What is the binary MLM Plan ?
The compensation plans differ in their structures, and the structure of the Binary compensation plan has been a huge hit primarily because it has helped various companies reach high success levels. Each distributor in a binary compensation plan has a limit of not having more than two distributors in their first level of sales. It is supposed to consist of two legs (right and left), and every distributor has a subtree, so a binary tree is formed.
How does the binary MLM Plan Works ?
- Let us understand by taking an example, suppose Distributor X sponsors A, and distributor A then sponsors a new member B. B gets added to the left position or leg of A on the binary tree.
- Distributor B is the new member sponsored by A and he is the direct downline member. Distributor A then adds another member C to his right leg.
- The binary tree of distributor A is formed and he gets commissions. Dont forget one important factor, distributor C was added to the right because he chose that position as it was vacant.
- Here, distributor A is the sponsor as well as the parent of B & C
- Distributor X sponsors two new members A & X1. They are added on the left and right leg as they were vacant.
- Distributor A then sponsors a new member B to the direct right leg. Meanwhile, distributor X has sponsored Y & Z.
Case 1: Distributor X sponsors A, and distributor A then sponsors a new member B. B gets added to the left position or leg of A on the binary tree.
Distributor B is the new member sponsored by A and he is the direct downline member. Distributor A then adds another member C to his right leg.
The binary tree of distributor A is formed and he gets commissions. Dont forget one important factor, distributor C was added to the right because he chose that position as it was vacant. Here, distributor A is the sponsor as well as the ‘parent’ of B & C.
Case 2: Distributor A is sponsored by distributor X. Distributor A then sponsors a new member, B. However, B wasn't added on the direct left leg because it was already acquired by distributor Y sponsored by X.
Here, distributor Y got spilled over to the next vacant position i.e. on the left leg of A. The sponsor of Y is X but the parent is A.
Binary Compensation Structure
- 1. Weak leg based binary commissions:
a. Weak leg (Sales leg): The leg with low sales is the weak leg on a binary tree. Commissions are calculated based on this weak leg. It can be either left or right, based on Sales Volume/Business Volume (SV / BV). “Usually weak leg will be flushed out.”
b.Power leg (profit leg): The leg in the binary tree with higher sales volume is known as a strong leg.” Here the matching pairs at the power leg will get carry forwarded” .
Example: The downlines of distributor A are B, C, D, E, and F. Here, B, D, and E are in his left leg whereas C & F are in his right leg. The left leg made a Sales Volume (SV) of 500 and the right leg of 1100 SV. SV is less on the left leg, hence it is the ‘weak leg’ and the right leg with higher SV is the ‘strong leg.
- 2. Sales ratio based binary commissions:
Some companies set commission payout criteria based on sales ratio or pair ratio. Most common pairing ratios or sales ratios are,
a.1:1 sales ratio
b.1:2 or 2:1 ratio.
Note: Commissions are paid or the binary payout cycle is set on a daily, weekly, monthly basis.
1:1 Sales Ratio: Commissions paid once the sales volume of the left and right leg matches a 1:1 ratio.
Example: Distributor A sponsors two distributors X & Y and adds to the binary tree. The commission payment criteria are set to a 1:1 ratio. Distributors get $10 for achieving every 1:1 pair.
Case 1: Distributor X achieves 100 Sales Volume (SV) and distributor Y achieves 120 Sales Volume (SV). Both legs have achieved 1:1 ratio (100 SV on both legs) hence distributor A gets $10 as commission. The 20SV on the right leg is carried forward to the next binary payout cycle.
Note: Carry forward option for unpaid sales volume is applicable for both left and right legs. Also, some binary companies may not welcome carry forward option by flushing the unpaid sales volume.
1:2 or 2:1 Plan: Commissions paid once the left and the right leg achieves 1:2 or 2:1 sales volume. I.e,(2:1) when 2 users towards left and 1 user towards right and the ratio(1:2)when 1 user towards left and 2 on right
- 3.Sponsor Matching Income & Sponsor Pair Matching Income :-
Sponsor Matching Income :- The Sponsor Matching income is credited to sponsor, whenever his downline gets the Direct Referral Commission.(If Sponsor Matching Commission is set during the Plan Creation). Sponsor Pair Matching Income:- The Sponsor Pair Matching Income is credited to Sponsor whenever his downline gets the Binary Commission.(If Sponsor Pair Matching Commission is set during the Plan Creation).
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Unlimited depth:
Binary plan offers distributors to add members to unlimited levels and earn a high income. -
Group work:
With left leg or right spilling preferences, the distributors become active as they have to balance the tree for compensations. -
Quick growth:
Binary plan offers quick business growth opportunities. -
Carry forward:
Unpaid sales volume (SV) after present binary payout cycle is carry forward for the next binary payout cycle. -
Spillover:
New members after completing the first level is spilled over to the unlimited downline levels.
Companies who want to follow a simple compensation plan choose a binary compensation plan. There are no complications like spillover or other criteria, basically, the plan is simple to explain.In binary plan, all the distributors in the same level would receive the same compensation ( commission ) and the commissions are generally paid out on a limited depth ( can be up to 5 to 7 levels deep). Some also consider this as a disadvantage however, as the binary plans are constrained by the limited depth of commission which inhibits deep sales organizations.
Commission calculation methods
advantages of binary plan
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