Understanding binary MLM compensation is critical for anyone who is considering operating under this type of plan. We will look at both the positives and negatives of this type of MLM compensation. A binary MLM plan operates on a principle of restriction, that is similar to that of a 2 x 2 matrix compensation plan. The similarity being that the first generation of your MLM downline is limited to two people. This limitation creates an organization that is made up of two separate legs, which are commonly referred to as the "right" and "left." In a binary plan, commissions are generally paid out on the weaker leg. The weaker leg is determined by the lower sales volume of the two legs during a set production period. Commissions are rarely paid out on the volume of the strong leg of the organization.

Advantages of Binary MLM Compensation

Whereas most MLM pay plans pay commissions once a month, many binary plans pay bi-monthly or even weekly. The appeal of a more frequent payout can be a big draw for many network marketers, especially those needing to generate profit quickly.

Another advantage of this type of MLM compensation plan is the ability to earn commission from deeper generational levels. In fact, binary plans offer the greatest potential generational earnings depth of any of the four basic compensation plans in network marketing. Although you are only getting paid on the strong leg, you are eligible to receive commissions for the group volume of the entire leg, with no generational limitations. This means that you will benefit from a strong producer, even if they are 12 levels deep in your organization. There is never a time when a person in your strong leg will fall below your "eligible" pay range.

Disadvantages of Binary MLM Compensation

This type of MLM compensation works best when both downline legs are growing at a similar pace. In some cases one leg will radically outproduce the other, making it possible that your company would earn a large amount of money, while you as the distributor earned nothing. Once a leg begins to outrun the other leg it will generally continue that course, making it nearly impossible for the distributor to get paid. In an effort alleviate this type of scenario, some binary compensation plans pay a matching bonus on the group volume of the strong leg.

Some binary compensation plans pay commissions at set levels, instead of as a percentage of sales volume. Supposing your volume fell between two predetermined levels, your volume would be rounded down to the lower of the two levels for commission payout purposes and the remainder of the volume carried over into the next pay period. To combat this problem a number of companies have begun to pay straight commission on the actual sales volume on the weaker leg.

As with any model of MLM compensation, there is money to be made in MLM binary plans. The key to your success in these types of plans is your execution of sound business building practices.