Which one of us hasn't been invited to a party by a friend or colleague with the hopes of enticing us to buy a product? It's the MLM (multi-level marketing) way of selling everything from make-up to candles. But people who sign on with an MLM plan are encouraged to recruit people in order to make more money.  That’s why the sales pitch doesn’t stop with just the purchase of a product: your membership is much more valuable. The most money is made from recruiting new members into the organization. So before you say "yes" to one of those numerous invites to join, consider these four pitfalls:

Pitfall #1 – False Claims about Income or Products

MLMs are popular because of the claims that are made about the income potential. Most "opportunities" promise well over six figures if you follow their plan and keep at it.  The prospect of making that much money working at home instead of working at the office is appealing, and some individuals have quit their day jobs to pursue direct sales opportunities. The six-figure promises are often false claims, and the people who make that much money, if any, are those at the top of the pyramid.

Pitfall #2 – The Pyramid Doesn't Work for those at the Bottom

The multiple levels of a multi-level marketing scheme are often a reference to a pyramid. One person recruits another and makes a percent of the monies earned by that person below them. That second person recruits another person and the first two above them are each making monies based on what they earn. The higher you are on the pyramid, the more money you make.

Pitfall #3 – Inventory Purchases that May End Up in Your Garage

No one is going to hand you products to sell. You'll likely have to buy inventory in advance to sell. If you don't sell anything, then you could end up losing money, or using your excess inventory as gifts.

Pitfall #4– Strained Relationships

You don’t have to recruit people if you join a Direct Sales company, but it’s fair to say that you’ll be encouraged to recruit in order to be successful.  You’ll want to use caution when recruiting friends to ensure that relationships don’t suffer. For example, if your recruit makes an investment to "buy in" to the opportunity and ends up losing money because of it, then that relationship may be strained.

There are plenty of legitimate, above-board direct sales companies.  There are thousands of women and men who make them work and provide for their families on the income generated by multi-level marketing.  However, there are plenty more who sign up, never to make a dime.  Do your research, make sure you know what you’re getting into and make safe financial entrepreneurial decisions.