The Bottom Line on MLM Binary Compensation Plans

by louabbott on January 3, 2012

Binary Compensation Plans have become quite popular over the past two decades. At first highly scrutinized by regulators, the model has become widely accepted and used by newer companies, most significantly perhaps, Usana that has been in business since 1992 with a binary.

But what’s the “whole truth” of the matter?

“inherently unfair” and bad for the industry . . .

Yes, that’s my conclusion after building respectably sized businesses with two different companies that had Binary Compensation Plans (or more accurately, “hybrid binaries” with matching bonuses) and trying different strategies to make them work effectively.

In both cases, my experience left me doubtful as to both the fairness and the effectiveness of that type of MLM compensation.

But frankly, it wasn’t until I heard industry legend Jeff Olson speak candidly about why they specifically chose not to use a binary comp plan for his new company, Nerium International, that I clearly saw what the biggest problems with Binary Comp Plans are.

Watch the video that includes Jeff Olson’s comments and I think you will see why we have come to the conclusions that we have.

[My thanks to Jeff Olson for stating simply what I think probably should have been obvious to me!]

If you still love the Binary Compensation Plan, have something to add, or a point to make, we welcome thoughtful and well-informed comments below!

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{ 14 comments… read them below or add one }

Sid July 31, 2012 at 8:12 pm Thumb up 5 Thumb down 1

Having seen 1000’s of companies come and go with multiple comp plans, i lean on the binary as my favorite as long as they fix the problems with previous binaries. As long as companies pay off of both sides to unlimited depths to create true residual We train our teams how to get 6/9 and 18% return based on building techniques. They also need to be upfront about the plan and call it what it is. When I see an opening company say we have this named plan upfront I am more comfortable than not.

I also agree with previous statements in this text. One of five key is training. We have personal daily live, yes live not recorded training calls. Our goal is to build a team of solid six figure earners, so our 2nd key comp plan supports this. the 3rd is a stable company. the 4th key is a truly emotional, consumable product. The last key is phenomenal leadership.

Personally, I am not an advocate of a single item product or non consumable product. That is my personal choice.

Enjoy

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Bob and Anna Bassett January 21, 2012 at 9:58 am Thumb up 6 Thumb down 0

Thanks for a great article, Lou!

We’ve never been in a binary, so we have no ‘feel’ for it. The more we learn, however, the farther we want to stay away. We’ve analyzed over 600 companies in the past six years and have found more problems with the binary than with any other comp plan – except of course with the Aussie 2 up and the pyramids and Ponzis!

One major point the binarians fail to tell you is that in most plans, you must qualify your position by sponsoring two people, say Alice and Betty, and place one in each leg! That means you only ever get paid in the binary plan on Alice OR Betty. And because you get paid on the weaker leg, your efforts are cut in less than half.

It’s like being a track coach taking your team to the meet. If your best runner Alice wins Gold and Betty wins Bronze, you are awarded the Bronze. You can never win the Gold in a binary.

As you say, check matching addresses this, but most of the binaries we’ve looked at have many hoops to jump through before you can earn the check match, and most people never receive any of those commissions from their stronger leg.

Here are three articles we’ve written that explain our thoughts. We hope you can post them. You’ll recognize the last two authors. Thanks for the article and video!

Thanks!
Bob and Anna Bassett

The Bottom Line On MLM Binary Compensation Plans by Lou Abbott and Jeff Olson
http://togethertothetop.com/?p=9282

How To Analyze A Comp Plan – Binary and Matrix
http://togethertothetop.com/?p=3592

Beware the Binary – Do I Have a Check Yet?
http://togethertothetop.com/?p=2610

The Bottom Line On MLM Binary Compensation Plans
by Lou Abbott and Jeff Olson
http://togethertothetop.com/?p=9282

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Scott Caldwell January 16, 2012 at 2:29 pm Thumb up 9 Thumb down 1

Sorry Lou, but have to disagree with you. All the negatives you outline can be mitigated by proper education and a correct company mindset.

WorldVentures has been using a binary compensation plan since our inception, but we always train that you need to buid two legs. If you attend our trainings, whether they’re our Regional Trainings, or our bigger national events like Millionaire Boot Camp, Momentum!, and A View From the Edge, we always talk about the reality of building two legs and discourage anyone from having any kind of entitlement mentality with regards to spillover.

And one of the big benefits that you overlooked, since your focus was primarily on how an individual representative was compensated, is the amount of synergy and team unity that is created by a binary. None of our representatives ever have to worry if someone is too many levels down, or too many generations removed, etc. because ANY sales, regardless of level, benefit the leader of a team. It allows a leader to drill down into their team and work with whoever puts their head up.

Now, granted, if sales are coming in more heavily on one team than another, regardless of spillover, that becoms the de facto “powerleg” and a leader might have LESS incentive to work there, but with other compensation factors layered in on top of the basic binary, those instances can be addressed as well.

To conclude though, one issue I have with Jeff’s video (and I love Jeff, he’s a great guy and a legend in this industry), is that his comments are predicated by the assumption that a company using a binary plan is only built by the attraction of leaders/veterans from other companies. If you’re focused more on organic, internal growth, then there are far less instances of “deals” and people “insisiting” on being on a power leg.

But let’s be honest, those deals are going to happen from time to time in ANY company, regardless of the pay plan, and they’re always going to be structured to benefit the one making the deal.

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Tamekia June 26, 2014 at 6:08 pm Thumb up 4 Thumb down 2

Thank you Scott you just helped me decide to go with WorldVentures. I was approached by a lady I trust, but I’ve heard horror story after horror story about the binary.

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RAJESH MATHUR January 7, 2012 at 3:02 am Thumb up 3 Thumb down 1

Hi Lou,
I am presently with the most successful Binary company in India and having spent the last 4 years in building the business I agree and disagree with you on certain points. I agree with the frustration part which one encounters while building the team but that I believe can be overcome with the help and guidance of professional uplines. The teamwork and duplication that I have seen in Binary is amazing. Having been a part of the generation or sunflower plans earlier I can clearly notice a stark difference.The payouts in Binary are far more lucrative which ensures that I stick through even the bad and bleak patches which one goes through now and then. TRAINING PEOPLE to develop the right mindset is imperitive for growing the business and help you and your TEAM to become successful!

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Ken Acree January 5, 2012 at 12:55 pm Thumb up 5 Thumb down 0

Lou,
Here’s one more “pro” for binaries.

Because the structure dictates that you place new distributors in your weaker, or pay leg, you also have incentive to work with and help new distributors.

Presumably these are the people who need the most help.

So yeah, some people could look at this as a crutch or dependency situation.

I prefer to look at it as giving people the proper training to get on their feet and start earning money!

Like I said before, there’s no free lunch, but there’s nothing wrong with helping your new teammates achieve success. I would hope that would be encouraged.

Thanks again for the forum.

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Ricardo O January 4, 2012 at 1:58 pm Thumb up 4 Thumb down 1

I guess every plan has pro and cons, I have built uni-level and binary. I believe that bynary has more potential to earn money and help others, since there is only left or right and no levels. I think that a leader builds on any plan. Bottom line lets get to work and support the industry regardless of the pay plan.

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Mike Swaggert January 4, 2012 at 11:32 am Thumb up 5 Thumb down 2

Hi Lou,

So true. This industry needs more MLM-Truth. Disclosure is the only way to be truly authentic. There is nothing worse than putting trust into someone or something only to find out you were used. I have had moments when I had to put ethics over business many times while working a binary. How do you recruit a personal friend into a business where you have a position in a power leg, place then in your pay leg because it will benefit you then tell then we are in this ‘together”? I couldn’t do it so I stop building that business and swore to never participate in a binary again. Some side-step this by sponsoring “strangers” using the internet/leads. Bottom-line, it’s still unethical.

As for disclosure, I was disappointed that you just happened to use Jeff Olsen, someone I admire, as well, to help you drive home the point about binaries. You also strategically placed your Nerium products on your desk. I have no problem following you and your posts on this website as I feel you are a good man and have the greater good at heart, but those types of tactics are what’s wrong with this industry. As an advocate for the industry AND active network marketer, please keep those two interests separate. This is just my opinion and you have every right to market your business to your list, but please disclose the fact you are with a company and not covertly and strategically place “little hints” to give the impression that the viewer stumbled upon your company affiliation. Troy Dooly had a great post months ago regarding disclosure and I feel this industry needs a full dose of disclosure in the New Year.

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louabbott January 4, 2012 at 12:08 pm Thumb up 6 Thumb down 1

Hi Mike,

Thanks for your comments. You are obviously a person with personal integrity. Thankfully, there are lots of people like you in our industry.

So you know, I am all about full disclosure. It’s no secret what company I work with and endorse – I have it advertised on every post at my website including the top of this page. I don’t need “little hints” and have no intention of any of this being a “tactic.” The products have been on my desk for months as I do webinars regularly for my team. Frankly, I forgot they were there and I imagine most can’t even tell what they are or what company makes them.

I also openly tell people when they subscribe to my newsletter that I DO work in the industry. If that bothers people, or if anyone think that makes my commentary on the industry unfair, untrue, or too biased, feel free to unsubscribe.

Also in the light of full disclosure, I have no intention of separating my commentary from my business any more than I already do. Commentary does not provide reliable, long-term, leveraged residual income. That’s what I came to the industry for to begin with. If I can’t earn that in Network Marketing, I will stop being an advocate of the industry also.

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Ken Acree January 4, 2012 at 10:30 am Thumb up 8 Thumb down 1

Hey Lou,

That was a fair video for the most part. I’m going to provide some commentary that will partially support, but partially rebut your presentation.

First of all, I agree that there is inherent unfairness to the binary model. I’m involved with a company that utilizes a binary plan. I was not inserted into a power leg. Neither was my sponsor. Neither was his sponsor.

We have all three earned significant incomes with our opportunity. Despite this, I will admit to being frustrated on occasion when I see someone rank advance past me, who hasn’t actually built as large an organization as I have.

Just like the video states, someone with one power leg only has to do half as much work to have the same success.

In my case, I am an Emerald Executive with my company. This is a leadership position with check match, and all the bells and whistles. However, if I had built the same organization with a power leg given to me, I would have been Double Diamond level almost a year ago. This would have kicked in additional bonus pools and more than doubled my check. So irritating? Yes.

Then why do I stay?

This is where I take issue with Mr. Olson’s assertion. I will agree that “money game chasers” will jump from company to company looking for the best deal. All companies have these people.

But the reason that I stay is the same reason my CUSTOMERS stay. A passion for our products.

You see, at the heart of the matter, a company is sustainable if you offer unique products that are well received at your offering price and not easily duplicated.

And even though we may not like the aspects of the binary plan which enable professional game players to jump in and take advantage, the binary comp plan is not in and of itself unfair to the masses.

Our company pays out roughly 50% to the field. The model allows for quick cash for the person just starting out as well as long term wealth accumulation for the Builder.

Does it stink that some people are able to game the system and make more than the plan intended, sometimes at your expense? Sure it does.

But that doesn’t take away my opportunity to earn. Just because a few people take short cuts, and a few more catch a lucky break doesn’t prevent my success.

Non-binary companies have similar issues as well, just maybe not as transparent. Companies routinely pay top leaders sign-on bonuses and salaries to join them. What is really the difference between these arrangements and power legs? Either way, a leader is getting an advantage that makes the playing field un-level.

You know what I say? Bring on the competition!

We have proven that you can build the right way and make plenty of money without resorting to tricks.

We have proven that even the little guy can follow a time-tested model to build a personal Empire, on a shoe string, from scratch.

As long as we are fair and honest with people up front, then the binary is fine.

There is no free lunch. Spillover is a lucky gift, not a birth right. There is work required. But if you want this and you will put in the work, we will help you!

Hey buddy, apologize for writing a book on your blog! I welcome additional feedback. This is a good discussion, and good for the profession. Thank you for what you do.

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louabbott January 4, 2012 at 10:59 am Thumb up 5 Thumb down 1

Nice comment, Ken. There are indeed companies with Binary Compensation plans that meet the most important first requirement that you pointed out:

…at the heart of the matter, a company is sustainable if you offer unique products that are well received at your offering price and not easily duplicated.

And there are companies with better comp plans that fail that test that everyone should run from. It simply does not matter what the comp plan is if a company fails that first requirement, it will fail sooner or later.

It is my hope that with information like this, good companies will, over time, move away from the Binary Compensation model.

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Lory Moore January 4, 2012 at 10:10 am Thumb up 6 Thumb down 1

Hey, Lou!

Couldn’t agree with you more on the frustration and inherent inequity of the binary pay plan. As someone who is on fire with the potential of the network marketing model to create a genuine plan B for entrepreneurs in our struggling economy, I view the binary model as a bane to our existence, for the reasons you outline, plus many more.

The entitlement mentality generated by the binary distracts people from the smart effort required to build a genuine, income-producing business, and frankly contributes to the “bait and switch” perception that has tainted our industry in the past. Bottom line, for any business to achieve success, you need to have real sales of a valuable product, and stellar customer support to make your customers lifelong raving fans.

Thanks for all you do to raise the standard in the industry. It’s an honor to be your friend and to stand with you in creating authentic opportunity in a struggling marketplace.

All the best in the remarkable year of 2012!
Lory Moore

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louabbott January 4, 2012 at 10:12 am Thumb up 4 Thumb down 1

You are a true professional, Lory.

Thanks for the thoughtful and passionate comment..

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Greg Granger January 4, 2012 at 9:53 am Thumb up 4 Thumb down 2

Typically speaking (and I’m not saying ALL binaries are like this), most binaries are made for one person to benefit; the master distributor. The little guy hardly ever makes any money in a binary compensation plan, and that’s just a fact of history. The “Heavy Hitter” is always the one that makes the majority of the money in a binary compensation plan.

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