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The binary plan is based on a two-leg structure which I will discuss in detail in a future post. For the moment imagine that each person in the team recruits only two people. If you view the network from the point of view of any person in the team, they will have two legs. These legs, predictably, will differ in depth, have different numbers of people and as a result will have differing total sales volumes.
The binary plan pays a commission based on two variables. The first is the members rank and the second is the sales volume in the weaker of the two legs, often called matching volume.
The rules around this can get complicated but for the sake of simplicity, we will ignore all the possible rules and focus on the concept. The sales volume is calculated on all sales that take place in each leg infinitely deep. Once the total sales of each leg are determined, the commissions are calculated on the lesser or matching volume. This is very attractive to some networkers as they can build deep structures and earn off every person in their structure infinitely deep. The strong leg sales volume is not lost as it is traditionally banked for a time in the future where the weak leg becomes the strong leg and the bank value can be added to the weaker leg to increase the matching volume.
As the members rank increases, they qualify for a higher percentage of their weak leg. Let’s imagine John has two legs, one with $100,000 and the other with $200,000 in monthly sales. Next, let’s assume that there are three ranks yielding progressively higher commissions, bronze with a 2% yield, silver with a 4% yield and gold with a 6% yield. If John had the rank of bronze, he would receive $100,000 (the volume of the weak leg) * 2% = $2000. If John gets promoted to Silver, they would receive $4000 and at Gold, they would receive $6000.
Normalization and capping
The danger of the binary plan is by paying infinitely deep, it is conceivable that you could pay out more money that you are generating. For this reason, there are two concepts that are always present in binary plans – normalization and capping.
Normalization refers to a mechanism that reduces all commissions across the board to an acceptable level. Let’s say we are targeting an average 40% commission for the company. For some reason, the average commission calculation is 50%. Normalization would kick in and reduce every person’s commission by a percentage that results in an average 40% pay-out. This is a safety net for the company and is critical for management sanity. The problem with normalization is that it can demotivate your team, so you never really want this to happen.
Capping is designed to prevent normalization and is a limit on what a member can earn on their structure. For the sake of argument, we will make the cap $5000 on a structure. If John’s team reaches $ 86,000 in total weak leg sales, his potential commission will exceed $5000 but the cap will ensure that the actual payout is only $5000. All commissions above $5000 are retained by the company and used to prevent normalization for kicking in.
The big question now is how you keep your team motivated. I mean, if you are capped what reason do you have to do any more work? In most cases, the company allows the member to get a new position in their direct upline thereby making their entire existing team their strong leg. They are then able to focus on building their weak leg and generating additional commission.
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