Financial Pyramid is what business schemes are called, the main income of which arises from the appointment of new members, carried out through a business entry fee.
It is a scam that attracts small investors with the promise of quick profits and high returns. The financial pyramid is characterized by a low initial investment, disproportionate sales of products or, often, the absence of a product in itself, the little information available about the investment, its risks and about the company itself, and finally the promise of profits. exaggerated.
The concept of a financial pyramid comes from the sales process: at the top of the structure is the first seller of the product, in the next step there is already a group of sellers, inviting new sellers to go to the bottom step, and so on . The bottom step supports the top: to enter the business, new sellers must invest in an X value of the products.
The amount applied serves as payment to the salespeople who recruited these others, so the money goes from the pyramid to the top.
This sequence is interrupted when it is difficult to include new participants, that is, new levels in the pyramid. As a result, the income of the scheme decreases, the payments of previous sellers in the structure are delayed or not paid, and the losses begin for the participants.
Among the consequences of entering a financial pyramid are the loss of the amounts invested, since there is no return since the business is not sustainable and even a penalty for crime against the popular economy.
Difference between financial pyramid and multi-level marketing
The multilevel marketing practice is allowed in Brazil, different from the financial pyramid scheme that is illegal. Its main difference lies in the remuneration for the hiring, in addition to the actual existence of a product for sale and evaluation of the final consumer.
In the case of multi-level marketing, the seller earns commissions for the sale he makes and also made by the sellers he has indicated. But you do not gain anything solely because you have appointed a new member to the organization. You only earn a percentage on the price of the product if this new member sells.