How does a Binary MLM Plan Work?
The binary MLM compensation plan is the most popular network marketing plan with rapid growth opportunities. The two-legged plan balances business and distributor growth by encouraging teamwork with attractive compensations. Network marketing companies with binary compensation plan use a Binary MLM software to effectively manage and automate their processes and operations. This software can automate marketing, prospecting, recruiting, training, and payout processes successfully.Read offline
What is a Binary MLM Plan?
The binary MLM plan is defined as a compensation plan that consists of two legs (left leg and right leg) or subtrees under every distributor. Upon adding subtrees, a binary tree gets formed. New members joining after them are spilled over to the downlines or next business level.
This process continues to unlimited levels or depths. The working of binary marketing plan is easy to understand which helps distributors attract more people to the network. Thus the recruitment or sales increase which also improves growth and business opportunities.
Most of the popular companies choose this basic plan with precise planning and proper strategy.
Well, MLM companies that run with the binary compensation plan needs proper tracking. An intelligent Multi-level marketing software helps companies manage, control, and organize their binary MLM system business easily.
How does a Binary MLM Plan Work?
Binary MLM plan is a network marketing compensation strategy used by many top performing MLM companies. The new members sponsored by distributors are added either on the left or right leg. Upon adding two new members on either side of the subtree, a binary tree gets formed.
All the new members referred after forming a binary tree gets spilled to the downlines.
Note: Distributors become a part of the binary plan by purchasing an enrollment package. The enrollment package here means either a service or a list of products. The distributor buys the package and becomes a part of the binary MLM company.
Let’s explain with an example,
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. Don’t 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.
Note: The sponsor is the person who referred a member to the network whereas the parent is the person to whom a member comes under as downline.
So, this gives a clear picture, the downlines under a node might be from his/her efforts known as direct downlines or from the uplines efforts or referrals. Distributor B was added on the right leg. Now, the binary tree of distributor A is formed.
Yet another information we receive from here is that a binary tree may form based on their own efforts/referrals or from the members spilled over from the uplines.
Note: A binary tree never gets completed, in fact, it’s infinite. However, a binary tree is formed once the left and the right leg gets filled.
A question might have arisen in your mind now - Can a binary tree get formed from the uplines efforts alone? Let us cover that part covered with the same example.
Case 3: 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. The binary tree looks now like,
See how the new members are added here, Y got added on the left position below A but Z got added below right to X1. The distributor X can add Y on the left leg under A but not on the right leg. To understand the reason, one should know the right and left leg placing or filling exactly.
The left and the right legs of X are depicted in the above picture. The position occupied by B is the right leg of A but not X. The right leg of X always spilled over the right positions below X1.
Binary commissions are received based on sales volume achieved by the distributor as well as a percentage of sales volume from the downlines. The criteria are set by binary plan companies.
Spillover can occur even if the binary tree is not truly formed. This is yet another scenario to consider.
Case 4: Consider a scenario, where distributor A sponsors two new members, B & C, only to the left legs. Now, B gets added on the direct left leg and C gets added to the direct left of B as spillover.
Case 5: Another type of spillover occurs when the direct left and right legs get complete and new members are placed to the next levels. In the above case, Y and Z are examples of normal spillover.
Distributor X sponsored A & X1, by forming a binary tree. Afterward, the next members get automatically spilled over to the next positions. This is a normal spillover.
Binary Spillover preferences
When a distributor completes the first level of a binary tree by sponsoring two members, then the next members will automatically spill over to the next available level. However, the spillover preferences vary from one binary MLM company to another.
Types of spill:
Extreme left or extreme right spilling: The spillover preferences can be set either to the left or right leg. Most companies choose this option to make distributors active. They will get commissions only once they balance the tree by making sales on the pair leg.
This promotes group effort and gains good sales volume.
Weaker side/Pay leg spilling: New members are added to the weak leg, it may be left or right depending on the lowest sales volume.
This preference helps business admin to balance the sales volume as the new members will add more sales.
Balanced spilling: This spilling preference balances the tree in advance in a 1:1 ratio. The members will be added on the basis of left-right combinations.
Multi-center tree/multiple position spilling: A premium joining package might provide a distributor with multiple business centers/member positions in a binary tree. The first three positions will complete a tree and the rest positions are spilled over to the next immediate positions. This type of spilling option is provided if the joining package from binary companies offer multiple positions in the binary tree.
Commission calculation methods
1. Weak leg based binary commissions:
Binary commissions are paid based on the leg with the least volume (weak leg).
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 (SV).
Strong leg (profit leg): The leg in the binary tree with higher sales volume is known as a strong leg.
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’.
Bonus calculations are made based on this weak leg i.e. 500 SV. So, if the bonus is set to 10% then the bonus will be 10% of 500 SV which is equal to $50.
The rest 600 SV on the right leg after the bonus calculation is carried forward to the next binary cycle.
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 in binary scheme are,
- 1:1 sales ratio
- 1:2 or 2:1 ratio
- 2:3 or 3:2 ratio
Note: In a binary MLM plan formula, commissions are paid or the binary payout cycle is set on a daily, weekly, monthly, or periodic 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.
Case 2: Distributor X achieves 300 SV and distributor Y achieves 350 SV.
Both legs have achieved a 1:1 ratio hence the distributor A (parent) gets $30 as commissions. Here, three 1:1 pairs are achieved, hence 3*($10)=$30 commission.
350/3=3 pairs (50 SV Carry forward)
The rest 50SV made by distributor Y gets carried forward to the next binary payout cycle.
1:2 or 2:1 Plan: Commissions paid once the left and the right leg achieves 1:2 or 2:1 sales volume.
Example: Distributor A sponsors two distributors X & Y and added to the binary tree. The commission payment criteria are set to a 1:2 or 2:1 ratio. Distributors get $10 for each pair.
Case 1: Distributor X achieves 100 Sales Volume (SV) and distributor Y achieves 220 Sales Volume (SV).
The binary tree has achieved a 1:2 ratio hence distributor A gets $10 as commission. The 20SV on the right leg is carried forward to the next binary payout cycle.
Case 2: Distributor X achieves 200 Sales Volume (SV) and distributor Y achieves 100 Sales Volume (SV).
The binary tree has achieved a 2:1 ratio hence distributor A gets $10 as commission.
Case 3: Distributor X achieves 300 Sales Volume (SV) and distributor Y achieves 600 Sales Volume (SV).
The binary tree has achieved a 1:2 ratio hence the distributor A (parent) gets $30 as commissions. Here three 1:2 pairs are achieved, so the distributor gets 3*($10)=$30 commission.
300:600 SV - Three [1:2] pair, to be precise, 3 * [100:200]
Case 4: Distributor X achieves 600 Sales Volume (SV) and distributor Y achieves 300 Sales Volume (SV).
The binary tree has achieved a 2:1 ratio hence the distributor A (parent) gets $30 as commissions. Here three 2:1 pairs are achieved so 3*($10)=$30 commission.
600:300 SV - Three [2:1] pairs.
2:3 or 3:2 Plan: Commissions paid once the left and the right leg achieves 2:3 or 3:2 sales volume.
Example: Distributor A sponsors two distributors X & Y and added to the binary tree. The commission payment criteria are set to a 2:3 or 3:2 ratio. Distributors get $10 for each pair.
Case 1: Distributor X achieves 200 Sales Volume (SV) and distributor Y achieves 320 Sales Volume (SV).
The legs have achieved a 2:3 ratio hence distributor A gets $10 as commission. The 20SV on the right leg is carried forward to the next binary payout cycle.
Case 2: Distributor X achieves 300 Sales Volume (SV) and distributor Y achieves 200 Sales Volume (SV).
The legs have achieved a 3:2 ratio hence distributor A gets $10 as commission. The binary payout cycle is paid either daily, weekly, or monthly based on company rules.
Case 3: Distributor X achieves 620 Sales Volume (SV) and distributor Y achieves 900 Sales Volume (SV).
The binary tree has achieved a 2:3 ratio hence the distributor A (parent) gets $30 as commissions. Here three 2:3 pairs are achieved, hence 3*($10)=$30 commission.
620:900 SV - Three [2:3] pairs
The extra 20 SV made by the left leg is carried forward to the next payout.
Case 4: Distributor X achieves 900 Sales Volume (SV) and distributor Y achieves 600 Sales Volume (SV).
Both legs have achieved a 3:2 ratio hence the distributor A (parent) gets $30 as commissions. Here three 3:2 pairs are achieved, hence 3*($10)=$30 commission.
900:600 SV - Three [3:2] pairs.
Note: The ratios can vary from company to company, they may choose 1:3 or 1:4 or any other custom pair as per the requirements.
MLM companies usually set a capping value for compensations in MLM binary plan formula to assure financial stability. Overflow of payout in terms of compensations can diminish the turnover generated by the companies.
The capping will be based on either Sales Volume (SV) or commissions.
Sales volume-based binary capping: Binary companies set capping value based on the sales volume achieved by distributors, compared with the enrollment package price.
Example: Suppose distributor A makes a sales volume of 200 from his left leg and 300 on the right leg. The company has set a weekly binary capping of 100 SV.
The commissions will be calculated only for this capping value. The extra SV of 100 from the weak leg and 200 on the strong leg will be flushed out. This value won’t be considered for the next binary cycle.
The capping can be set as per the company’s preference i.e.daily, weekly or monthly capping.
Commission-based binary capping: Companies set capping based on binary income commissions earned or achieved by the distributors, compared with the enrollment package price.
Example: If distributor X joins the binary MLM company with a $1000 package, the company sets a capping value of $10000 as commissions. The distributor won’t receive any commissions more than this value ($10000). This capping can be set based on a daily, weekly, or monthly basis.
Compensations in binary plan
Compensations are received based on the distributor performance or by achieving the criteria set by binary plan companies.
Most of the MLM companies develop their own custom bonuses to motivate and attract more people into the network.
Advantages/Benefits of Binary MLM Plan
The following advantages are offered by binary comp plan in network marketing.
Unlimited depth: Binary plan allows 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 carried forward to the next binary payout cycle.
Spillover: New members after completing the first level is spilled over to the unlimited downline levels.Best MLM Compensation Plans
Hybrid binary plan
A binary plan can be modified by combining with other compensation plans. Why should an MLM company go for a hybrid plan?
MLM company strategies vary and they might even have their own custom plan to add in the existing binary plan. The plans are chosen by analyzing the present marketing situations. With the best marketing plan, companies can become popular and beneficial in productivity.Try Epixel MLM Software
Other terminologies in binary plan
Inside leg placement: Inside leg placement is used to balance the legs in the binary tree. Distributor will add new members to the weak leg to balance the sales volume and active participation is assured.
Cycle point: A minimum sales volume is set for commission payment by binary companies. The pay leg must meet this volume or else the commission won’t be commenced until it meets the cycle point.
Individual volume threshold: A sales volume threshold is set to make sure every distributor contributes to the binary business.
Leg flush: MLM companies can flush out both weak and strong leg sales or reset sales volume to zero.
Learn more MLM terms from MLM glossary!
Binary MLM calculator
Yes, the binary plan has been popular since the early days and the calculations were made manually. However, a binary system calculation with many networkers is a clutter-job. The emergence of binary calculators or simulators resolved this difficulty.
By providing the necessary input on the binary calculator like the package details, compensations, and other expenses, an output can be simulated.
Popular companies using Binary compensation plan
(in billion USD)
(in billion USD)
|1||Natura & Co (Avon, The Body Shop)||6.91||7.2||-4%|
|3||Optavia - Medifast||1.6||1.53||5%|
|9||It Works! Global||0.495||0.55||-10%|
|13||Stella & Dot||0.315||0.315||0%|
Upcoming trends in Binary plan
The above popular companies list is extracted from a study conducted by our research team. Based on this study, MLM companies prefer binary income plan over other plans and the reason is to make business more productive & active.
There is an observable trend found after the analysis - “hybrid plan”. Many binary companies use a hybrid version of the other compensation plans in their business model.
Unique marketing strategies with the existing benefits of the binary plan make the best combo. This marketing strategy might have created a trendline and this trend will explore new opportunities in the near future.
Binary plan variants
Tri-binary plan, as the name suggests, does have three legs. Here, a proper pairing ratio needs to be followed. Three legs have to meet the pairing ratio set by the company say, 1:1:1.
From the above example, distributor A receives a pairing bonus when they match the sales volume in each of the three legs. The plan structure in a tri-binary plan look like,
The plan can also be called by another name - 3 * infinite matrix plan. Like in the matrix compensation plan, the structure has a definite width but unlimited depth or height.
Australian Binary Plan
Apart from the normal or basic binary plan, there is another business plan known as “Australian binary plan”. The plan has a three-leg structure instead of a normal two-leg binary tree. However, like tri-binay plan, three legs need not have to match to become eligible for compensation i.e. no need to follow (1:1:1) ratio.
Here, A sponsors B, C, and D to his/her binary tree as three legs. Similarly, the rest of the downlines add new members in three legs on their downlines. The sales from three legs differ and the pairing is achieved if any of the two legs match.
Distributor A receives a bonus when any of the two legs match the pair. If B & C pair matches a ratio set by the company (1:1, 1:2, etc.) distributor A gets a pairing bonus. Distributor D might not have achieved the desired sales but still, distributor A becomes eligible for compensation.
The rest of the plan process is similar to a normal binary plan but with an additional leg (third leg).
Rules & Regulations - Legal compliances in Multilevel Marketing
There are many legal guidelines an MLM company must follow and not everyone is aware of these laws. These laws vary from country to country but there is some common legal compliance a company must govern.
Here are certain rules one must follow in MLM business. Make sure you follow these rules, you can mark the box available in each field. If you’re a distributor then make sure your company follows them.
|1||Real products to sell|
|2||Compensations for recruiting only (No compensation for product sales)|