Inside Network Marketing by Len Clements

Len ClementsBinary BS — Part 1

There are four basic types of MLM compensation plans.

There’s the Stair Step Break-Away, like Nu Skin and Herbalife use. You can build as wide as you wish on your first level and you are usually paid a percentage of all or part of a leg, or branch, of your downline. Actually, I like the break-away plan, although it is considered somewhat old-school today. Break-Away plans have a hard time competing with more contemporary pay plan designs that have relatively easier qualifications and simpler structures. For example, the oddly named Unilevel plan (it has nothing to do with being “one” level). With this type of plan you can also build as wide as you want, but you’re paid a percentage of the sales volume that occurs on each level.  NULL Companies like Freelife, New Vision and Xango use this type of plan. I like the Unilevel, too, as do the majority of almost 7,000 distributors who were asked to rate each type of plan (MarketWave survey; 1991-present). There’s also the Matrix plan, which I also like. In this type of plan there’s a limit as to how many people you can place on your first level. Although as old as the Break-Away and usually as simple as the Unilevel, the Matrix peaked in popularity in the late ’80s. Today few prominent MLM companies remain that employ a matrix style plan. Melaleuca would be one of them. And then there’s the Binary plan. I don’t like Binary plans. The Birth of the Binary The Binary was invented by a man named David Crowe. In the Fall of 1989 he launched a company called “American Gold Eagle” (AGE) which marketed gold coins using the world’s first Binary compensation plan. Although some states had issued Cease & Desist orders against Crowe and his company, after two years of business AGE failed all by it’s own bad self. But not after, according to insiders at the company, they were receiving literally hundreds of angry calls per day, and the Attorney General’s office of their home state, North Carolina, was flooded with complaints. Over five hundred remained unresolved alleging losses of over $370,000. Next, Mr. Crowe, along with his wife Martha, took his new pay plan invention to Kentucky where he launched another gold coin scheme in January of 1992 called Gold Unlimited, which later at trial their own attorney would claim used a marketing plan “pretty much identical” to American Gold Eagle’s. The Kentucky AG’s office was a little quicker on the draw. In April of 1992 they issued an injunction against Gold Unlimited and enjoined the Crowe’s from continuing its operation. In October of 1993 the Crowe’s signed a settlement agreement that allowed them to resume their business if they promised to make changes and play nice. They did neither. They relaunched what was technically a new company which, for the first time, referred to their compensation plan as a “binary” plan. This was likely due to the emerging popularity of the plan which had by this time already been adopted and referred to as a “binary” by upstarts Alliance USA, Jewelway and Market America. To completely avoid the stinky stigma associated with the name Gold Unlimited, they decided to call their new venture – Gold Unlimited II!

David Crowe was said to be very intelligent with a remarkably high IQ. He appears to be yet another example of the difference between intelligence and common sense.

But I digress. After receiving Cease & Desist orders from several states, in March of 1995 federal agents raided the Gold Unlimited home office – I mean, Gold Unlimited II home office – and they were slapped with a Temporary Restraining Order. Soon after the company closed its doors leaving 96,000 “Associates” with the brand new title of – victim. In July of 1995 the government filed a 23 count indictment against both David and Martha Crowe, which included mail fraud, securities fraud, money laundering, and of course operating an illegal pyramid scheme. David and Martha were eventually convicted and sentenced to eleven and ten years respectively. However, in another demonstration of intelligence vs. common sense, the Crowes were allowed to return home for a short time, unescorted, to get their affairs in order. The day they were to turn themselves over to begin their prison sentences, they didn’t show up. They were on the lam for four-and-a-half years and were even featured on the television show “America’s Most Wanted” ( In fact, that’s what eventually led to their recapture in July of 2001. After the show aired, and in spite of a complete makeover, the pair was spotted by an American-Gold-Eagle-eyed resident of the Key West trailer park where they were living. They were found with quite a bit of cash, firearms, books on how to change your identity, a lot of jewelry and, of course, bags full of gold coins. Also in their possession was an expensive boat that they allegedly used to make numerous trips to the Cayman Islands (over $10 million was unaccounted for when Gold Unlimited was liquidated). Even though the fugitive Crowes could have afforded to comfortably live anywhere in the world, they strangely opted to stay in the United States. There’s that intelligence/common sense thing again. Binary Blues So that’s how the binary baby was born. And its adolescence was a little rocky as well. Binary plans became the darling of pyramid scheme promoters and most of the scams at the time were using binary-type pay structures. In the early to mid-90s there were a plethora of calling card companies (Destiny Telecom, STS, TeleSales Inc., etc.) and travel companies (Travelmax, World Class Network, etc.) and even other gold coin schemes that had a binary plan – and all faced lethal legal scrutiny. But in every case it was the product value that was challenged, not the design of their compensation plan.* In fact, several of these companies had their business temporarily halted and were forced by state regulators to make significant changes to their program before being allowed to resume business. And in every case, after the smoke cleared, they were all still using binary compensation plans. So my dislike for binary plans has nothing to do with legal issues.

It is a legal pay plan that suffers a guilt by association.

I don’t like binary plans because of the way it pays! But I’m jumping ahead of myself. Back to our history lesson. Having bad parents like the Crowes doesn’t always mean the bad is baked into the baby’s DNA. In the early 90s some other MLM visionaries saw the potential in the young binary plan and decided to try running legitimate products of value through it. Although the products were still challenged in the case of Jewelway (Jewelry) and Alliance USA (ephedra energy tablets) which resulted in their ultimate demise, they experienced great success early on with the binary plan. Companies like Market America went the rout of more traditional, consumable products and remains a successful “binary” company to this day. Since then other multilevel marketers of health and personal care products, such as Usana, Mannatech, and Longevity Network, have adopted the binary plan with varying degrees of success. * The greatest legal challenge to AGE, GU and GU II was not their binary form of pay plan. It was that they only sold gold coins – simply another form of currency (kind of like an MLM company selling Susan B. Anthony dollars for $1.00) – or they sold only paper certificates that could be accumulated and eventually redeemed for gold coins, but bonuses were paid on the certificates, not the actual coins. Binary Basics This isn’t a primer on how the Binary plan works; this article is about how it doesn’t work. But you should have at least a fundamental understanding of its mechanics, otherwise you’ll probably be lost from here on. In a traditional binary plan you have three positions, or “Centers” positioned in a
triangle (one with two below it). The bottom two positions then also have two legs branching off of them. All positions only have two legs. You can never go wider. At the end of a “pay cycle” (usually a week, sometimes a half-month or even a day) you are paid a percentage of the commissionable sales volume in the “weak leg” (the one with the lesser total sales volume), rounded down to the previous sales volume increment.


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