the case in a unilevel plan or a forced matrix plan. While no plan pays unlimited depth (even though some claim to) the binary comp plan comes the closest.

At first glance you might think it really is unlimited depth, but “binary creep” starts to erode commission payments as you go deeper and deeper into the plan (you did read the policies and procedures, right?) As more reps claim commission on an order, the commission rate drops. The company can’t keep paying out $10 to everyone in the upline on a $180 order if there are 20 or 30 people entitled to a commission. Eventually the payout shrinks to zero – but it goes far deeper than in most other plans.

Another key benefit of the binary comp plan is that, in theory, everybody only needs to sponsor 2 distributors. The average person sponsors about 2.7 distributors, so the average person should be able to make a binary pay plan work. Indeed, if everyone sponsors 2, then the plan works perfectly. While numbers are perfect, people unfortunately are not.

Disadvantages of Binary Compensation Plans

The main disadvantage of a binary comp plan is that because it only pays on the weak leg, it tends to favor super recruiters and heavy hitters. Here’s why: Since binary comp plans only allow 2 legs, anyone sponsored beyond the first 2 people must be placed under other people. This is called spillover. A super recruiter will start building power legs – each one goes straight down with no branching. Everybody knows that you must – absolutely must – be in the power leg to maximize spillover from your upline. That way you only need to build one leg (your “weak” leg) rather than both legs (take another look at the picture above to see how this works.) If you join a heavy hitter, you are guaranteed to be in a very strong power leg. If you join an average or above average person, they are building their weak leg in the binary plan, so you will likely not end up in a strong power leg. You’ll have to do twice the work (or earn half the commissions.)

Some Binary Comp Plans Have a Hidden Catch

There are two common variations that some plans use. Both are based on something called a 1/3 and 2/3 balance. This balance means that at least 1/3 of your downline is in your weak leg, and no more than 2/3 of your downline is in your strong leg. Here are the two possible catches:
1) Some companies pay you on all volume (both legs) if you have a 1/3 and 2/3 balance.
2) Some companies ONLY pay you if you have a 1/3 and 2/3 balance.
The point here is to make sure you completely understand a compensation plan before you start building it. If you are in a very strong power leg, it can be very difficult to build your weak leg enough so that you qualify for the 1/3 and 2/3 balance.

To Succeed in a Binary Compensation Plan

As described earlier, the most important thing to help you succeed is being in the power leg. To do that, you must join a heavy hitter, super recruiter, or other strong builder. You’ll need to find the person running the meeting – the one with the cool car and expensive suit. Be sure to tell them who your original sponsor was so they can place you under that person – but in the power leg. Otherwise your original sponsor will place you in their weak leg (that’s what most people are doing, right? Building their weak leg?) Now you’ve got a shortcut to success in any binary compensation plan. Even with their drawbacks, binary compensation plans have become very popular.

Next: Generational Compensation Plans