Binary Basics

Article by: Kenny Rawlins

September 1, 2015

Many companies use a binary commission as part of their overall payout plan. When the binary plan arrived on the scene, it proved to be a near opposite approach to commissions than that of the existing plans. Every other compensation 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 and (2) all commissions for a given product order are paid in a single commission run.

In contrast, the binary plan is built on the following two opposite premises: (1) Commissions are paid on an unlimited number of levels of a distributor’s downline, but on a limited amount of sales volume and (2) commissions for a given product order can be paid across several commission runs. In fact, it’s impossible to know when all the commissions on a single order have been paid.

A binary compensation plan features a limited-width structure that requires a distributor to specifically have two first-level distributors—two legs—in his/her organization. In the binary, each person has two legs only. If a third person is sponsored, they are placed further down one of the legs where there is an open spot in the downline.

A binary compensation plan does not pay on levels, but on the balance between the two legs. A distributor receives commissions on the sales volume of the weakest of the two legs. With a binary plan, depth really doesn’t matter. What matters is balance of sales volume between the legs. Distributors have to generate downline sales volume that is balanced between the two downline legs. When individuals reach specific levels of sales volume, they receive a commission check.

For purposes of payout, sales volume can be accumulated in one week or across several pay periods. Binary compensation plans are different than any others. With most plans, whatever volume you accumulate in one pay period, you get paid on. If you don’t accumulate enough to get paid, it’s 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 enough to get paid, you get paid. Binary has that cumulative effect. For example: If you are required to earn $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 week, or fifth pay period you get paid.

The challenge with a binary plan has traditionally been 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.

In order to maximize in a binary, a distributor needs to understand the balance of leg volume and that binaries are paid on the weakest leg. This requires work on the part of the distributor (just like any compensation plan). Continuing to build and place people on the weak side helps to build your commission payout.