Affiliate marketing involves a third party website – the ‘middle man’ – referring traffic to a product or service website.

This sounds simple, but the true benefits behind the affiliate business model are lost on many budding entrepreneurs. They often hold misconceptions surrounding avenues for referral, start-up costs, scalability and revenue shares.

This article will explore five fundamental reasons to get started.

1) Happy business model

The affiliate business model is vaunted as a win-win-win situation for customer, service website and affiliate.

The customer, in theory at least, benefits from neutral content and comparison tools and promotions exclusive to the affiliate. The service website, already swamped with challenges involving operations, analytics and cash-flow management, enjoys a new marketing, acquisition and content channel.

The affiliate can benefit from several types of compensation: revenue share, cost per thousand impressions (CPM), cost per click (CPC) or cost per acquisition (CPA) deals, the pros and cons of which are explained here. Most of these deals rely on a form of customer interaction or transaction. The interaction can be a click or a sign-up. The transaction might be a product purchase, a trade with an online broker or a wager at an online bookmaker.

Without the operational burden, the affiliate can make content its core competency, avoiding the ‘hard-sell’ associated with service websites. They can provide informative, educational and product neutral resources, and focus on community engagement. Sites like TripAdvisor empower the customer to make informed decisions, cementing trust and brand integrity.

2) Low start-up costs

Starting an affiliate business is a bedroom operation, costing as little as £50 to secure the domain name and hosting. It’s literally an overnight procedure.

Of course, premium domains, development and design projects, marketing initiatives and outsourced content creation can elevate costs. But the barrier to entry will always remain minimal since your product is intangible. An affiliate website that refers customers to a car vendor doesn’t have to worry about securing vehicle stock.

MoneySupermarket.com, which started off by comparing financial products and services such as loans, is another example. The cost of establishing an online presence pales into insignificance when compared with the administrative, regulatory and capital reserve costs of being an actual loan provider.

More on affiliates:

• Affiliate programme for Crowdcube
• E-marketing made easy
• Businesses which can break the mould

3) Freedom and flexibility

Affiliate marketing affords you flexibility when it comes to the scale of operations.

You might launch a small-scale affiliate business in a B2B technology niche which turns over a steady £1,000 per month to act as a secondary income. This is sustainable through just a laptop, and perhaps a remote connection to freelancers.

The affiliate business model is interchangeable across several sectors, which allows you to jump on market opportunities and diversify your risk.

I started with online gaming websites, where I combined operator reviews with quirky, value-added content for my target demographic, such as news of a student betting on his relationship. But market conditions changed – legislation across several jurisdictions put online gaming in jeopardy, and black-hat SEO tactics made the affiliate industry ultra-competitive. This encouraged me to expand my portfolio of affiliate websites to span finance and legal sectors.

4) Adaptable revenue streams with high profit margins

Market mapping, careful domain selection, original content creation and SEO initiatives will quickly see your website gain traction. You are then in a position to monetise your traffic through revenue share, CPM, CPC and CPA deals. Revenue share can generate gaming companies in the excess of £50,000 a month in passive income, whereas CPA in the finance sector can amount to over £300 for a single referral.

A successful affiliate business has an edge over product and service websites. Product and service sites are vulnerable to disruptive technologies and competition. The affiliate is free to tweak content and update product reviews and listings on an ad-hoc basis.

It’s not uncommon for an affiliate to outgrow the service provider or operator, and demand hefty fees for offering favourable reviews and rankings. This exponential growth can lead to the affiliate becoming a white-label.

5) Follow your passion – develop your skill set

Having explained the sturdy business model and financial incentives, it’s worth mentioning the impact of affiliate marketing on an entrepreneur’s personal development.

You acquire a vast array of skills such as internet marketing, PPC, SEO, social media advertising, website development, coding, B2B negotiation and domaining, all of which are relevant in digital and corporate spaces.  The job reconciles creativity and imagination with hard-nosed, commercial acumen.

Moreover, a diverse portfolio of websites creates a powerful network of contacts and a foothold in several industries. By negotiating advertising deals, you can gain exposure to the marketing strategies of international brands.

And for those putting passion over profit, remember that an affiliate business can start as a hobby in the form of a personal blog or community that generates enough traffic to monetise.

Sam Miranda has been running affiliate websites in the online gaming, finance and legal space for five years.