If you are looking for a way to earn money online by selling products, people will recommend affiliate marketing and dropshipping.
These two business models are similar since they involve marketing products that you do not own directly. However, the two have different processes and are distinct in terms of profitability and running cost.
So, in this article, we will compare and contrast these two popular business models.
What are the differences between affiliate marketing and dropshipping?
The following table shows the primary differences between affiliate marketing and dropshipping.
|Marketers direct buyers to eCommerce websites to buy products||Customers buy directly from your website|
|No need for customer service||You have to handle customer complaints yourself|
|You cannot control the price and quality of products||You can control the quality and price of goods|
|Payments are paid in 1 to 3 months||You get paid instantly|
|You cannot control your commission||You can set your profits|
The similarities between affiliate marketing and dropshipping
Although there are numerous differences between dropshipping and affiliate marketing, the two business models are similar in some ways:
- Both are considered to be business models with minimal risk.
- Both are straightforward to start.
- Both make it possible to launch a company without initially investing in inventory or sending items to customers.
- Both need similar skills, such as the capacity to generate advertisements, drive visitors to a landing page, and other marketing abilities.
- Both of these companies have modest initial investment requirements.
- Both offer significant potential for financial gain.
Let’s examine the pros and cons of launching a drop shipping and an affiliate marketing business.
What is dropshipping?
Dropshipping is an internet business model where you sell items sourced from various vendors on your website. The beauty of the business is that it is not necessary to have inventory on hand or to physically send items to consumers.
In addition, the business model allows you to set your own pricing for the products you sell. Like with regular businesses, your dropshipping profit equals the difference between your selling price and the cost price of your products.
However, you will be responsible for developing marketing strategies and addressing consumer complaints. For better understanding, allow me to make an illustration.
You are running a dropshipping business that sells shoes online. First, you make an arrangement with a shoe supplier. The supplier will tell you the shoes he has for sale, and you will advertise the shoes.
Whenever you receive an order from customers that need shoes, you will inform the supplier and send payments. Once the supplier receives payment, they will ship the shoes to the customers on your behalf.
With this simple approach, you can develop a successful eCommerce company using the dropshipping model. However, you must build a robust customer satisfaction model and implement the right strategies.
Pros of dropshipping:
The following are some of the biggest reasons people love the dropshipping business model.
You can establish your own brand
Operating a dropshipping business is a fantastic method to launch your own company and establish your brand.
As the shop owner, you will have complete control over pricing and company operations, which will have long-term advantages for your online business.
Higher profit margin
One of the most significant advantages of dropshipping is that you have complete price control over your goods. You can set your prices to give you the highest possible profits.
You can easily set your prices to cover all potential marketing expenses and generate more revenue. However, while increasing the price of the product, be careful that your price is fair and competitive.
Freedom of product
In addition, you are not bound by any terms and restrictions in dropshipping. The business model allows you the freedom to market any item of your choice with any method you deem fit. To enhance sales, you may even add an affiliate scheme to your dropshipping business.
With the dropshipping business model, you get your payment immediately after the consumer purchases a product from your online shop. This allows you to withdraw your funds at any moment you want.
Furthermore, it will increase your cash flow, allowing you to manage and expand your firm with greater flexibility.
Simple to scale
In a dropshipping company, you will have a greater chance of attracting clients and convincing them to repurchase your items than you would in an affiliate marketing firm.
The business allows you to sell various things globally, enabling you to reach a larger audience. Additionally, you can quickly retarget your audience via many marketing channels to close sales.
You can tailor your landing pages, website style, and product descriptions to your brand. That way, your site’s traffic, and conversion rate will grow.
Cons of dropshipping:
While dropshipping works well as an eCommerce model, it has a few drawbacks. The following are some drawbacks you should consider before starting the business.
You do not have control over the quality of service
You will have no control over the delivery service and product quality with a dropshipping firm since you will not retain any inventory on-site. This may lead to customer difficulties, such as shipment delays and product flaws.
Some suppliers supply the items at their leisure, which may delay delivery. Receiving complaints regarding the late delivery of your items will have a detrimental effect on your company’s success, leading to unfavorable evaluations and client loss.
You need money to start an eCommerce store
To start dropshipping, you will need some money to start your online store. Depending on your chosen platform, you may need an initial investment of about $100 to start your dropshipping business. In some cases, the initial investment cost may be higher.
The following image shows the pricing plans for getting an eCommerce store on Shopify. Note that you will still incur other charges on customer care services, delivery fees and more.
Customer service is required
Since dropshipping websites are eCommerce companies, you need to provide customer care to guarantee the order process is successful for your customers. This is vital considering that you do not control the delivery and product quality.
Consequently, if there is an issue with the customer’s order, you will be responsible for coordinating with the supplier. Some dropshipping companies employ freelance virtual assistants to solve this problem.
Price rivalry with other companies
As dropshipping is a low-risk business model, many online retailers use this strategy. As a result, the industry is becoming more competitive.
Whatever you are selling, there are other retailers selling the same thing. You will have to compete with others in terms of pricing, forcing you to maintain low prices.
This might potentially result in less profitability for your company. To flourish in the market, you will need a solid pricing plan and analysis.
What is affiliate marketing?
Affiliate marketing is an online business model that allows you to make money by referring people to other people’s goods or services to earn commissions.
Affiliates typically get unique links, which, when clicked, will take prospective consumers to the website of the merchant, where they will be able to make a purchase of a product or service.
The merchant company then rewards the affiliate with a commission which is usually a percentage of the total sale the customer made after clicking the affiliate’s unique link.
Most affiliate programs on the internet provide a flat compensation rate, typically between 20 to 30%. In addition, you could be paid by some programs for free-trial users, leads, website hits, app downloads, or all of the above.
Related: Can affiliate marketing make you rich? ($1 million-plus in commissions)
Pros of affiliate marketing:
The practice of affiliate marketing has proven successful over the years. It is regarded as a form of performance marketing where the affiliate and their company benefit mutually.
Considering its huge success, many businesses, like Apple, Fiverr, Shopify and Sephora, rely on affiliate marketing to expand their customer base and revenue.
The following are some benefits that affiliate marketing offers affiliates ahead of other businesses.
Simple to start
Signing up for an affiliate program and including affiliate links in your articles are all you require to become an affiliate marketer. There are no additional qualifications or licenses needed to join the program.
Numerous affiliate marketers utilize social media and websites to advertise their goods and distribute their affiliate connections. You must decide how you want to share your material with your audience. It could be via a website, blog or through social media.
Apple’s affiliate program starter’s guide. Source: Apple
No Customer Service Needed
As an affiliate marketer, you do not need to worry about client orders, inventory management, or shipping procedures.
You must persuade your target audience to purchase the product through your affiliate link. That means creating an effective campaign to increase the conversion rate.
The company you are marketing will do the shipping and logistics of their products on their end.
Low initial expenses
Being a partner in an affiliate scheme requires no upfront payment. Your only expenditures will be marketing-related, such as purchasing a web hosting service or executing an advertising campaign.
Fiverr’s affiliate program is free for all. Source: Fiverr
Excellent passive revenue source
Affiliate marketing allows you to generate money anytime and from any location. By employing an efficient marketing approach, it will be simple to get more conversions from your affiliate connections. It is essential, therefore, to select the best platform and promotional adverts for your items or services.
Cons of affiliate marketing:
The following are some issues that affiliate marketing can have:
You can’t control commissions
It will take some time for your affiliate links to create conversions since you must build enough traffic and convince users to click on the links.
Therefore, you may need to invest in advertising efforts, which might be more expensive than your commissions. Consequently, you may initially make less money from your affiliate marketing firm.
Fixed commission rates for amazon affiliates. Source: Amazon
There is a possibility of payment delays
A firm that focuses on affiliate marketing can have trouble properly managing its funds. This is because some affiliate programs are not reliable with their payments. That is not to say that all affiliate programs are the same.
Many affiliate programs pay their affiliates well and on time. However, there are also a few cases where the program might delay your payment.
You can’t control price and quality
When you market items from other companies, you can’t control the product’s pricing and quality. So, as an affiliate marketer, you cannot alter the product’s picture or description to make it more suited for your audience. Doing that will only mean you are lying, destroying your credibility.
Affiliate links can be disabled or compromised
Customers may see an affiliate link as suspicious or spammy if it consists mainly of unstructured numbers and characters. Consequently, people may bypass your link and go straight to the website.
If that happens, you will not receive your commission even though you recommended such a product to the buyer. Furthermore, hackers can use your affiliate links to steal your commissions.
To solve this problem, many affiliates use link cloaking. It protects your link from hackers and makes it look more professional and credible.
There are no recurring sales
Affiliate marketing does not result in any recurring revenue, which is another possible drawback of this business model. You only make money from single transactions that you close.
If a client is dissatisfied with one of the recommended products, they might not take your word seriously anymore. Therefore, it may reduce the amount of money you might potentially earn from such a client.
There are exceptions for affiliate programs with recurring commissions.
Affiliate programs have rules
At the start of your affiliate program, you have to sign a contract with the company. Such agreements control how you market their products.
For instance, some affiliate marketing programs may prohibit you from advertising on particular social media marketing sites, therefore decreasing your prospective earnings. Some companies also bar their affiliates from promoting products using inappropriate materials.
In addition, if you breach any of the terms and conditions, the firm may disqualify you as an affiliate partner. Here is an example of such rules from apple’s affiliate program.
Which is more lucrative: dropshipping or affiliate marketing?
In terms of profitability, dropshipping is often more lucrative than affiliate marketing. That is because you can choose your profit margins with drop shipping. With dropshipping, marketers can make profit margins of more than 30%.
For instance, you can purchase a $20 cloth from a source and sell it to your clients for $30. That’s a profit margin of about 50% ($10) provided that people buy the cloth. And if your clients get value for their money, they will come back for more—meaning more profit!
In contrast, affiliate marketers often get commissions between 5 and 30 percent on each transaction. Using the above example, an affiliate that sells a $20 shirt successfully will only receive $6 if he has a 30% commission.
Moreover, clients may not return to the affiliate marketer’s site for recommendations again since they already know where to get shirts. However, if the affiliate consistently provides new solutions, they may be able to generate constant income.
Affiliate Marketing vs. Dropshipping: Which is Easier?
In terms of ease, affiliate marketing is better than dropshipping. Once you start an affiliate marketing business, you don’t need to do much to keep the business going.
After you have finished developing your website, writing content that is optimized for the appropriate keywords, and doing some work to improve your SEO, the only thing left to do is to include your affiliate links.
If you want a totally hands-off business, you may even pay someone to write for your blog instead of doing it yourself.
The more material you provide to your blog, the more people will visit it, which will, in turn, lead to an increase in your revenue, which will continue to accumulate over time.
Having said all of that, if you want to make your dropshipping company entirely hands-off as well, that is very achievable!
You may automate practically every aspect of your dropshipping company with the help of various tools and integrations available to you.
After you have constructed your online business and completed the laborious task of locating suppliers, you can finally kick back and enjoy some downtime. However, even if you outsource other aspects of your business, you will always be responsible for providing customer assistance.
Drop shipping and affiliate marketing are two successful business models that may be used to generate income online. They are ideal for anybody who wants to launch a new low-risk company online.
However, it is essential to choose the appropriate one for your company, depending on the requirements and objectives you want to achieve.
To summarize, if you are searching for a solid business model that requires a minimal amount of work to run, an affiliate model can be the ideal choice for you to consider.
Dropshipping is another option to consider if you want to develop an internet company under your own brand name with maximum control over profit and quality.
Frequently Asked Questions About Affiliate Marketing vs. Dropshipping
Here are some frequently asked questions regarding affiliate marketing and dropshipping.
What is Amazon FBA vs. dropshipping?
Fulfillment by Amazon (abbreviated as FBA) is a service that Amazon offers to merchants in which it takes care of warehousing, order fulfillment, refund processing, and customer support for the customers.
When you engage in dropshipping, you don’t have any inventory of your own. Instead, you serve as an intermidiary for clients and their suppliers.
However, in Amazon’s FBA program, you will need to make an initial investment in inventory and then have it stored in one of Amazon’s facilities. As a kind of compensation, Amazon will handle all of your shipments and returns.
Is dropshipping the same as affiliate marketing?
No, Affiliate marketing is the practice of promoting the brands of other companies to assist them in generating more money. However, a dropshipping business is a business where you sell the products of another firm under your own brand name.
Is affiliate marketing still profitable?
Yes, affiliate marketing is still profitable. Many affiliate marketers have successfully used the model to generate 6-figure incomes.
However, to make the best from affiliate marketing, you must be willing to invest time and effort.
Can you do both dropshipping and affiliate marketing?
Yes, you can combine the two business ideas to generate more passive revenue. However, you should be prepared to do more work.
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