Hi Jason, Affiliate marketing vs Dropshipping, which is better? I was looking to get started making money online but I’m not sure whether to start with affiliate marketing or dropshipping. Please help me with ideas.
This is just one of the emails I get regularly since I created jdealmmo.com. And today, I have decided to put to weight the two online business models- affiliate marketing and dropshipping to help my readers understand which one is profitable between the two.
Ideally, people have got used to affiliate marketing more that it’s not easy to think about other profitable models out there.
Generally, both business models involve promoting other companies’ or peoples’ products. Product shipping and product quality is done by the owners of the products. Your work is to market and promote the products.
Combining dropshipping and affiliate marketing is also a good idea.
But before you get into any of the two online business models, you need to understand how they work, their good and bad sides, and whether they are profitable for you.
In this article, I’m going to talk about both business models to help you make an informed decision.
Let’s get started.
Affiliate Marketing Vs Dropshipping- Common Characteristics
There are many differences when it comes to affiliate marketing vs dropshipping. However, the two share some similarities.
Here are some of the notable common characteristics between affiliate marketing and drop shipping:
- They both are low-risk online business models.
- It’s easy to get started with any of them.
- They do not require large initial capital.
- They both don’t require inventory.
- The owners of the products take care of shipping goods while you concentrate on the marketing and promoting their products.
- There’s a huge earning opportunity at both business models.
As you can see, there are so many similarities between the two business models that you may wonder what’s the difference between affiliate marketing and dropshipping.
Well, there is one main difference between the two:
With affiliate marketing, you are paid a percentage of the amount sold from the products you promote while in dropshipping, you set a price that’s a bit higher than the actual price of the product then the extra amount is your earning.
Let’s take a look at how the two business models work.
Affiliate Marketing vs Dropshipping – What’s affiliate marketing?
Affiliate marketing is a type of online business where you promote products of company or merchant then get paid a commission when a customer buys the products. To earn huge commissions, you need to promote more relevant products.
As an affiliate, your duty and responsibilities are to drive customers to the merchants’ products or services by using a referral link. One of the downsides of affiliate marketing is that you don’t decide how much commission you will earn. Your agreement with the merchant is guided by the affiliate program’s terms and conditions.
Here is how the affiliate marketing business models work:
Of course, affiliate marketing is a huuuge topic we cannot talk about the whole thing, but here is a summary of how things work.
- You join the affiliate program then get an affiliate link.
- Write incredible blog posts that attract readers.
- Include the link when promoting products on your blog posts, website, or email.
- When your readers are happy with the products you promote, they will click the link and make a purchase.
- You are then paid a percentage of the amount the customer pays for the products.
Affiliate Marketing vs Dropshipping – What’s dropshipping?
Dropshipping or drop shipping is an ecommerce business model where you promote products from other companies on your own website. You don’t carry any inventory of shipping of goods.
You set your own price that’s a little higher than the actual price.
Once a customer buys the products from your website, you send the order to the supplier of the products who will ship them to the customer.
You will then earn the extra amount paid by the customer.
Dropshipping is perhaps the best online business model for new entrepreneurs looking to experiment with different products.
You can also dropship on other e-commerce websites like Amazon, eBay, etc.
Another good thing about dropshipping is that you can sell different products from different suppliers on your website.
This is how dropshipping works:
Again, dropshipping is a broad topic so this is just a summary of how it works.
- You get into an agreement with the supplier(s).
- Sell their products on your website by setting your prices, for instance, if the actual price is $50, you can price it at $65.
- A customer buys the product at $65.
- You then forward the order to the supplier and pay the actual price of $50.
- The supplier does the shipment of the products to the customer and you earn the extra amount of $15.
Pros and Cons of Affiliate Marketing and Dropshipping
If you are new to the e-commerce world, it can be challenging when deciding which one to start between affiliate marketing and dropshipping.
Many new online entrepreneurs consider the payment scheme as the only difference between the two business models. That’s why many will choose one that drives more profit.
However, many differences are worth considering before you decide to get into any of the two models.
To help you get started the right way, I will talk about the advantages and disadvantages of each business model to let you make an informed decision.
Advantages of Affiliate Marketing
Affiliate marketing is perhaps the most popular type of online business with its own good and bad sides.
Here are the advantages.
Easy to start and maintain
But requires a lot of effort and time to see noticeable results.
Well, affiliate marketing is easy to start because you don’t need to worry about inventory and shipping of goods.
You will just need to join an affiliate program(s) like Amazon Associates, ShareASale, or ClickBank, get an affiliate link then start promoting products on your site.
Not that you must have a good amount of traffic which means you will have to put more effort to drive tons of traffic to your site.
You earn passive income while you are asleep
Affiliate marketing may be a great business model for earning passive income. However, there’s more work to be done before you can start to see those dollars trickling in.
You will work on producing content that people want to read, which involves some keyword and market research. You will also need to implement a powerful marketing strategy to promote products effectively.
Once you settle all that, you can join Google AdSense and place ads at respective areas within your site.
The good thing is that product creation and shipping of goods is the work of the merchant. Your work is to drive consistent targeted traffic to their products or services using affiliate links.
Joining affiliate programs is free
Joining affiliate networks like Amazon Associates, ClickBank, or ShareASale is free. Nevertheless, you need to follow their terms and conditions.
For instance, Amazon would require you to create a space in your blog or website that shows people you are a participant of their affiliate networks. The same applies to all other affiliate programs.
Perhaps the cost you will incur when starting affiliate marketing is creating your own blog. So you will need to purchase a domain and hosting to start a blog.
No customer service hassles
Of course, you will need to offer customer support on your site, for instance, when customers ask questions about the products you promote. However, much of the customer support is taken care of by the merchant.
That means if a customer doesn’t like the product shipped then the merchant will handle all the issues by either replacing the product with another one of giving a refund.
All other technical questions about products are handled by the merchant. As an affiliate, your work is to drive more traffic to the merchant’s products or services.
Disadvantages of Affiliate Marketing
Before you get into affiliate marketing, it’s good to understand the good and the bad side of this business model to prevent future frustrations.
Here are some of the dark sides of the affiliate marketing business model.
No freedom to set your own price
Unlike in dropshipping where you set your own price for products you sell on your website, in affiliate marketing, you earn fixed commissions.
No matter how much money, time, and effort you put in promoting products through your affiliate link if the commission is at 20%, you will receive just that.
That means sometimes you will be working at a loss until you start making more sales per day.
Problem with delayed payments
Managing finances in affiliate marketing is no easy task.
Generally, some merchants will pay monthly or after reaching a certain sales target. However, delayed payments are inevitable especially when financial issues arise on the merchants’ side. Of course, there is no problem with most affiliate networks.
In fact, in the case a merchant is closing down or is becoming bankrupt, this can be a waste of time to an affiliate since they don’t communicate. So, you will be wasting your time promoting their products yet you may lose the money you owe the merchant.
Affiliate links can be ignored
No matter how legit the products you are promoting are, people will always be skeptical about your affiliate links.
In fact, some people believe that affiliate marketers are cheats who are looking to earn money by convincing people to buy dubious products.
This way, whenever people see review websites with affiliate links of products, they will simply ignore the links or even search the merchant’s website directly from their browsers.
That’s why it is recommended to use link shorteners to cover all affiliate links.
With that, let’s take a look at the other eCommerce business model- dropshipping.
Advantages and Disadvantages of Dropshipping
Dropshipping is a lucrative business model. However, it isn’t without its fair share of good and bad sides. Here are the advantages and disadvantages of dropshipping.
Advantages of dropshipping
Does not require a huge initial capital
In the battle between affiliate marketing vs dropshipping, the latter is a low-risk business model.
As a dropshipper, you do not have to worry about carrying inventory and shipping goods.
The good thing about dropshipping is that you can cash out weekly. However, in affiliate marketing, sometimes merchants will set a threshold you must reach before you can start getting your money.
In dropshipping, you have the freedom to choose products to market; and how to promote them.
Higher profit margin
As mentioned above, in affiliate marketing, commissions are fixed. That means you have to promote more products for you to earn big money.
Sadly, you may spend more money on promoting the products yet the commission remains the same.
However, in dropshipping, you set your own price so the profit margin is huge.
For instance, when the actual price of a product from the merchant is $20, you can sell the product on your website at $30. The extra 10 dollars is what you earn.
It’s an asset
When you build a website and start selling products, you build a brand- your own website. You can use the money you earn to promote your business even more through advertising and various money generating methods.
And the best part?
If you decide to venture into something else, you can always sell your business to potential buyers.
This is something not easy to do with affiliate marketing unless you have your own blog. It becomes even hard if you are using YouTube to promote products as Google doesn’t allow selling of YouTube channels.
Retargeting customers is easy
It’s easy to retarget customers in dropshipping than in affiliate marketing. This is because, in affiliate marketing, your job is to drive traffic to the merchant’s products or services. That makes retargeting difficult to almost impossible.
But in dropshipping, you drive customers to your own website. You can decide how to design your pages or how to display the products. This way, you have a high chance of attracting more visitors and turning them into real customers.
Disadvantages of Dropshipping
You are responsible for customer support
As said earlier, in dropshipping, you sell other companies’ products on your own online store. That means you are responsible for answering all questions customers have about the products you are selling.
Even though you don’t do the shipping of goods, you will have to keep your customers updated on the progress of their orders until the goods are delivered to them.
The good thing about dropshipping is that you can outsource customer support to skilled individuals without breaking the bank.
Head over to any trusted freelancing websites like Upwork, hire a virtual assistant then give them the guidelines and how to go about the customer support process. That’s all. This will free up more of your time so you can concentrate on other tasks to grow and scale your business.
You can’t control shipping
In dropshipping, you have the freedom to decide the pricing of products, what products to promote, or display on your store, however, shipping is out of your control- you cannot speed up the delivery of goods.
So, in the end, customers suffer delays in the delivery of products ordered.
Some niches are crowded
If you are not careful or you fail to do enough research, you will select an overly crowded niche and that means you will struggle to make big money as the prices of products in overcrowded niches are usually low.
Affiliate Marketing vs Dropshipping- FAQs
Here are a few of the most frequently asked questions about affiliate marketing vs dropshipping.
Is dropshipping or affiliate marketing more profitable?
When it comes to comparing affiliate marketing vs dropshipping, dropshipping has more profits than affiliate marketing.
That’s because you have the freedom to set your own prices for products on your online store whereas, in affiliate marketing, you earn fixed commissions. Besides, it’s not easy to get repeat customers in affiliate marketing.
What is the difference between affiliate marketing and dropshipping?
Dropshipping is an eCommerce business model where a drop shipper promotes products or services of other suppliers on your website then the supplier takes care of the inventory and shipment of goods.
Affiliate marketing, on the other hand, is an online business model where affiliates drive customers to merchants’ products or services using clickable affiliate links. When the customer buys the promoted products, the affiliate earns a percentage of the total sale.
How much money can you make as an affiliate marketer?
As mentioned earlier affiliate marketing is a business model that involves promoting other companies’ products. That means your effort and marketing strategy can determine how much you earn. However, in a 2016 survey, 9% of publishers were found to earn $50K yearly with affiliate marketing.
Remember that with affiliate marketing, the more valuable content you publish on your site the more visitors you attract hence the more chances of earning big money.
Can you dropship on Amazon?
Yes, it’s possible to dropship on Amazon and even other trusted eCommerce platforms like eBay and many others. Amazon has a program that allows drop shippers to ship products to Amazon so the company takes care of shipping.
How to Combine Affiliate Marketing and Dropshipping for More Profits
Combining the two business models is possible and can increase your earnings tenfold. This is especially important in the initial stages of affiliate marketing or dropshipping. But you can still combine the two even after establishing one of the business models.
Note that combining the two business models involves more hard work than when working with one.
You can combine dropshipping and affiliate marketing using the following method:
- If you are already running an affiliate marketing website, you can identify products that are generating more sales then find trusted suppliers of the products then start promoting them through dropshipping. This way, you will earn both as an affiliate and drop shipper.
- If you are running a dropshipping store, you can start producing high-quality content then add affiliate links in your blog posts.
You can also use email marketing to promote affiliate products. This is especially important when targeting people who have already purchased from your dropshipping store.
The good thing is that there are powerful plugins for creating almost all types of eCommerce stores such as WooCommerce and many others.
As you can see, even though choosing between affiliate marketing vs dropshipping can be challenging, I’m hopeful that this guide will help you find it easier to go with the right business model for you.
And even though, I will declare the winner in the battle between dropshipping vs affiliate marketing, I would advise you to combine the two business models to earn passive income.
A Word of Advice
It’s worth noting that both affiliate marketing and dropshipping require more effort, time, and persistence. If you are looking to get rich quickly then the look for other business models apart from these two. If you want a course that teaches you affiliate marketing, you can check out our review on the 12 Minute Affiliate or Wealthy Affiliate.
Affiliate Marketing vs Dropshipping- Which is more profitable?
Affiliate marketing is an incredible business model for newcomers in online marketing. That’s because you don’t have to struggle with customer support. However, when it comes to which business model is profitable, dropshipping wins.
Creating a dropshipping website is more lucrative than running an affiliate marketing website.
There are many techniques to marketing your dropshipping website including Facebook and Google Ads, and many others. And if you are promoting high-quality products, you will be processing more orders than you can imagine.
Here is a summary of why dropshipping is much more lucrative than affiliate marketing:
- You can create an affiliate program where affiliates drive traffic to your dropshipping website hence generating more sales.
- You are free to decide how to price your products so you earn more than affiliate commissions.
- It’s easy to retarget customers with dropshipping. With affiliate marketing, once the customers know the merchant’s website, they will be going there directly instead of passing through your affiliate website.
- You are your own brand. You can grow your business and sell it when you want.