Most entrepreneurs scratch their heads when it comes to dropshipping versus affiliate marketing. Which is the better business model to pursue? Is an affiliate business more profitable than a dropshipping business? Which is easier to manage and grow?
In this article, we’ll break down everything you need to know about dropshipping versus affiliate marketing. Read on to learn which is the right online business for you.
Dropshipping vs. affiliate marketing: Overview
Dropshipping is where the supplier carries the inventory and ships it to the customer on your behalf. With dropshipping, you set your own prices and are responsible for marketing. Whatever profits you earn from sales are yours to keep.
Similarly, in affiliate marketing, the supplier also carries inventory and ships the product. However, while you’re still responsible for marketing and sales, you don’t get to keep all the profits and only receive a commission.
Let’s take a closer look at the dropshipping and affiliate marketing businesses.
What is dropshipping?
As a business model, dropshipping allows anyone to sell products from suppliers on their own website. When someone purchases a product from the dropshipper’s website, they place an order with the supplier. The supplier then packages and ships the product to the customer. There is no need to carry any inventory at all.
Dropshipping is a great business model for a first-time ecommerce entrepreneur or people who want to test products in different markets. Ecommerce entrepreneurs are known to run their ecommerce stores while studying or working full-time.
Dropshipping is a low-risk business model
When comparing dropshipping versus affiliate marketing, dropshipping tends to be a little less risky in various ways.
For one, dropshipping gives you access to the funds you generate rather quickly. With an affiliate marketing business, there may be thresholds you need to reach before you can cash out your first check.
For example, if you’re an Amazon affiliate outside of the US, you can only be paid by cheque or gift card. However, to receive the cheque, you must have made at least $100. Yet, not everyone succeeds at making $100 when the percentages are really low. With dropshipping, you get paid what you made.
Dropshipping allows you to have high margins
When dropshipping, you can buy a product that costs $1 and sell it for $19.99, which allows you to keep a substantial portion of the sale price as profit after marketing costs have been subtracted.
With affiliate marketing, commissions are a percentage of the product. Yet, you’re left with a much smaller percentage when you factor in your marketing costs and other expenses.
When comparing affiliate marketing versus dropshipping, you’ll likely be better off financially as a dropshipper.
You’re building an asset with dropshipping
With dropshipping, you’ll have your own professional website. You’ll make enough money to invest in advertising, content, and profit-generating techniques. A year from now, if you decide to move on to another niche, you can sell your business to someone else.
So when you’re dropship goods, you’re building an asset—your brand.
You have multiple chances to lure in a customer
With affiliate marketing, since you’re sending the traffic to another website, you have no control over retargeting.
With dropshipping, the traffic comes to your own website. The checkout will match your website’s branding. Also, you have control over the design of your landing pages, product copy, website design, and more.
As you have more control, you better your odds of attracting a customer and converting them.
You have to manage customer support
The main downside to dropshipping is that you’re responsible for customer support as the store owner. Whether it’s a product-related query or a complaint related to the shipment, you have to answer the customer.
Fortunately, you can easily outsource this component of dropshipping to someone who specializes in it on Upwork.com for an affordable price. All you need to do is provide guidelines and general responses for the customer support representative to follow.
Outsourcing customer service frees up your time to focus on marketing and optimization. This allows you to grow your business faster.
What is affiliate marketing?
Affiliate marketing is where an entrepreneur promotes an item or service owned by a specific brand. This could involve promoting a clothing line for a brand or marketing a food company’s line of vegetarian meals.
Instagram is a great platform to notice affiliate marketing in action. You can see the profiles of normal people posting images with branded products tagged to a store. When you click on the product, you will be redirected to a store run by the brand.
Affiliate marketing is modeled on commission. In many cases, it is a high-profit, low-cost business model. An affiliate receives a certain percentage of each sale they are responsible for.
Affiliate marketing pros
No cost for being an affiliate
When running an affiliate marketing business, the costs are generally quite low. There’s usually no fee for the affiliate to pay, as the merchant usually covers administrative fees on affiliate networks like Clickbank or Amazon Associates. An affiliate typically pays only for their own website and server, which keeps costs low.
However, as an affiliate marketer, you must pay for the marketing costs, as you’re driving traffic to the merchant’s website. Yet, as it is a business expense, you’ll likely be able to write it off during tax season.
Excellent source of passive Income
An affiliate marketing business is an excellent source of passive income. There’s some upfront work to determine your ads or produce content to help convert the sale. However, once that’s done, you can run ads in the background while making money.
You don’t have to worry about creating a product. You don’t have to worry about shipping a product. All you need to do is send highly targeted traffic to the merchant’s landing page to drive conversions.
No customer support to worry about
In an affiliate marketing business, the affiliate supplies the merchant with their leads. Thus, you’re not necessarily the product expert. As a result, the merchant handles all customer support issues.
If the customer isn’t satisfied with their product, the merchant handles the refund. If a customer needs help with a specific aspect, the merchant is responsible for helping them. Thus, when it comes to customer inquiries, all you need to do is direct customers to the merchant.
Affiliate marketing cons
You only make a percentage on every sale
When comparing dropshipping versus affiliate marketing, the biggest disadvantage of affiliate marketing is you’re paid a commission. This means you might spend $100 in ads only to make $50 back in commission fees.
The payout from an affiliate program is generally a lot lower than dropshipping. Even if your commissions are several hundred dollars, the odds are the cost of the product is higher. This means finding the right people will cost more as well. Also, you don’t have the opportunity to set the price.
For example, if people are interested in the product but feel the cost is too high, you can’t lower it to meet the demand of your audience. In addition, since you can’t set the price of your earnings, you’ll likely make a lot less than if you were the merchant.
People can ignore the affiliate link
Sometimes, if you don’t use a link shortener, people can hover over the link and see that it’s an affiliate link. As a result, they may assume that it costs more to buy through the link. Most people do not understand that you only receive a commission on a sale. Thus, people may go directly to the website you’re recommending without clicking your affiliate link.
Since they didn’t click the link, the merchant makes 100% of the profit. Thus, making your marketing efforts less successful. Many people are skeptical or dislike affiliate marketers. They feel like they’re being scammed, even when the truth is, they’re not.
Plus, some countries require you to disclose to your audience that the links you’re providing are affiliate links. This can make it easier for a person to avoid clicking the actual link.
No control over products and pricing
With affiliate marketing, you cannot control the product you’re promoting. You cannot change its look, description, or retail price. This can limit what you can do as an affiliate marketer.
Additionally, you may not be able to mention certain features due to your terms and conditions. Also, the photos you receive may be outdated or low quality, making it hard to promote the product effectively.
Dropshipping vs. affiliate marketing: Similarities
While dropshipping and affiliate marketing have many differences, they also have quite a few similarities:
Both allow you to start a business without requiring inventory or shipping goods.
Both are relatively low-risk business models.
Both have high earning potential.
Both are easy to start working on immediately.
Both require similar skill sets, such as the ability to create ads, drive traffic to a landing page, and other marketing skills.
Both businesses have low startup costs.
Dropshipping vs. affiliate marketing: Which is more profitable?
Both dropshipping and affiliate marketing can make you good profits. So why not integrate the two and make the most of both business types? You can do this by adding a store to your affiliate website.
This way, you can sell both your own and affiliate products, giving more choices to your audience and earning money from commissions and sales.
Or, you can start a private-label dropshipping business, where you sell products under your own brand. This can be a viable option for those who want to establish loyalty and earn recurring revenue from their business.
Final thoughts on dropshipping vs. affiliate marketing
An affiliate marketing business is great, as you can become very successful without incurring much cost. There are many advantages to this business model. But the disadvantages are heavily weighed around the money you could lose by relying on other businesses.
Running a dropshipping business makes you more money for the following reasons:
You set your own product prices, which are higher than affiliate commissions.
Dropshippers earn far more from physical goods than affiliates do.
You have a better chance of going viral or having a really successful ad campaign.
You can have affiliates send you traffic when running an online store.
Customers will more likely return to your online store to buy more when dropshipping, whereas when customers of an affiliate will go to the website you referred them to.
The cost of goods is low (allowing you to set affordable pricing for customers while having high margins).
The everyday workload is light, saving you time (time is money, after all.
You know through high order volume and reviews if the product will be an easy sell.
How to start dropshipping?
Starting a dropshipping business has never been easier, or cheaper. You can dropship millions of products from apps like Automizely with a click of a button.
With Automizely, you’ll be able to do the following:
Import each product with only one click
Process orders in only a couple of clicks
Generate a sustainable income for yourself
Set your own product prices to increase your margins
Get free advice from other entrepreneurs in the community forum
Start your dropshipping business for free today!