Understanding the Binary Plan as Part of Multi-Level Marketing

Last Modified:8 Jun 2023 11:42:11
Understanding the Binary Plan as Part of Multi-Level Marketing
In the complex network of multi-level marketing (MLM), one of the systems that stands out is the binary plan. This innovative approach creates MLM simplicity, revolving around the “two” principle, which is fundamentally different from other MLM strategies. This article will explain the binary scheme, detailing its historical origins, how it works, and its unique place in MLM. Additionally, we will discuss the legality of various MLM models.


look back at the past

Binary schemes were born to provide an easier and fairer solution in the MLM world. Unlike traditional MLM strategies, which often involve complex hierarchies and multiple levels of compensation, binary plans are designed to simplify the process. By limiting direct recruiters to two per distributor, it instills a sense of equality within the MLM structure, focusing on quality of employment over quantity.


Mechanism of action

Binary programs work on the principle of compounding, paying special attention to the "legs" of each trader. Under this strategy, the dealer has the right to sponsor two other distributors who form the "left leg" and the "right leg" of the dealer. These "affiliates" represent the dealer's downline or their network of people. The difference in the binary level is that it requires a balance between the two "legs".


In order for a distributor to be eligible for commission, both "legs" must show a balanced sales volume. Unlike other MLM strategies that reward distributors based on the number of recruits or total sales, the binary plan needs balanced "legs" to grow. Therefore, distributors with unbalanced "legs" will not be able to maximize their commission income, thus promoting a sense of teamwork and balanced growth for all members.


Binary Schemes: Unique in the MLM World
A balanced approach to distributor recruitment and compensation puts binary programs in a unique position in MLM. It focuses on maintaining balance, fostering collaboration and mutual growth rather than aggressive recruitment. This forces retailers to ensure that both "legs" grow evenly and focus on developing new employees for collective growth and success.

The legality of the MLM model
When discussing MLM models, it is very important to distinguish between legitimate operations and illegal pyramid schemes. Legitimate MLM companies, including binary schemes, involve selling genuine products or services where the distributor makes a profit based on sales to the end consumer. In contrast, pyramid schemes are illegal in most countries and rely primarily on getting more people into the scheme, and the return is usually not linked to the sale of products.


The Legal MLM Model
Legitimate MLM models, such as binary schemes, unit schemes or matrix schemes, are primarily designed to sell legitimate products or services to end consumers. Dealers of these models earn revenue from direct sales as well as sales from distributors they recruit. It fosters a teamwork environment where revenue and success come from a collaborative sales effort.


In addition, legitimate MLM models offer transparent compensation plans, have reasonable product return policies, and ensure that the product or service being sold has real value. They also comply with regulations set by the countries in which they operate.

Illegal MLM Model: Pyramid Scheme
In contrast, pyramid schemes, which are often disguised as pyramid schemes, are illegal in most countries. They mostly rely on fees paid by new hires, which often forces those new hires to invest in expensive storage packages to join. The program primarily derives its income from these recruitments and not from the actual sale of products or services.


The big red flag of pyramid schemes is their emphasis on recruiting rather than selling products. Often they lack a viable product or service, or the product/service has little or no real market value. In addition, pyramid schemes often offer a quick return on investment, mostly based on the promise of high profits for attracting new members.

global impact
Although the MLM model is legal in many countries, different countries have different rules governing how they operate. For example, MLM companies in the United States must comply with Federal Trade Commission (FTC) regulations. In India, the MLM business is regulated by the Ministry of Consumer Affairs. In China, the government has strict regulations that basically make most pyramid schemes illegal.


Before joining an MLM model or starting an MLM business, it is important to research and understand the specific MLM regulations in your country. Make sure the company offers a real product or service, has a clear and transparent compensation plan, and doesn't emphasize recruiting over selling products. In summary, the MLM model can be legitimate and create a potential business opportunity if properly designed and managed. However, it is important to be vigilant, know the difference between legal and illegal pyramid schemes, and know the MLM regulations in your country. Always remember: if an opportunity sounds too good to be true, it probably is. It is important to do your due diligence before getting into the MLM business. 

Author: Pooyan Ghamari, Swiss Economist 

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