Do you want to start a business or ecommerce store? Considering affiliate marketing and dropshipping but can’t decide which one to pursue?
Affiliate marketing and dropshipping are two popular ecommerce business models. Both have pros and cons, so which one is right for you?
I can help you.
I wrote this article to compare the two models to help you decide which best suits your goals and requirements.
After reading my guide, you’ll know which is best for your business.
Let’s begin.
Affiliate Marketing vs Dropshipping: What Is the Difference?
The affiliate marketing model is when you earn commissions by promoting other companies’ products.
With a dropship model, manufacturers ship products to customers on your behalf.
Payment is another crucial difference. Affiliates get paid based on sales or clicks, while dropshippers get paid directly by their customers.
However, here are the similarities between the two business models.
- You don’t have to store inventory.
- You can start with a small investment.
- There is a low barrier to entry.
- You don’t handle shipping and fulfillment.
- Both have great earning potential.
- Both require marketing skills.
- You can get recurring sales by getting returning customers.
Dropshipping and affiliate marketing are low-risk business models ideal for people who want to earn passive income.
What Is Affiliate Marketing?
Affiliate marketing is a way for a company to make money by having someone else promote their product.
When an affiliate drives traffic or makes a sale, they earn a commission from the company.
There are two ways that businesses use affiliate marketing: 1) to generate leads and 2) to advertise their brands and products.
One example of this is when a celebrity endorses a clothing line for a brand or when a health expert promotes food stores.
Yet, you must not confuse affiliate marketing with influencer marketing because of the different compensation methods.
Businesses pay affiliate marketers according to performance, such as clicks. In contrast, brands often pay influencers a flat fee for their involvement.
There are also many different affiliate programs, but they all have the same goal: to increase affiliate sales.
How Does Affiliate Marketing Work?
Here’s how the process usually works.
- A company gives you a link to help you promote its products.
- You get a commission each time a visitor clicks on the affiliate link and buys something.
How Much Do Affiliate Marketers Make?
Affiliate marketers can make anywhere from hundreds of dollars to tens of thousands monthly. Some affiliates even earn six figures.
Here are some statistics.
According to Glassdoor, an employed affiliate marketer makes an average of $59,060 annually, with rates ranging from $58,000 to $158,000, including “extra pay” options.
An Influencer Marketing Hub survey discovered that over half of all freelance affiliate marketers make $10K or less yearly, and only about 33% earn above $10,000 yearly.
Here’s the breakdown.
ZipRecruiter has the highest passive affiliate marketing income estimate at $154,700 annually. That’s over $12,000 monthly and nearly $3,000 weekly.
Here are five ways brands pay their affiliates.
- Pay per click – Affiliates earn a commission whenever users click on specific links.
- Pay per sale – Affiliates earn a commission whenever someone buys something.
- Pay per lead – In some cases, affiliates earn from the number of leads they generate rather than sales.
- Pay per install – Affiliates earn a commission for each user who installs the merchant’s software.
- Pay per action – Affiliates earn a commission when the user takes a specified action. For example, a user completes a survey.
The Pros and Cons of Affiliate Marketing Business
Pros
Passive Income and Side Hustle Opportunity
Affiliate marketing is a simple way to earn additional income without creating your own products or investing any money upfront.
Once you run successful marketing campaigns, it doesn’t take much to keep them going.
Little to No Up-front Investment
Affiliate marketing costs has insignificant initial costs, making it a good choice for beginners.
You don’t need inventory, a storefront, or staff. The only costs will be marketing, like buying hosting for your affiliate website and running an ad campaign.
No Customer Service or Sales Hassles
When you start an affiliate marketing business, you don’t have to worry about handling customer complaints because you’re not selling anything.
You only promote other brands’ products and get a commission if they sell.
Easy To Perform
There are many ways to advertise products or services. For example, you can create a blog and include affiliate links in your posts.
You can also use social media for marketing your products.
Work from home as an affiliate marketer.
Many people like affiliate marketing because it lets them work from home. It can be a big plus, especially for people who have other obligations.
You can set your hours and work as little as you want. Also, you don’t have to spend much money on an office or equipment.
Cons
Commision-based
One of the biggest problems with affiliate marketing is you only earn commissions, which can be unpredictable.
Affiliates only get paid if they bring sales, leads, or clicks to the company.
It can be complex for new affiliates who are still building their traffic and audience.
Can Be Distracting
Poorly executed affiliate marketing can be spammy, intrusive, and pushy. It can hurt the reputation of both the affiliate and the business.
Some affiliates put many links on their sites, causing customers to unsubscribe or block them.
No price control
You can choose how to sell the products, but you have little control over their quality and price.
This lack of oversight can be a big problem, especially for people who care about the products they sell.
Heavy competition.
Affiliate marketing is very competitive, and it can be hard to stand out. Thousands of affiliate marketers compete for customers.
Market saturation makes it tougher to find viable niches.
Is Affiliate Marketing Profitable?
According to Statista, the affiliate marketing sector will be worth $8.2 billion in 2022, up from $5.4 billion in 2017.
Here are some signs that affiliate marketing is still an excellent online business:
- The global pandemic has led to an increase in online shopping, which is likely to continue even after the pandemic ends.
- Businesses have realized that they can reach customers through digital channels. Affiliate marketing is a cheap way to do that.
- As consumer trust in traditional advertising continues to decline, affiliate marketing will grow in popularity.
One study found that 67.7% of buyers read reviews about the products they want to buy before deciding. By adding an affiliate link to their reviews, affiliate marketers can maximize their programs.
How To Start an Affiliate Business
Follow these steps to start an affiliate marketing business.
Find a Niche.
Look for something you enjoy to make promoting products easier. Once you’ve found your niche, you can begin looking for programs that might be a good fit. Most affiliate programs are free.
Join an Affiliate Program.
When you join an affiliate program, read the terms and conditions to understand your responsibilities.
Promote Your Affiliate Link.
There are many ways to promote your link, such as writing blogs, creating YouTube videos, or using social media. Choose the method (or methods) that work best for you.
Earn Commissions.
Depending on the program, you may also get a cut of any sales from people clicking on your link. Track your sales to ensure you receive the correct amount of commissions.
Rinse and Repeat.
Repeat steps three to five as often as necessary to continue earning commissions.
Tips for Affiliate Marketers
Here are tips to help you succeed as an affiliate marketer:
- Choose quality over quantity. Instead of promoting many products, focus on a few good ones you trust.
- Be transparent. Always disclose your relationship to a company whose products you endorse.
- Provide value. Instead of trying to sell products, give your audience valuable information to help them make better decisions.
- Keep testing and tweaking. Don’t be afraid to experiment until you find what works best for you and your audience.
What Is Dropshipping?
Dropshipping is a business model where businesses don’t have to carry inventory.
When the seller receives an order from a buyer, they contact the supplier and have products shipped directly to the customer.
In most cases, customers are unaware that there’s a third party involved. They only know they’re receiving their orders from you, the seller.
Unlike affiliate marketing, dropshipping needs a lot of work to set up and run the business, but can easily become a more profitable business model when everything is set. Tasks include sourcing suppliers, creating listings, fulfilling orders, manage customer support.
How Does Dropshipping Work?
Here’s how the dropshipping business model works.
- A seller sets up a website or online store.
- When a buyer places an order, the store owner sends it to a third-party supplier or wholesaler.
- The seller takes a cut and pays the third party the rest of the money to handle the packaging and shipping.
How Much Do Dropshippers Make?
Unrivaled Review says dropshippers make an average of $100 to $20,000 monthly net profit.
These figures equate to a 10 to 40% profit margin on each sale, with 10–10,000 fulfilled orders monthly.
Dropshippers make money by adding a markup to the products they sell. The markup is the difference between the wholesale price and the retail price.
For example, if the supplier charges you $10 per product, you could sell it for $15 and pocket the $5 difference.
Is Dropshipping Profitable?
The pandemic has changed how people shop. Research shows that 52% of consumers now shop online more than they did before the pandemic.
This shift has been beneficial for the dropshipping industry. Statista also predicts that the global dropshipping market will reach $196.78 billion in 2022.
Pros and Cons of Dropshipping
Pros
Brand Building
When you work with a supplier, you can use their products as if they were your own. It means you can put your brand on the products you sell.
Higher Profit Margins
Because dropshipping businesses have no inventory costs, they have better profit margins. You don’t have to worry about buying products upfront or storing them in your home or office.
Quick Payments
With drop shipping, you can get paid instantly. Unlike the affiliate model, the payment goes into your account when a customer places an order on your site.
Price Control
When you dropship products, you get to set your product prices.
Scalability
Dropshipping gives you the potential to expand your business in the future. Once you have a successful dropshipping business, you can sell other products or open a physical store.
Cons
Customer Support Management
Since you don’t keep items in stock, you can’t check them before sending them to customers. It makes it hard to address complaints.
Price Competition
Dropshippers often compete with other businesses on price. It makes it difficult to profit, especially if the margins are small.
Less Packaging and Shipping Control
Since the supplier fills orders, you have no say over processing times and packing. It can lead to angry customers and damaged products.
How To Start a Dropshipping Business
Follow these steps to start a dropshipping business.
Select Your Products.
Pick a product category with high demand but low competition.
If you go after a popular product category, you’ll find that there are already so many drop shippers that it will be hard to compete.
Create a Quality Online Store.
You can use an ecommerce platform like Shopify to build your online store.
Find Dropshipping Suppliers.
Take your time to find dropshipping suppliers that sell good products at a reasonable price. You can also use a dropshipping directory like Alibaba or AliExpress.
Ensure their shipping times and policies are compatible with your business model.
Promote Your Products.
Once you’ve found a supplier, it’s time to start marketing the products. You can do this through social media or blog posts about your products.
Make sure to drive traffic back to your store so people can place orders.
Fulfill Orders.
When a customer places an order, contact your supplier and give them the information they need to complete the transaction. They will then ship the product directly to your customer’s doorsteps.
Tips for Dropshippers
Here are some tips to help you succeed as a dropshipper:
- Create a convincing store. Your store is your online storefront, and first impressions are everything. Make sure your dropshipping store looks professional and is easy to navigate.
- Use social media. Make accounts on popular sites like Facebook, Twitter, and Instagram, and post valuable content.
- Offer excellent customer service. Promptly respond to any questions or concerns that your customers may have.
- Do your research. Look into the dropshipping company you’re planning on using. Make sure they offer good quality products and have a good reputation.
Affiliate Marketing vs. Dropshipping: Who Wins?
Dropshipping is the way to go when it comes to making a profit.
Most of the time, you can make more money with dropshipping because you can set the profit margin you want. A dropshipping model can also bring repeat customers to your online store.
Affiliate marketing wins regarding how easy it is to get started.
You don’t have to build your store or help customers. You can put your efforts into marketing instead.
If you already run a blog or are active on social media, you can start today with zero starting capital.
The Bottom Line
I hope I’ve clarified the differences between affiliate marketing and dropshipping.
Remember, one business model isn’t better than the other. Affiliate marketing and dropshipping each have their advantages and disadvantages.
Dropshipping is more profitable, but the affiliate marketing route is better for beginners because it doesn’t require a significant upfront investment.
If you want more profit, you should learn how to start a dropshipping business.
