THE UGLY TRUTH ABOUT BINARY PLANS

By John Counsel

Most “hot, new trends” in MLM compensation plans are nothing more than tweaked-up reincarnations — fancy new names with dazzling new packaging — of tired, discredited old barker’s eggs that companies trot out for another spin because they earn so much hidden, windfall profit from them.

Binary compensation plans are just re-hashed attempts to breathe fresh life into the notoriously-flawed 2 x 12 automatrix plans of the 1980s and early 1990s.

The 2 x 12 automatrix (or forced matrix) was the most unstable of all matrix systems. They were notorious for collapsing and taking thousands of people’s money with them.

So why do companies keep resurrecting and re-inventing them?

One simple, HUGE reason:

 MASSIVE BREAKAGE

Breakage is bonus income that distributors (especially part-timers) fail to qualify for because of punitive group volume and downline rank requirements in most compensation plans. So it rolls right past them on its way upline. It’s the secret that network marketing companies never want to talk about, because it’s one of their biggest sources of hidden profits… at your expense!

Why BREAKAGE is your #1 threat in network marketing

No other compensation plan comes close to a BINARY plan for creating massive breakage that rolls up to the heavy hitters and the company.

In a typical binary plan, you only earn bonuses (usually at pitiful percentages, too) on the volume of your poorer leg. Your richer leg (POWER LEG) is untouchable by you. And then all that untouchable volume “flushes” every month in most binary plans.

Even that word — “flushes” — is deceptive. It creates a mental image of going downhill, with the force of gravity… it goes “down the drain”. But what really happens? The unpaid bonus income does anything but “flush”. It zooms straight upline to the handful of heavy hitters at the top of the organisation, and to the company’s coffers. If there’s anything “flush” about it, it’s the fact that their bank accounts are “flush” with money YOU couldn’t get hold of, despite YOU earning it for them!

Smart distributors do all they can to maintain as fine a balance in their legs as possible, so that they can maximise their income

The problem is that you need to sleep at some time… and most companies operate globally. Spillover from upline can very quickly throw your delicately balanced volume right out the window. So you go to bed happy with your group balance, only to wake up to find that your upline has piled new people into your stronger leg — which pays you zilch!

Of course, you can usually buy more than one “business centre” (read “front-end loading”, which is a classic feature of illegal pyramid selling schemes), which lets you create more legs. But now you’re just juggling more balls in the air in the vain hope that you can outguess and outgun your upline as they pile more and more spillovers into the wrong leg.

The ONLY people benefiting from all this frenzied juggling are your upline heavy hitters and the company.

It’s a well-known fact amongst savvy network marketers that true income growth comes from width. As Tom “Big Al” Schreiter says, “if you want more milk, get more cows!”

He’s right. Payout on depth will always be limited because product prices are limited. The company can only pay out so much from the wholesale price of its products. So the only way you can earn BIG money from depth is by robbing your downline! (That’s where breakage comes in.)

A company simply sets unreachably high group volume qualifications so that the majority of distributors fail to qualify. Too easy… the money rolls right up to the top of the tree and to the company!

So if you want to REALLY rip off the part-timers, you just

• limit their ability to build WIDE and
• force them to build DEEP!

So you invent a plan which allows them only two legs wide… but then pay them on only ONE of those legs — and the weaker leg at that!

But what about the “new” binary plans that claim to correct all these flaws?

First, it’s encouraging that they recognise and admit that traditional binary plans are fatally flawed. Interestingly, the pattern seems to be that they’re companies founded by former senior executives of other MLM companies that operated traditional binary plans. (That should tell you a few things — mostly that they lack any real depth of experience in network marketing, and they’re FIRST Generation managers. Not promising.)

These new companies, with their “new generation” hybrid plans — a bit of this plan, a bit of that one, then a pinch of something else and, hey presto!… a miracle plan! — are shrewd marketers. By combining the features of several types of other plans they cast a much wider net and draw in people who are used to those older plans, so they feel less threatened or uncomfortable.

There are only three reasons why anyone stays with a binary compensation plan…

1. They don’t have a clue — and don’t question anything. Not a promising prospect as a potential sponsor for you!

2. They know exactly what’s going on and plan to profit at YOUR expense — and the expense of their other downline drones (that’s how they see you). Not the most attractive quality in a prospective business associate either, true?

3. They’re alreadyupline heavy hitters who are profiting at YOUR expense!

Just imagine… a distributor organization full of either naive, ignorant “true believers” — mindless “lemmings” — or greedy, callous rip-off merchants.

Do you REALLY want to be part of such an organization?

13 Reasons Why Binaries Do Not Work for MLM

1. Historically, Binaries have been short lived, except for Usana, which did not start out as a binary.

2. Binaries have had problems with regulators, often drawing huge fines or settlements, e.g., BigSmart ($5,000,000)

3. Binaries are often built anonymously through automated systems that do not lead to the development of personal relationships

4. In a binary, the company is betting against the field: the very premise of the Binary Comp Plan is that distributors do not qualify. In fact, binaries live off of “breakage”, which is all the percentages written into a comp plan but not paid out because distributors do not qualify. This money is kept by the company. Even in cases where the binary company claims to pay out fully its comp plan, it caps maximum earnings throughout its gene tree, keeping the money to be partially distributed in large cash giveaways. Others claim to pay out fully, simply by earmarking amounts to be paid out later, thus creating a rolling (revolving) promise of pay out, which keeps on working as long as there is strong growth, and collapses when there is the slightest lull.
If most of the distributors were to qualify then…
a. either the company would go out of business, or
b. the profits in the field would be so widely spread out that the appeal of a select few making huge amounts, would not exist, which leads us to:

5. In a binary, the field leadership (leaders and big hitters) are building power legs as fast as possible, in other words, they are controlling spillover in a way to benefit them at the expense of their downline, thus making the appeal of spillover a myth at best, and at worst, an outward lie. Binaries pay out on your weak leg, not on your strong or power leg, therefore by definition, you do not build your success on the success of others, but you try to balance something that will naturally never be balanced.

6. Because of lop-sided income structures, binaries are associated to “get rich quick schemes”. But even payouts which favor heavily big hitters don’t last in binaries. Binaries use a system called factoring which, for lack of a better word, allows them to factor in changes in growth. When revenue trends change suddenly, the income of big hitters can be drastically reduced, and then the latter flee with their automated sponsoring system, accelerating the downfall of the company.
7. Binaries have been historically used by companies that have sold over-priced services (e.g., phone cards that gave 20 cents value on the dollar, thus in reality being disguised money chains.)

8. Real growth is based on Pareto’s Law: the 80/20 rule, which holds that only 20% of the people will do the work. Binaries claim to be able to get around this, that is why participants in binaries can be heard saying: “I almost made $32,739 last month.”
“And how much did you wind up making?”
“Well, I really made only $287… But wait until I balance next month!”
No chance really, against an automated system building down one leg.

9. Binaries are usually built on hype, with huge cash giveaways in order to lure people based on the greed factor. The product becomes an excuse. They often create copycat products of already existing and legitimate products. The negative side of this is that they also taint legitimate businesses.

10. Binaries, because they most often use automated sponsoring systems, wind up giving a bad name to legitimate organizations who use automated systems within the confines of a sound compensation plan. The “good distributors” suffer from guilt by association.

11. Binaries lead you to purchase multiple “business centers”, in order to “maximize” your earnings potential. What this really does, is prompt front loading products (according to regulators, this means purchasing more of the same product that you and your family can reasonably consume within a certain period). Both State (AG’s) as well as Federal (FTC) Regulators are concerned that this is a borderline, and often outright infringement on anti-pyramid laws.

12. Binaries redefine who they consider as distributors, often disregarding more than 90% of their distributor base, simply according to their own invented criteria to make it more difficult to be considered a distributor, such as minimum volume, period of activity, having already sponsored someone, or even already having received a commission check based on downline production.
Binaries thus consider more than 90% of the people who signed a “distributor application and agreement” with them as wholesale customers, thus allowing binaries to misrepresent average earnings, thus skewing results by more than 90%.

13. Thorough analysis of most binaries show that only a handful make considerable income, while between 98% to upwards of 99% of distributors do not even make in commissions what they pay in on a monthly basis.

Summary:

The success of network marketing is also due to its viral acceleration of economic change: the best example of upward mobility.
The success of network marketing has nonetheless been tainted by the behavior of certain “clever” companies/distributors who sought even faster success, often at the expense of the reputation of network marketing. They came up with the binary compensation plan.
Be wary of compensation plans that use the words “cap”, maximize your earnings”, and “you can make up to”.
Binary companies are here today, gone tomorrow. The fastest growth companies have been binaries. Example: in the nineties, a binary company grew from 0 to close to $2 billion in 18 months, and collapsed to nothing within two months, leaving hundreds of thousands throughout the world with dashed hopes, and an aftertaste of having been abused and taken advantage of.
The founder of the company escaped to an atoll in the Pacific.