It’s the age of online businesses, and it’s no exaggeration to say that online businesses are booming. Thanks to mobile and broadband internet services, which are now widely used across the world, the internet is the best place for aspiring entrepreneurs to set up their businesses.
However, there are lingering doubts and frequent debates regarding the type of business that entrepreneurs should choose. The two main types of online businesses that one can choose are e-commerce and affiliate marketing. Both have their own benefits to offer as well as disadvantages that entrepreneurs need to consider before they make their final decision. Let’s kick things off by talking about e-commerce businesses.
An e-commerce business involves setting up an online store that sells its own products. For example, if you plan on starting an e-commerce store that deals in electronics, you have to make arrangements for sourcing the products by yourself and also look after the storage and delivery aspects. Famous international establishments such as Amazon, Alibaba and eBay are all examples of e-commerce websites.
Well, now that you know the definition of e-commerce websites, let’s talk about the advantages and disadvantages of having one.
- Authority and Control: As a business owner, you would probably want to have control and authority regarding the policies and decision making in your business. From deciding on what type of products you want to sell to framing pricing policies, everything is in the owner’s hands when it comes to e-commerce websites.
- Freedom of Business Promotion: E-commerce store owners enjoy a great deal of freedom, especially when it comes to promoting their businesses. As the stores are entirely under their control, they can invest in promotional campaigns as per their wishes.
- Quick Growth: Most e-commerce businesses start off small. However, once they take off, there’s no looking back. A successful small-scale e-commerce business can be grown into a medium-scale or even a large-scale business in a short time. Once an e-commerce business establishes a positive reputation, it’s not a problem to scale up anymore, as business owners typically know that they would get high returns on their investments.
- Profit Margins: An e-commerce business owner does not have to share his profit with anybody, and that’s probably the most significant advantage that e-commerce storeowners can boast. Generally, e-commerce store owners buy products in bulk and mark up prices for every individual product, which guarantees profits for every single product sold.
- Investment: While investment is not an issue for established e-commerce stores, it can be something to ponder on for new entrepreneurs. Not everyone can afford to set up e-commerce stores, and while aspiring entrepreneurs can take loans, there is no guarantee that the store would be successful.
- Bulk Pricing Qualifications: The way to earning big profits for e-commerce entrepreneurs is to buy products in bulk. However, if the business owner cannot afford to buy in bulk, then he will not qualify for bulk pricing rates, effectively lowering his profit margins.
- Storage: An e-commerce store owner has to arrange for storing the products in his inventory. Products bought in bulk typically need a lot of storage space and arranging for appropriate storage can be expensive.
- Customer Service Responsibilities: From product delivery to handling returns, refunds and cancellations, all customer care responsibilities have to be taken care of by the business owner. Maintaining high customer care standards can get stressful and time-consuming for e-commerce store owners.
Affiliate marketing is a tad different from e-commerce businesses. If you set up an affiliate store, you would basically be displaying products from a variety of different brands. If a user visits your affiliate store and clicks on a particular product, he will be brought forward to the website of the brand that is actually selling the product. An affiliate storeowner earns a commission for every purchase made through referrals. Here are some of the pros and cons of affiliate marketing.
- Less Risky to Set Up: An affiliate store is much easier to set up compared to an e-commerce store. This is due to the fact that affiliate store owners don’t have to invest as much money in their businesses as compared to e-commerce store owners.
- Fewer Responsibilities: While e-commerce store owners have to shoulder the responsibilities of customer care and service, there are no such burdens for affiliate business owners. Once a user clicks on a product on an affiliate store, all customer care responsibilities are automatically handed over to the brand that is actually selling the product. Affiliate storeowners also don’t have to think about storage and shipping.
1. Very Little Control: Affiliate storeowners have virtually no control over aspects such as product pricing and marketing. How products are priced and marketed depends entirely on the brand that is directly selling the products. Also, the brand may go out of business, in which case the affiliate storeowner would face a lot of hassles.
2. Commission Rates: As the income generated for an affiliate storeowner depends entirely on commissions, the agreed-upon commission rate needs to be decent. In many cases, affiliate store owners have had to bear the brunt of extremely low commission rates. The worst thing is that commission rates are subject to change at any time, depending on the whims and fancies of the brand.
I did a detailed comparison on Affiliate Marketing VS eCommerce in this video:
All in all, both options are viable, but you have to choose based on your situation. If money is of no issue and you are willing to commit a portion of capital for the success of your online business, then going down the e-commerce route might be a viable choice.
However, if there are financial constraints and also doubts regarding your commitment to the cause, then doing affiliate marketing is the most recommended choice. It is something that you can maintain while holding a steady job. You can also see our article on affiliate marketing vs dropshipping for e-commerce.
The rapid developments in the world of online businesses are continuously opening up newer doors of opportunities for aspiring entrepreneurs. If you happen to be one of them, then the time is now to invest and kickstart your online business.