Understanding the Binary Plan

Part IV: Key Metrics to Consider

1. Percentage of Business Value in each product: Originally every plan counted one dollar as one point. However, as more companies entered the MLM market and the competitiveness between MLM’s grew for the distributor bases they all need, companies started reducing the business value in order to place the overhead for their company within the overage instead of within the plan dollars. This is a reasonable practice and at this point nearly every company does it. However, you need to ensure that the amount of business volume is reasonable based on the price of the product.

 		  
a. The generally accepted maximum difference between product price and business value is 25%. In other words, if the product is sold wholesale for $100, the business value should be at least $75.
b. Due to the proliferation of this practice with nearly every company it is actually a bad idea to have less than 10% difference. This is because the general distributor taking a look at your compensation plan will be comparing business value to business value and if your business value is at a 1 to 1 ratio with the product price then you are actually shorting the effective percentage payout. Placing your product costs so that the business value is between 10% and 25% lower than the actual product cost makes for the most effective plan.

2. Monthly maintenance: The plan should require a reasonable monthly purchase but should not impose undue and potentially illegal burdens on distributors on a month to month basis.

 		  
a. The generally accepted maximum is 300 business value per month for the top levels of the plan. Above this will be seen as simply a method forced “garage loading” which you do not want your company associated with.
b. Below 50 business value is unwise since nearly every other successful company will require a monthly maintenance amount as well, so you should have at least this level of minimum activity to ensure usage of the product.

3. Payout cap: Every binary should have a “maximum payout percentage” so that no matter what happens the company can continue to exist and pay out its commission responsibilities.

 		  
a. The most common cap amount of 50%. Below that is generally frowned upon.
b. A cap payout above 70% should not be considered as people will be comparing your compensation plan to others and, in general, they will not be able to properly compare the difference of a greater cap amount.