I’ve joined companies with binary pay plans before. At the time, I had no idea what the difference is between a binary, a matrix, a unilevel and a stair-step breakaway.

It all looked the same to me. The company website had all the bells and whistles necessary for me to succeed. All they had to tell me was that they had ”the absolute best compensation plan in the industry along with the greatest product” . I was in! I mean, what else would I need?
The company was the best. How did I know for sure? Because the guy that recruited me told me so.
And then I went to the website… WOW! Such pretty colors. And look at that beautiful million dollar home in the corner…oh… look at the happy family in front of it… look at the Mercedes they got. I can get that too but ONLY if I join today!  Why today? Because the guy said I must get in NOW!

Now let me tell you a little story. I hope this will help you become a critical thinker early on…
Become a critical thinker before you’ve spent years building a house of cards and before the big ”CEO” does a simple ”Puffffffffff…..!!!!!”…. and it’s ALL gone!

I have a good friend that was the highest income earner in a well known company with a binary pay plan. His check replaced his income early on, he put in 14 hour days, he earned more and more money. After over 5 years with the company, with a downline of almost 250000 people his check started getting smaller and smaller.

Hmmmm. Binary creep anyone?
What is a binary creep? Now it starts making sense. The company is paying out too much money. They are in financial trouble. They did not know ANYTHING about compensation plans. They need money because the company is falling part.
Where are they going to take money from? They’ll take it from top income earners of course….And some from the little guy that just started. He won’t notice…he’s too excited that he just made his first $30 this month. He was pretty sure the check will be $40, but $30 will do just fine for now. No big deal, there must be some problems in the downline and there is no way to tell.
You know how that goes…how can you keep track of everything that’s going on in your downline? The owner is so so so honest, he cares so much about you, he would not take a $10 bill away from you…Or would he?

Rod Cook has a great explanation for the binary creep and what the binaries do eventually to distributors.
Read this excerpt from his article:

Binary Creep Kills Companies:

No Customer excess sales volume – No Binary stabilization. Binary Creep – After 20,000 or more people join a Binary pay plan it begins to start pay out too much, if no Binary experts, joined the company. If a large number of Binary experts join early excessive payouts start earlier. The company sees the fluctuations in payouts go over the amount they can afford to pay. This is called “Binary Creep.” There is not a Binary of any age or size that has not gone through this. At 60,000 people (without a lot of Binary experts) it becomes critical and the one or all of the following has to take place:

1. The high earners at the top of the Binary have to have “Caps” put on the amount of cycles they can collect or the amount paid on their top end earning cycles have to be diminished by a variable formula. Top earners are not happy about this, they leave!

2. Everybody in the Binary has to be penalized by “Pooling.” That means that the total allowable % of payout is put into a pool and the number of distributors generating matching commission pay points are divided into it. That drops the amount of everybody’s checks and usually starts the decline of the company.

3. The products or services sold in the Binary have to have a CV (commissionable volume) reduction put on them. Other wise if a product sold for $20 in a new Binary that amount would be put into the Binary for payouts. After CV (sometimes called BV or Bonus Volume) the product still sells for $20 put only $15 goes into the Binary for pay purposes.

To learn more about the Binary Creep and what can happen to a business with a binary comp plan listen to this recorded call HERE.

Well, now I know why my friends check went from $130/day to $10/day in a matter of weeks.
How about your check? Are you willing to put 6 years into a business that can fall down like a house of cards ?

To save years of failure and frustration read this free report today! If not today, you might remember about it in 6 years when you are back to square one.

How to Spot An Illegal Pyramid Scam
by Bob and Anna Bassett

One of the simplest descriptions of a pyramid scam comes from Jerry ‘Rhino’ Clark.

“In a pyramid scheme, value flows just one way – up!”

Brilliant!

Picture a classic illegal pyramid with you at the top.

You recruit Lucy and Ricky and get them to give you $500.  In return, you give them nothing of value – no service and nothing in a bag, bottle, or box.

Money has flowed ‘up’ to you, and nothing of value has flowed ‘down’ to them.

All you give Lucy and Ricky is ‘permission’ to find other people who will give them $500 in return for no service and nothing in a bag, bottle, or box.

So far, you have PLUS $1000, and Lucy and Ricky each have MINUS $500.

You are happy, but Lucy and Ricky think they might have been fished in.

Now Lucy and Ricky go out and find Ralph and Alice and Ed and Trixie who are willing to part with $500 in exchange for no service and nothing in a bag, bottle or box the same way they did.

Now you have PLUS $1000, and Lucy and Ricky each have PLUS $500.
Ralph and Alice and Ed and Trixie each have MINUS $500.

You and Lucy and Ricky are now happy, but Ralph and Alice and Ed and Trixie are not happy yet.  We can go on, but you can see that there will always be more unhappy than happy people in this scheme.  There will always be people ‘out of pocket’ when the police arrive.

$500 is always moving up the line, but nothing of value is coming back down.  This is ILLEGAL.

Now consider a legitimate MLM business.  Each person sends $500 to the company and in return, each receives a big box of vitamins, some bottles of juice, or some legitimate service worth $500.

Money has flowed UP, and goods or services of equal value have flowed DOWN back to the consumer.  Just like going to a store, right?

Commissions are paid to the upline out of the $500.  Just like commissions paid to salespeople and managers and owners in a store, right?

Now here is where it first gets confusing.  Don’t worry – it gets worse later!

Many companies have a legitimate product or service, but charge too much for it.  Often it is available elsewhere more cheaply or free!

We spoke to a woman recently who paid $1700 for a training package worth, in her estimation, about $200.  She paid the money to her sponsor (red flag) overseas (red flag) by wire transfer (red flag).  The sponsor kept $1000 (red flag) and sent $700 to the company (red flag).

Let’s forget for a moment that she had to give up her first two sales (Aussie two up red flag), and concentrate on the money flow.

$1700 has flowed UP, and $200 in dubious value has flowed DOWN.  There is a missing $1500 in value!

How does a distributor make up that missing $1500?  You’ve got it!  By recruiting others!

In a scheme like this, you have to constantly be recruiting others, and selling them a package which you KNOW is not worth the price.  Tough on the conscience, we think, and not something you would suggest to your church as a fundraiser.

Now if that’s not confusing enough (we promised you it would get worse!), consider the companies that have BOTH aspects in place – a legitimate goods and services side, and an illegal, immoral pyramid side!

Many companies (e.g. communications, energy, and travel) will sell you a $500 briefcase to get started and tell you it’s a small price to pay for a million dollar opportunity.  Then they will pay your sponsor and upline good bonuses out of your pocket and call it residual income.  Usually the pyramid side of the business covers up the poor commissions paid on the legitimate side.  Just talk to any ex-Excel rep!

To decide whether any company (or any part of a company) is legitimate, just check to see if the money flowing up matches the value of the goods or services flowing down.  If more flows up than down, it’s an illegal pyramid!

Thanks again to Jerry ‘Rhino’ Clark for a great test!

**********************

Downloading this FREE NETWORK MARKETING REPORT
is ESSENTIAL to YOUR FINANCIAL FUTURE!

Have you ever wondered how a binary or matrix compensation plan actually works?
Do you have a hard time understanding it?

If  yes, then read on…

How To Analyze A Compensation Plan –
The Binary and The Matrix

by Bob and Anna Bassett

Click here to listen to our interview with Richard Dennis, and follow along with the explanations below!

MLM compensation plans can be baffling. Let’s simplify matters with the main thing we ask of any company, The 10k Question:

How many active people do I need in my downline to generate a walk away residual income of $10,000 per month?

The key word for this discussion is “residual”. How much money will I be making after all the recruiting and fast start bonuses and early bird specials settle down and people are buying product week after week and month after month?

That’s the key to a stable long term MLM business – long term sale of product. You want to find hundreds or thousands of loyal customers and get paid well. You do NOT want to have to continually recruit new reps or customers to keep your check.

Think residual. If your check stops when recruiting stops, you are in the wrong business. You will never be able to retire.

Let’s analyze the Bongo Juice Company that has a great product called Bongo Juice extracted from the Bongo Berry by bilingual Bongonian Buddhists on the side of the Billybongo Mountains on the remote Pacific island of Bongobongo with a centuries old extraction method … but hold on! The berry doesn’t pay us! The Bongo comp plan pays us …

The Bongo Juice Company proudly offers “Eight Ways You Can Get Paid!” Let’s simplify things by figuring out what parts of the pay plan we can ignore and which parts we should consider …

1. Direct Sales (n/a): You sell the stuff. Most people don’t join an MLM to become retailers and you can’t do it all yourself. When you are making $10000 per month, your own contribution to your check will be small, perhaps a few hundred dollars.

You can buy a bottle of Bongo Juice for $30 and sell it for $40, making a profit of $10, or 25% of the retail price, a fair commission. If you wanted to earn $10000 per month selling like this, you would need to sell 10000/10 = 1000 bottles or 250 cases of 4 each month. Whew!

And you need to read the fine print. If you find a loyal customer, say your Aunt Jean, who buys from your website, Bongo gives them a 15% discount. That makes Aunt Jean’s price $34, and your profit $4 rather than $10. Seems like a strange way for the company to reward you for finding a loyal customer. If you want to earn $10000 per month with loyal customers on autoship, you’d need to sell 10000/4 = 2500 bottles or 625 cases per month. Double whew! That’s a lot of Aunt Jeans!

And that’s why we leave direct sales out of the 10k calculation.

2. Bulk Order Bonus (n/a): A one time bonus paid when someone you personally sponsor orders 3, 6, or 12 cases. That’s an order of $360, $720, or $1440 for which you get paid $25 to $75 if you are on 200 pts autoship, or $10 to $30 if you are on 100 points autoship. This is 7% down to 3%, and note that the more your team spends, the lower your commission!

We have never seen anyone buy 3 cases, and neither have the Bongo reps we have spoken with, and that’s why we leave this out of the 10k calculation.

3. First Order Bonus (n/a): The name says it all. It’s not residual, so it’s not included in the 10k calculation.

4. Big Bongonian Builder Bonus (n/a): A one time bonus when one of your team promotes. Not residual. Not included.

5. We’ll come back to Team Commissions after we dispense with three more bonuses.

6. Executive Check Match (n/a): Comp Plan experts have told us that the check match usually increases your check by only about 1% or 2%. The most we’ve ever seen is an increase of 10%. It’s a bonus that favors the sponsor monsters, not the average networker. To be more than fair, we reduce the 10k answer by 10%.

7. Global Leadership Pool (n/a): This bonus promises a chunk of a 1% contribution by the company of all revenues worldwide. Only about 1/10 of 1% of distributors see any of this money. Most of us will never dip a toe in the shallow end of this pool.

8. Multiple Business Centers (n/a): Once you reach a certain level, Bongo offers you the opportunity of building new centers above your present position. We maintain that one position should be good enough to generate an income. Why maintain and qualify several? Even if you do open other centers, you still have to add people, and it does not affect the 10k answer.

Now let’s return to …

5. Team Commissions.

Bongo has a binary plan in which you must sponsor and place a person on the left and a person on the right to qualify for any commissions. Let’s call them Alice and Trixie.

If you sponsor Alice and she starts to build, you earn no commissions on her team until you sponsor Trixie. That could be quite a while, and you can miss out on commissions you deserve until you jump through that hoop.

Once you have sponsored Trixie, the reality of the binary sets in. Most people sponsor just two or three people in their lifetime, and you have been forced to split up your two best people into separate legs. As you only ever get paid on one leg, you will be paid on Alice OR Trixie, never Alice AND Trixie, even though you have brought both of them to Bongo.

It gets worse. You only ever get paid on your WEAKER leg! That means that if Alice is a stronger builder, you will get paid for Trixie’s results and vice versa. No matter what they do, you will always get paid on the weaker of the two people you have sponsored. Your will always be rewarded for less, and sometimes for much less than half of your efforts and results. You can watch Alice’s revenues disappear off into the distance while you struggle with Trixie to keep up.

(Some companies require TWO personally sponsored and active people on each side. That means you get paid on Alice and Ralph OR Trixie and Ed, never on all of your team, resulting in huge breakage and much less paid out by the company to you, the reps.)

Once your weak leg reaches a volume of 500 points (about $800), matched by 500 points in your strong leg, Bongo will pay you 10% of that 500 points, or $50. 500 points will be removed from both legs, and a new ‘cycle’ begins. 10% is small enough, but look more closely. You have sponsored both Alice and Trixie, so you are actually being paid $50 on 1000 points, or 5% commissions, 3% commissions on the dollar value.

If our basic unit for a rep or customer is 100 points, that’s $5 per person, making the 10k answer 10000/5 = 2000 people. Let’s take off 10% for check matching to make it 1800 people.

That means that in order for you to earn $10000 per month, you and your team will have to find 1800 active people. Is that a small number or a big number?

(Our answers for the 10k question range from as low as 400 to as high as 27000!)

Let’s assume for a moment that Bongo has a matrix or unilevel instead of a binary, and the levels pay commissions as follows:

1 – 11%
2 – 10%
3 – 8%
4 – 6%
5 – 4%
6 – 2%
7 – 1%

That’s an average of 42/7 = 6% commission over all seven levels. 6% of 100 points is $6 per person, making the 10k answer 10000/6 = 1666 or about 1700 people needed for you to earn $10000 per month. Is that a small number or a big number?

You might also think about this. If the lowest answer to the 10k question is 400, you are working four to five times harder than you have to in the Bongo Juice Company. You may not mind working that hard, but you will be inviting others to join you and work four times too hard. That’s how we spell attrition, and you will have to go through many more people than necessary in order for your team to find the 1700 or 1800 people required.

And if you want to have some fun, call your sponsor or upline or rep support and ask the 10k question. You’ll be amazed at the answers you get! Or don’t get …

For more questions you should ask of your company, read this free report.