Binary Plans - A Time Gone By?

By Jeffrey A. Babener

A Time Gone By.

Binary compensation plans had their "heyday" at the beginning of the nineties. Today, they are few and far between. Did an asteroid hit them? Will we only find them living in Jurassic Park?

Closing Out the Millennium.

The originators of American direct selling, the Yankee peddlers, wouldn't even recognize today's multilevel plans. Even as late as World War II, direct selling was "just that," door-to-door sales in which sellers made their money by the "direct sale" and not by overrides on sales organizations. In the aftermath of World War II came the classic and dominant, even today, stairstep breakaway plans. An era of consumables in the 1980s ushered in the matrix plan. Although some stayed "around," most disappeared in favor of traditional stairstep breakaway or unilevel plans.

" ... the binary is the most controversial of plans ... its unfortunate origins ... and its use later for other questionable products did not help."

Finally, in the early 1990s, binary plans were introduced through questionable gold coin programs. They were later modified to apply to jewelry, prepaid phone cards and even some consumable lines. Most came and went, leaving behind some considerable legal controversy. And a few remain. As the last major type of compensation plan introduced before the new millennium, is the binary one that will survive the turn of the century, or is it an endangered species? Only time will tell.

The Binary Plan.

The binary plan is the newest on the scene. In a binary plan, a distributor is allowed to occupy one or more "business centers," each limited to two downline legs. Compensation is paid on group volume of the downline legs rather than a percentage of sales of multiple levels of distributors. In other words, payment is volume driven rather than level driven. Sales volume must be balanced in the two legs to be eligible for commissions, which are paid at designated points when target levels of group sales are achieved. The distributor may occupy multiple positions and may re-enter or loop below other two leg matrices in which he or she has been active. There is no depth limit on payment but each matrix has a finite amount that can be paid out, thus necessitating involvement in multiple two leg matrices. Payment in binaries is often on a weekly basis.

Proponents of binaries cite several advantages. First, they like the weekly payout. Since it is a series of two leg matrices, it is simple to explain. Group cooperation is promoted because payout is on group volume and requires balancing of volume in each leg to be eligible for payout. Some call it more democratic because of the limitation on payout in each matrix, the unlimited depth of payout, and the allowance of looping or re-entry.

On the other hand, the binary is the most controversial of plans. The binary had its unfortunate origins in the early 1990s in fraudulent gold coin programs, and its use later for other questionable products did not help. Those subsequent products were generally high-ticket one-time purchases such as consumer service or travel memberships, travel certificates or overpriced prepaid phone cards. By the end of the 1990s, and after many legal challenges, the binary was not in great favor, and only companies like USANA and Market America, that had applied the concept to consumables, seemed to be around.

Critics charged that the implementation of binary plans brought on legal and business problems. Companies and distributors tended to promote the plan rather than the product, creating accusations of a "money game." Often plans had a one-time sale requirement which created a something-for-nothing atmosphere and appearance of payment for headhunting recruitment. The multiple business center approach was often presented as a "purchase of a business center," an "investment," or a "front-load" of product. The ability to stack personal business centers also created the possibility of front-loading. The required balancing of sales volume between legs meant that hard work might yield no payoff and income would be forfeited, because personal production did not count if balanced sales volume did not occur. Finally, the multiple re-entry or looping created a "game-like" atmosphere in which an individual could end up in the downline of someone he or she had sponsored. For the distributor looking long term at a distributorship that might be sold, this "looping" also made it virtually impossible to place a value on a distributorship because no continuous downline genealogy could exist.

A Limited Future.

It is very difficult to switch over from a binary plan to another type of compensation plan even if a company wishes to do so. Those few programs that commenced in the early 1990s with binary programs and quality consumable lines of products, will probably continue to prosper into the new millennium. However, it appears that the time has "come and gone" for the binary, and probably the industry will see very few commenced after the year 2000.

Jeffrey A. Babener
Babener & Associates
121 SW Morrison, Suite 1020
Portland, OR 97204
Jeffrey A. Babener, the principal attorney in the Portland, Oregon law firm of Babener & Associates, represents many of the leading direct selling companies in the United States and abroad.

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