What is a referral business?
With a referral business you’re the middleman (or woman) connecting buyers and sellers. You are not the customer, nor do you ever own or provide the end product; you are the bridge between the two sides.
You usually get paid a commission or finder’s fee.
Referral is one of 19 types of online business and considered a Level 3 online business, according to our framework.
6 Levels and 19 Types of Online Business
Level 1 = Novice
Okay for side income or beer money, but hard to earn a living.
Level 2 = Intermediate
Best for earning a living online when you’re starting out, but hard to scale.
Level 3 = Advanced
Easier to scale and higher income potential, but you usually need significant investment of time and/or money upfront.
Level 4 = Superior
Even more scalable and even higher income potential, but also more complex / difficult / expensive.
Level 5 = Distinguished
Most complex / difficult / expensive, but the rewards here can be massive.
Level X = Wildcard
These are the misfits. Many aren’t even considered businesses in the traditional sense, but they are all ways to make money online. You typically need a lot of time, money, or luck to succeed with anything here.
How can you make money online with a referral business?
Here are the legit ways I’ve found to make money online with a referral business…
Start a Niche Website
Niche websites focus on a specific topic and mainly generate income by referring visitors to third-party products and services via affiliate marketing and/or display ads.
Jill Loeffler started a niche website about San Francisco, recommending different things to see and do in the city…
- Founder of SFTourismTips.com
- $5,000 monthly website revenue
Sa El has a niche website that helps people buy insurance…
- Founder of Simply Insurance
- $50,000 monthly website revenue
Both Jill and Sa built their sites from scratch.
Another option is to buy and grow an existing niche site…
Buy a Niche Website
For example, Kim Guzman started a niche website in 1998 and it was earning $2,600 each month before she sold the whole thing…
- Founder of CrochetKim.com
- $90,000 income from website sale
The new owners will try to increase monthly revenue and perhaps resell the site for a higher price later on.
- Find niche websites for sale on the Flippa marketplace
- More examples of niche websites and how much $$$ they earn from affiliate marketing
Try Affiliate Marketing Without a Website
Instead of building out a full niche website, some people find success promoting affiliate offers via paid ads on social media or search engines.
Robby Blanchard is a prime example…
- Founder of Commission Hero
- $400,000+ monthly affiliate revenue
⚠️ It looks like it has become increasingly difficult to make money doing affiliate marketing via paid ads. I struggled to find believable examples of people doing it beyond 2019.
Generate Leads for Local Businesses
This is sometimes known as Rank and Rent SEO. You would create a website that generates leads for local businesses, and get paid per lead.
For example, one of Ruan Marinho’s websites generates leads for painters in Connecticut…
- Founder of Develomark
- $1.5k – $3k per month from one website
Put Ads on a Landing Page and Drive Traffic
⚠️ This doesn’t work well nowadays but old-school online entrepreneurs like Kevin Ham made a fortune with it…
- $70 million estimated annual revenue
Kevin bought up lots of domains in the early days of the world wide web. He set up landing pages on those domains and filled them with ads, then would make money from visitors clicking on those ads.
The ingenious part was how Kevin drove traffic to his landing pages. Details here.
Pros and Cons of Referral Businesses
- Quite scalable.
- Strong passive income potential.
- Little-to-no customer service required.
- Lends itself to diversification; nothing stopping you from connecting many buyers and sellers.
- Potential to evolve into a marketplace business (see below).
- Usually requires a complex set of skills.
- Slow and/or expensive to start. Usually takes months or years to earn a living from this, unless you can afford paid traffic and use it effectively.
- Can be quality control issues since you don’t own the products or services you’re recommending.
- Lots of fake gurus and scams promising quick and easy success.
Is a referral business a good way to earn a living online?
A referral business is a legit way to make money online, but I wouldn’t recommend it for beginners or the faint-of-heart.
This kind of business is popular because it’s simple in theory and there’s strong passive income potential. But, in my experience, it’s a tough business to succeed with if you’re new to making money online.