Yoli Founder Daren Falter explains “The NEW Binary Compensation Plan.”
How to Scrutinize an MLM Pay Plan
PART VII: The NEW Binary Hybrid
The New Binary Hybrid – Best of Both Worlds?
By Daren C. Falter
A hybrid plan is simply a combination of two or more of the above plans. The most popular combination plan today is the binary/unilevel. At the moment, some might say that compensation plan designers have cracked the code on modern day compensation plans with the invention of the “new binary” with a unilevel matching or executive leadership bonus. This plan seems to offer the best of both worlds – all the benefits of the binary and unilevel plans without the drawbacks. Some feel the new binary is a radical plan and the math does not add up. Or in other words, what you see on paper and what you’re actually getting are two different animals. Let’s take an objective look at the new binary to see what we can learn.
How does the new binary work?
First of all, let’s break down the new binary to see how it works. Thought it might seem more complicated than the binary or unilevel by themselves, most people can get the basic concept with a basic whiteboard demonstration. If you want to view the binary diagram and the unilevel diagram from the previous section, this might be helpful to visualize this plan.
Like other plans, the new binary generally has retail commission incentives, one or more fast start bonuses, and leadership bonuses which sometimes include car incentives and the like. The structures that make this plan unique are what I call the enrollment bonus or the binary, and the matching bonus or the unilevel. In the enrollment bonus, new recruits are placed into a binary. Generally this binary is not the three business center stack that you see in most of the classic binaries, but you usually start out with one business center and you’re responsible for a left and right leg. Although some of the new binaries do a 1/3–2/3 split, most of the new plans do a 50/50 split meaning you earn commission on the match of the right and left legs. To simplify this process, trainers now refer to the two legs as the greater and lesser legs and they explain that you earn around 10% commission on the lesser leg. Before, we would say you earned 5% on the balance of the left and right leg. Both mean the same thing.
Unlike the classic binary, new binary compensation plans explain on paper that their plan can pay up to $10,000 per center per week. Some plans claim much higher payouts such as $12,500 per center per week, and sometimes even $25,000 and $50,000. We’ll comment on this claim in a moment, but first I’ll finish explaining the structure of the plan. Distributors build a right leg and a left leg and try to keep their volume in each leg as even as possible. When one leg takes off, we call this the “runaway leg” and all efforts are put into attempting to build the lesser leg to match the runaway leg.
In the binary side of the pay plan, everyone you sponsor and everyone your team sponsors are stacked vertically in long rows, distributor after distributor. If you want to understand how the unilevel portion of the plan pays, simply disregard the binary for a moment and take all of the distributors you personally sponsored and place them on your front line in a unilevel structure. If you personally sponsored two, place two on your front line. If you personally sponsored fifty, place all of these distributors on your front line. This is your matching bonus structure. Any distributors sponsored by your front line distributors are placed on your second level and so on. Based on sophisticated software technology, the computer can first calculate your bonuses based on how you placed people in the binary, then it will recalculate bonus commission based on the number of people you sponsored front line in the unilevel, plus all of their downlines. Those who recruit the most still earn the most, but they’re able to assist downline members by initially stacking that volume under newcomers.
Unilevel commissions are generally paid in a matching bonus meaning that you earn a percentage match on the commissions generated by distributors you personally sponsor, and a bonus on the distributors that your distributors sponsor up to several generations. The matching bonus is generally paid on 4-8 generations. If you take all the volume designated to be paid in the matching bonus portion of the plan, generally payouts can range from 8-25% per level with the average being about 5-13% of the entire pool paid on 7 generations.
Remember, it can’t add up to more than 100% of the matching pool. Or you could say the average payout 
per level is about 5-20% on the entire payplan if you’re not calculating based on 100% of the pool. If you would like a great breakdown of how these plans work, you can generally find examples at www.youtube.com or other video sites online. However, I’ll caution you. Some of the trainers who are explaining these plans don’t understand them so you might get some top distributor leaders misrepresenting their own compensation plan.
New Binary Hybrid: The good
You can’t argue with results. As you can tell, I’m a very results oriented coach. If I see a system, strategy, or structure that is getting results with another company or leader, I like to jump on the idea and break it down to see why it is so effective. The new binary is such a beast. It’s hard to be critical of a compensation plan that newer companies have used to break all time industry growth records. One young company has accomplished approximately $900 million gross sales in their fourth year using this plan. Is this kind of growth healthy? Time will tell. We could see a major leveling off and a struggle for survival, or we could see the company go on to break more records as they move into the “big boys club”. Other companies have achieved $100-$400 million in annual sales using a form of the new binary over the last several years. Why the success? I’ve spent that last six months breaking it down in detail and here are my findings.
At first glance, the new binary plan seems to compensate for the weaknesses of both the binary and the unilevel. For instance, the new binary solves the volume capping issues of the old binary by allowing distributors to earn matching bonuses or leadership bonuses. They can now continue building their income even while they’re hitting the wall with their earning in the binary portion of the plan. Most companies have set up check matching bonuses or some sort of sponsorship bonuses in the unilevel portion of the plan, thus giving distributors more incentive to continue to sponsor and recruit. This follows along the generally accepted philosophy among compensation plan designers of “reward the activities you want to see in your distributors.”
Although it is still debatable whether these numbers even work long term, it does seem that these compensation structures allow new distributors to get into profit faster than other plans. This phenomenon is not generated by a higher payout which some new binary endorses tout. In fact, new binary commission recipients may actually be earning less per distributor than the more classic binary plans. However, with the excitement of the matching bonus to motivate them, and with the inherent benefit of stacking distributors in long vertical lines to create synergy, this plan tends to attract new distributors faster than other plans, thus making in volume what can be lost initially in lower percentages.
New Binary Hybrid: The Bad
I have yet to see a binary hybrid breakdown on paper/internet that did not have major discrepancies, faulty mathematics, and outright deceptions. In most cases I feel the companies promoting these plans are simply not aware of these problems. At the very least, they were unaware of the discrepancies when they launched their pay plan, and now they’re adjusting commissions, cutting payout percentages and volumes, and capping paychecks more and more every month as they begin to realize their mistakes.
I’ve literally attended company conventions where corporate representatives are touting the virtues of their amazing and unique comp plan that pays more than anycomp plan. The next week I’m on the phone with the same corporate officers who are in a panic because the CFO told them they have to cut volumes on the leaders checks because they’re earning too much while at the same time new distributors are complaining about not earning enough. It’s a constant battle to try to balance these plans without paying out too much or too little. When developing a plan, companies need professionals experienced in compensation plan development, mathematics and accounting, and you also need input from top leaders who are experienced field distributors so you can make good choices in developing the plan.
Most new binary hybrids that are less than 4 years old have adjusted volumes, commission percentages, and qualifications in significant ways as many as five to twenty five times. Distributors may never find out about these adjustments. Many of my friends in new binary hybrids only know the changes, limitations, and volume caps based on their commission check reports.
In many of the new binary hybrid plans, the numbers flat out don’t work. One company can say they pay out $1,000 per business center per week and the company pays 38% of their revenue to the field. Another company pays as much as 48% to the field, yet they claim a $10,000 cap per business center per week. Some plans boast $25,000 to $50,000 in potential commissions per center per week. It becomes blatantly obvious that, although companies have different qualification rules, there’s a fair amount of smoke and mirrors being perpetuated in the MLM industry.
The rules associated with each plan are keys to actually determining the ultimate payout of each plan. The explanation you see on paper or on a website is generally not detailed enough to teach you every nuance of how the math works. If you’re an aspiring MLM professional and you want to make the best choice in comp plans, it would not bea waste of money to hire an objective comp plan expert to evaluate the plans you’re looking at to determine if the math works. If I were trying to pick a comp plan, I’d first start by researching the backgrounds of the individuals who actually put the plan together.
Binary Creep
Binary creep is a term often used among industry insiders, top distributors, and corporate officers, yet it is rarely understood fully by any of these parties. Binary creep refers to a phenomenon that has plagued binary pay plans for years. As a binary plan matures, in order to maintain the same payout distributors received during the first few years of launch, a company must pay an ever increasing percentage of the companies income to the distributor force. Most insiders assumed that binary creep was based on the fact that distributors over time will learn how to balance their binary organization, thus generating a higher percentage of commission and sending less breakage to the company, however this is not really the issue. Binary creep is caused when a large power leg is established and then the recruiting at the bottom of that power leg stops. Now you have thousands of distributors sitting on a large chunk of volume on one side of their binary organization and all they have to do is balance out the other side and they can cash substantial checks. When a significant number of distributors balance out the volume in a large, dead leg, this can create the phenomenon of binary creep. The company continues to payout banked volume over time, creating less and less breakage to the company.
Though most top MLM’s have not applied this solutions to their programs, there’s an easy fix to binary creep that will take care of this potentially serious problem. I’d rather not share this solution here since it has taken me half my career to get to the bottom of this serious issue. However I will offer this advice freely to anyone willing to contact me personally for the answers. Think of this as your reward for actually reading this far in my book, and for having enough interest in understanding compensation plans and enough initiative and courage to take action. You should be very proud of yourself. I’m looking forward to our meeting.
New Binary Hybrid: Overall Evaluation
The reason compensation plan designers combined the binary and the unilevel into one plan was to take advantage of the strengths of both. The binary is a great plan for rapid recruiting and for creating massive team synergy while the unilevel works better for rewarding distributors on their personal recruiting, duplicating, and leadership skills. Overall it’s a great plan.
Some might argue that it is more complicated to explain a hybrid plan, and it certainly can be. Others might say the written plans are inaccurate at best, openly deceptive at worse. Unlike some of the classic binaries of the ‘90s, the hybrids have safety valves designed to cut off leader’s commissions so they can’t earn too much for fear of bankrupting the plan.
Time will tell if the new hybrid binary will become the new compensation plan of choice, however, currently it has become the most popular choice in network marketing in recent years. In separate interviews with three of the industries most prominent
comp plan consultants, I asked which plan they would use if they were to launch a new network marketing company. All three preferred the new binary hybrid. Although I still recommend the unilevel, binary, and breakaway to clients for different purposes, currently I prefer the binary hybrid as my #1 choice.
About the Author
Daren C. Falter is the author of the network marketing industry-wide best seller How to Select a Network Marketing Company. Daren has been a consultant to the network marketing industry for over 12 years and a student and participant for over 20 years. Daren has built downline organizations into the tens of thousands of distributors with several different companies. Daren is a popular convention speaker and trainer. You can visit Daren online at his blog at www.networkmarketingreview.com. You can also order Daren’s best-selling MLM book at www.networkmarketingbook.com.
Daren recently launched a new network marketing company, Yoli, Inc., near Salt Lake City, Utah. Daren and his four partners are excited to introduced the worlds most nutritious beverage using patented BlastCap™ Technology. For more information about Blast Cap Technology, Blast Caps, or Yoli, visit Yoli at www.prelaunchinsider.com.
Copyright ©2009 DC Falter Marketing, Inc. ALL RIGHTS RESERVED
ATTENTION: Breaking News!
Daren Falter will be launching a new company called Yoli. We will be introducing an incredible new nutritional formula in the form of a delicious functional beverage using Mikel Anderson’s patented Blast Cap Technology. The founders of Yoli are Robby Fender, Daren Falter, Rick Eisele, Corey Citron, and Michael Prichard. To find out more about Yoli Blast Cap Technology, visit www.prelaunchinsider.com
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With a background in the Seminar Industry and 12 years of Noteworthy Success in Network Marketing Kingsley is the Author of “Split Second Marketing” & “Your Extreme Advantage”. You can listen to them FREE at www.usahomebusinessexperts.com
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