Binary plan
Binary plan
A binary plan is an organizational structure used in multi-level marketing (MLM) organizations. In this structure, new members are introduced into a Binary Tree where each “node” or new member of the organization has a left and right sub-tree. [1] Considered one of the simplest of the popular marketing compensation plans, [2] binary plans began to be introduced by MLM companies in the late 1980s and became one of the four most commonly used organizational structures by the early 2000s. [3]
Structure
In each sub-tree of a binary plan, there is an outside leg, also known as a power leg, and an inside leg, known as a profit leg.
[1] Under the power leg, when new distributors are recruited, they are always placed underneath their recruiter, [1] typically in the next available node, when the recruiter does not, directly, have any leaf nodes left. [2] This contrasts with the profit leg which is typically filled with members who have been directly sponsored or enrolled by their immediate ancestor. [2]
Another element of a binary plan is that it makes each member only responsible for recruiting and sponsoring two other people to join the plan, [2] which can potentially lead to a rapid expansion of the plan in a short amount of time, [1] with a potentially unlimited number of members. [4] However, if a recruiter successfully recruits more than two people, the new addition will be added to next available node in the power leg. [5] This allows for the profits from gaining a new member to be shared between all ancestors in the power leg, regardless of who recruited them, which is a process known as spillover. [5] This helps foster a team-like dynamic within the binary plan as it encourages collaboration between different members as they all mutually benefit from adding new members. [1]
Due to the nature of a binary tree being a recursive data structure, a binary plan allows for multiple business centers for the MLM to be created, which cannot be done in the other three commonly used network marketing compensation plans, which allows for a more international group of people to potentially become members of the plan.
Compensation
Every binary plan has two distinct sub-trees - a left sub-tree and a right sub-tree.
[1] Whichever of these sub-trees makes the least amount of money is called the “pay leg” due to a concept known as balanced volume which is typically used in MLM Binary Compensation Plans.
[4] This is due to the fact that the members of both sub-trees will be paid a percentage of the pay leg’s growth regardless of how much growth that person is responsible for or which tree that person is actually in.
[4] This leaves the difference between the more profitable and the “pay leg” of the binary plan to be left over and not be paid out, in a process known as flushing.
[2] Due to this, recruiters tend to decide to introduce new distributors into their “pay legs” to try to minimize the difference between the more profitable and the “pay leg”.
[5] This process is called "balancing the legs" and is difficult to do as one persons power leg will benefit from spillover from child members while their profit leg will not.
[4] This makes it very important to try to maximize the profit from the profit leg, which is done solely by the individual.
[4] To fix this, some companies put regulations to try to weaken "power legs" such as requiring distributors to place one member into both of their legs before being eligible to receive commission.
Legal Issues
Binary plans work under the same logic as other MLM operations under the law, meaning that it is subject to four main areas of law governing the multilevel marketing industry, namely: [5]
Anti-Pyramid Laws. To be classified as not a pyramid scheme, which are illegal to operate, binary plans must give compensation based upon legitimate sales versus giving compensation for recruiting other members alone. There must be a legitimate product or service being given by the company to be able to continue. [7]
Business Opportunity Laws. Depending on the state or nation, the company with the binary plan must be able to file an annual or bi-annual report on their operations to the correct government office detailing the program, its finances and the identities and information about the promoters and the distributors of the organization.
Securities Laws. To avoid being a type of an illegal security known as an investment contract, [7] the recruiters of a binary plan must not lead potential members to believe that profits will come from the recruiter or some other third party.
Lottery Laws. Similar to security laws, the recruiters and promoters of a binary plan must not imply that profits are determined by random chance as opposed to direct skill of the potential new member or at the people in the organization. To do this, organizations run under a binary plan often have mandatory participation in sales, marketing and management efforts. [5]
Benefits and Risks
When compared with other MLM plans, binary plans have a lot of benefits, such as:
Fostering Teamwork. As both a member without recruits or a "child" and their recruiters both get the same benefits from successfully recruiting new members, the recruiters are more likely to help them to strengthen their sub-trees, allowing for the child to learn about sales and recruitment. Furthermore, due to flushing, a binary plan gives incentive to companies to try to keep all the legs of the operation at a high level, not allowing for certain sectors to lag behind. [8]
Spillover. The profits of gaining a new member is shared between the entire high-line, which encourages everyone to attempt to recruit new members and make the binary plan larger. [2]
Near-Infinite Depth. Due to the way that the Balanced Volume (BV) calculates payout, every member in the up-line is guaranteed to get some profit for a successful sale unless if the organization gets large enough that the net payout is negligible. [9]
Rapid Expansion. As each new member only needs to recruit two other
Volume-based pay structure. In a binary plan, distributors who bring orders are guaranteed to be paid more for them which is not true for other major MLM compensation systems. [9]
However, on the other hand, there are a lot of risks to using binary plan systems such as:
Flushing. Due to Balanced Volume, if one leg is significantly stronger than the others it is very likely that a significant amount time, money and work can be wasted.
Short Term. The majority of binary plans fail within the first five years due to either expanding too rapidly and not being able to sustain it or not being able to get an initial base. [9]
Pooling. Each person based upon their level takes a certain percentage of a "pool" of money that is gained from sales. However, as more people enter the binary, each person gets less of a percentage, meaning that as the binary plan expands, if sales do not increase at the same rate as the plan, profits could potentially decrease. [3]
See also
Multi-level marketing
Stairstep Breakaway plan