13 Reasons Why Binaries Do Not Work for MLM
by JohnGodzich on June 24, 2009
in Compensation Plans
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.
Hi John, very interesting article.
You mention that Usana has lasted even though it is a binary. You are right…but there is a dirty little secret as to WHY they have lasted…and it makes your article all the more valid.
Give me a call at 814.227.5976 and I will fill you in.
Best,
Jim
NO, Binary comp plan does NOT work, Been there done that. Cannot possibly balance. Rip off for sure. My check went from 7,000 one month to 700 the next month when the company changed from unilevel to binary . Run the opposite direction!!!!!!
John should know. Having been in the industry as long as he has, he can authoritatively address this issue. Anyone considering MLM should have done thier research to know that binaries are not profitable to the distributor and that is one of the reasons Xango,LLC (a debt free company) has been so successful…the field is compensated for its efforts. That is why XanGo has grown in 6 short years to be a two billion dollar company. Its founders have always had integrity and continue to be the cornerstone of the success of XanGo. The compensation plan pays 50%, not up to 50%, with no breakage but dynamic compression, and XanGo pays on time every month. In an economy such as we have currently, XanGo isn’t cutting back. XanGo is offering the distributors a way to earn more! Mary Kay took 40 years to produce a millionaire. XanGo has created at least 63 millionaires in 7 years. To paraphrase another icon in the industry, XanGo offers a way to make more in a shorter period of time with the least amount of effort. How cool is that?
I’ve always looked at binaries as the easiest structure to build an mlm. You’ve presented many new points that I need to consider.
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So well explained! I’ve been explaining this for years but sometimes people have to actually make the mistake and then we can be there for them when it all goes wrong. Hopefully this can save people a few years of heartache!
Over the years I have listened to many people who just can’t get started no matter how hard they work because of bineries. The sad part if they did not understand why this was the block. Now networking has to overcome this obsticle and XanGo is the first I know of who did not see this personal gain as dollar signs but as an obsticle to improve.
Binaries do not work. People innocently join them because it is a no brainer to join and they are promised great wealth.
I have to agree strongly with John Godzich on all these problems binaries create. I have several friends who experienced a terrible outcome with an acai berry juice company that is a binary. They all spent thousands of dollars and had their friends and family do the same and then never received more than $40. It hurt them financially, gave the industry a negative representation and worst of all….they lost credibility with those who trusted their judgement.
It is unfortunate that people do not investigate and do some homework more precisely before they get involved with a company. Especially a binary. If you want a solid company, a company that will last and be long term, look at the whole picture including the founders. They should really take a look at Xango.
I’m so thankful that I learned this information before choosing a network marketing company. I’m surprised at how many people do absolutely 0 research on comp plans, jump in to a company because of a friend or family member put in a lot of $ upfront, and are out in 6 months. Great Blog, I hope that people will take the time to read through this, do their research and make the right decision before joining a company that has a binary comp plan.
Lori
Thank you John for putting this out there. I get so fed up with the “get rich quick schemes” and the more people know about Binaries the more they will steer clear of them. I am so thankful that my first (and last) MLM endeaver was Xango! Their compensation plan is THE BEST . . . good enough to bring icon, Doug Wead on board! Who would have beleived a 1st time networker could be part of the Million Dollar Club!?!
Spot on and insightful. With XanGo, we know that we are dealing with a fair and lucrative compensation plan.
Thanks for sharing this valuable input with us, Mr. Godzich. Network-marketers need to have integrity and really help their prospects to learn and research deeper into the company they’re looking into joining. This is a business of long-term prosperity and partnership.
So true John… friends do not let friends do binaries
If I would have had this info, before joining a binary! I am glad that I am no longer with that company! Lots big promises that that never happened. Its hard to build on hype when you want to be totally honest and upfront with prospects!
Thanks for confirming what I’ve been hearing from many different sources. It doesn’t make sense to join a company that has a binary compensation plan when there is only one company that has succeeded using it, and they didn’t start off with a binary. Why would you join a company which is betting against the field instead of wanting them to succeed?
Thanks for adding another valid tool to our arsenal.
Thank John, great article. I’ve nerver been involved in a binary comp plan but it onlt makes sense to me that if a company is going to be fair and have a distributors best interest in mind the company will not be looking for ways to get monies from distributors that do not qualify. A comp plan with no breakage is the only way to go. With no breakage the monies committed to the distributor field stay in the distributor field. How fair is that? Keep up the great work. Thanks also for Doug Wead.
Gregory
Thanks John, for the very clear explanation of the binary plan(fiasco). I’ll share it with my group/prospects. Our compensation is the very best I’ve ever seen.
Thank you for giving this explanation of the binary compensation plan. Binaries are designed to leverage the company, “not the distributor”. In fact binaries are designed to de-leverage one’s ability to build a strong healthy organization. People that are passionate about building a strong organization in Network Marketing need to follow the teaching of John Godzich. I feel privileged to know you John, thanks for your help.
Interesting… market america’s comp plan is a “binomial” plan yet it sounds similar to what is discribed here as a binary. Does anyone know the difference? MA has been going strong for 16 years with this proven system.
John, what a great article…thousands of people are flocking to network marketing as we speak..and God bless them… as many will choose binaries only to learn the tough lessons down the road. I am so glad that I found a plan with a 50/50 payout…the company thrives and so do we.
Thanks for caring enough to educate on this topic. It is so important for people to understand how they are going to be paid in MLM. This could mean the difference in success and failure in this business.
Thanks, John, for this eye-opening lesson. Many of us in the industry don’t understand binaries because we’ve never been involved with one. Now you’ve given us something concrete to share with friends and business contacts. Hopefully, it will serve to keep many people from making a painful and expensive mistake.
Thank your for putting that so clearly. It makes me so glad I joined Xango. We can build as wide as we want and they pay 9 levels…if the system comes to someone that doesn’t qualify for a level it just skips over them and keeps going…They actually pay out all 9 levels on every single sale…
Not just imply that you can get something you will never see…
It is really a shame that so may people have to stumble around looking for the right company and the right comp plan. John, what you really need to do is to identify for folks a set of valid criteria for evaluating any MLM. If we can get these readily available on the web, then people can use them when they do their own due diligence
Thanks John for explaining how that works. I had heard that binaries were not ideal, but it’s important to understand why. It helps me to fully appreciate the Xango compensation plan. They have really hit a homerun with the best plan and extraordinary products.
Binaries are terrible, I for one should know, getting my mom and friend into acai berry juice Company..that was my two..that is ALL YOU Need!?!? Before I knew it my right leg had a ton of people on it and my left was let standing alone, you have to keep up with your right leg..that is flying by you.. after spending about $2000 dollars and getting a $90 dollar check finally… I could not beleive it and my friend spent a forture (left leg) and didn’t get a dime, my mom well she spent alot too got $12, didn’t spend it in time and they TOOK IT BACK! What ya think about that, must be they needed it more than my mom.. Thank you for putting this up, and stick to Xango they are a Godsend… Your Awesome John! Thanks
Great report John Thank you What you have written here is so true that is ehy I never joined MLM before was a Binary I could never belive they worked but once I saw Xango I was in straight away
John thank you so much for the insite on binaries. It is very helpful to me when i run into that person thinking it is the best plan on the planet! Now I have some great info to share why it is not!
Thanks
Where was this article when I needed it? This report can sure save a lot of frustration if people read it and I’m sure there is a lot of frustrated folks in a binary right now that after reading this are shaking their heads in agreement. Will be passing this on as well as keeping it in a reference file. Great report!
I can’t believe that binaries are still around…there have been so many people burned with them.
What I dislike the most is that they give network marketing a bad name. Network Marketing is the very basis of free enterprise!
Anyone can and it is a level playing field for anyone who is willing to try and be coachable.
Thanks for presenting this informatin for everyone.
The truth will set us free!!! Let Freedom Ring!!
Thanks for the great insight on binary pay plans. Everyone should understand how they work before they choose to get involved. Thank you Xango founders for equally sharing the pay with the distributors 50/50.
Thanks for the info John!
I totally agree having been involved in several binaries myself.
I was led to believe they were simpler having only 2 legs.
After making no money in any of them and most of those companies are now gone I have finally learned my lesson. I didn’t understand that everyone that was supposed to be helping you was essentially against you. The company does not to pay out too much or they will go broke and your sponsor puts you in their weakest leg to help their business so virtually no spillover occurs. Wait until you get placed on an inside leg of someone that is on an inside leg that is on an inside leg etc. etc. Just imagine that?? What Fun?
Thanks for all the great incite John. If some of these binaries would show the average check amount per title I think we would see more potential builders looking at how unilevel pay plans are for the long haul!
Thanks again,
Derrick Raynes
This sure opens your eyes to the hidden factors in binaries. Thank goodness for John and the information that he gave us. I am thrilled that I belong to such a wonderful company. They are certainly looking out for their distributors! We succeed, the company succeeds!
Thank you for the informative essay on binary compensation plans John. For me, they seem to lack integrity. The nature of the plan encourages the distributor to focus more on being self serving, instead of building relationships. It seems to me then, that the business will be short lived, and you’ll soon be looking for another opportunity. Might be right for some. For my time and effort, I prefer building relationships that empower others to succeed and all going to the top together. It feels like a stronger foundation for long term financial benefit too.
Thanks for the great information. Every network marketer needs to read this. As Bob Schmidt would say, “Knowledge is never a disadvantage.”
Thank you for the post! I, myself, fell victim to a company with a binary pay plan sometime ago because I loved the product. The company started out with a matrix compensation plan, changed to a hybrid binary; and then converted to a full binary, all within 6 months of my being associated with it. How disheartening and frustrating! Needless to say, I had enough sense to move on, but only after 6 months of wasted effort!
I was with a network marketing company that had “breakage.” It was explained that breakage (money left on the table by unqualified distributors that goes back to the company) is necessary because it takes care of the company. It is so refreshing to be working with a company that takes care of the field so that as the field really succeeds the company grows by leaps and bounds. It works both ways. Xango has created a true “WIN-WIN-WIN” compensation plan. The field, the company and the world all win!
It saddens me that binaries can do so much damage to such an elegant industry. Our world needs it right now.
Thank you John for shedding light on this subject and thank you Xango!
John – This is great information since most of the people I am talking to are with a company that has a binary. It seems that when people are early into working with a company they like the binary since people feel like they are really making money. The problem is when they are trying to build a lifetime business the binaries don’t last. Thanks again for your great work on this important piece. See you in Salt Lake City. Robin
What strikes me most about this blog is the generosity of our founders. Who else is realizing that by making sure the field succeeds, the company will succeed by leaps and bounds? For many of us who have tried several companies before finding ours, it is almost shocking to have the simplicity of an honest, fair compensation plan! Words like “pays up to…,” and “breakage” and other tricks to stack the deck mean all the difference in the world. Network Marketing can be such an elegant business with the right company. I count my blessings regularly to have found a company that wants me to succeed! Thank you John for exposing binaries. I hope it saves some people from wasting their efforts and becoming bitter at this industry.
John thank you for taking the time to put together this detailed analysis of a binary and why it fails us. I have been fortunate that from my earliest experiences in networking, my mentors taught the perils of this type of plan. I appreciate you articulating these details. So many have been drawn by the “spillover” myth, and other issues you covered so well. Hopefully with your imformative, thoughtful article people will save themselves the disappointment and frustration of selecting a company with this type of marketing plan…no matter how good someone sells it!
GREAT ARTICLE. Being new to network marketing, I am one of the lucky ones who has chosen the right company to begin my career…XanGo! NO hidden agenda, fair to everyone and a company that is built to last.
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hey
my wonderful wife, that i love dearly, has gotten involved in Monavie, much to my displeasure. I think i am grasping why this binary crap is so bad thanks to this site. But i have some questions, and was hoping someone could help me out. Monavie hands out a “Income Disc. Statement” based only off the distributors that meet a certain criteria. One of these criteria is that they have recieved “one non-retail bonus”. I am having trouble figuring out what it takes to get this non-retail bonus. Im not an idiot, but i dont have have alot of business experiance. Any help would be sooo appreciated. my email is timb_73@hotmail.com
Its very funny that they show everyone the inc. disc. statement but it is only based off a small percentage of people. shop-minvie.com states that 91% of people are not considered distributors. So that means the inc disc. statement is only based off of 9% and then only 6% or so of that even make enough money to pay for their juice. So using my math, that works out to be about a 1/2 percent of people involved in monvie break even. But my math may be wrong.
Thanks so much