Affiliate Marketing VS Dropshipping: What is the Right Business Choice?
Affiliate marketing VS Dropshipping. The two most popular methods of earning money online.
But which one is the better one? Which one should you choose?
If you’ve spent any amount of time trying to start your own online business, or trying to make some money online, you’ve very likely run across one or both of these business models.
Both are semi-passive businesses that you can build with a little amount of money (although dropshipping, can put a toll on you, like I’ve learned myself in the past) unlike investing in stocks, crypto-currency or Amazon FBA (amongst others) where you need a huge sum to make decent profits.
And let’s face it, we’re all inundated by gurus and marketers for both business models—each camp has legitimate claims that their preferred business model is better.
And they are both correct! Both of them work perfectly fine!
In fact, most of the “make money online strategies” out there, actually work (save from some of the clear scams that are out there).
But when it comes to affiliate marketing vs dropshipping…here is the burning question: What is the right business choice?
I will try to shine some light onto this, and give my own opinion on both of these business models, and if I’ve done everything correctly, hopefully by the end of this article you should be able to make a decision on what path to follow.
Let check it out!
Table Of Content
What Is Affiliate Marketing?
First off, let’s go ahead and define affiliate marketing.
Affiliate marketing is a business model that rests on the foundation of a referral. It’s referral-based marketing.
In this business, you promote someone else’s products or services. If you successfully referred a customer who ends up making a purchase (or sometimes just an action is needed) you get a commission!
I’ve extensively written about affiliate marketing on this here blog, from how to start it as a beginner , my own experience with it, and even strategies like SEO and Launchjacking. So if you want to learn more about it, there is ton of stuff you can check out.
The commission cost varies from one product to another. Physical products have smaller commissions. For example, Amazon gives from 1% to around 4% of the revenue.
What this means is that if you referred someone to Amazon and that person bought an item, or several, worth $100, you get paid $4. Which is pretty low actually.
Software companies pay more though, and it is not unusual to get paid a commission of 20%-40% for a sale. A good example is Shopify, which pays 20% for each customer you refer, or GrooveFunnels, which has an affiliate program that pays 20% recurring or 40% if you’re a user.
Most software companies also pay a recurring commission, which means that if a customer you referred pays a subscription on a monthly basis, you get 20% of what he is paying for as long as he is a subscriber.
How Does Affiliate Marketing Work?
Affiliate marketing, works the following way:
- You look for a product or service that you’re interested in promoting.
- You register with that company’s affiliate marketing program (usually found at the bottom of the website).
- You get your affiliate link, which tracks the customer back to you.
- You promote the product, through different strategies (SEO, Facebook, email and so on).
- If potential customers click on your link, go over to the site and make a purchase…you get a commission!
What Is Dropshipping?
Dropshipping is a business model where you sell someone’s product (that you don’t own or even store or fulfill) on your own online shop or website.
If someone buys a product, you order the product from a 3rd party supplier, and then the supplier ships out the product to your customer.
The profit you make is the difference between what your customer paid you for the product and how much you paid your supplier (you also might have advertising fees and shipping fees included though).
How Does Dropshipping Work?
So dropshipping works the following way:
- You build an online store. You can do this with Shopify or Woocommerce (a free WordPress plugin)
- You look for a product that you’re interested in selling, and a supplier that fulfill your orders.
- You post the supplier’s products on your store.
- You price the products higher than the supplier’s price and add a little description.
- You then send traffic (which is just potential customers) to your store.
- If someone buys, you then order the product from the supplier (at a smaller price).
- The supplier sends the item to your customer (though the shipping details the customer provided)
In dropshipping, you do not buy your inventory (if you did, that would be called “strictly e-commerce”, of which Amazon FBA falls into).
You merely display the supplier’s products in your online store. Your customer, however, does not know that. In your customer’s eyes, you are the retailer. If that makes any sense.
Pros And Cons Of The Business Models
In this section, we’ll look at what are some of the pros and cons of each of the models.
Having done BOTH of them, I can tell you…this part will be jam-packed, since there is much to go through.
So grab a sandwich and make yourself some coffee, and let’s check out the pros and cons of affiliate marketing and dropshipping.
Pros And Cons Of Affiliate Marketing
- Small capital required – you can start affiliate marketing with practically no expense; you can promote your affiliate products through free blogging platforms, social media and even sites like Quora (depending on the offer you’ve chosen).
You can also create video product reviews and post them on YouTube, you can build an email list (which costs like $15/month to start off with) You can even learn how to start affiliate marketing without website at all.
- Passive source of income – In affiliate marketing, you only need to set-up your business assets, such as your blog posts and YouTube videos, once. Once they are up and you start getting targeted traffic, you can earn money literally while you sleep (happens to me al the time, it’s awesome).
- No customer service – This is a biggie. The customers you refer are aware that they are buying the product of a company, not yours. As such, you will (at least on the surface) have no customer interaction. If they have a problem with the product they bought, they have to talk to the product creator, and not you.
- Simple to build – The most basic form of marketing products in affiliate marketing is through blogging and creating YouTube videos. Both are simple to build—just write a blog post, and off you go.
In dropshipping, you need to create a functional store, complete with shipping and payment processors—things you do not need to do in affiliate marketing.
- Easily scalable – In affiliate marketing, there are ways that you can very easily scale horizontally (different niches) and also vertically (the same niche) since the costs are so low, and (if done correctly) the commissions so high. You can for example, create another website, and easily duplicate the whole process.
- Can take a while to make money – it can take a LONG time before you build a following and make a sale. Personally, it took me 2 months to make my first sale, and it took my website 8 months to make my first sale after creating it. There are faster ways of doing it, but they might not be very “long-term”.
- It’s not easy – This stuff is hard. It is NOT easy. At all. Having done both affiliate marketing and dropshipping, personally…I think affiliate marketing is the “easier” of the two, but it’s been a freaking agonizing, painfully slow process and battle (and it still is).
If you ever hear that affiliate marketing is “easy” or that there is any “guarantees”…run for the hills. It might be “simple”, as simple as landing page, email followup and traffic…but it’s not easy.
- Shady business – When learning or getting into affiliate marketing, there are a lot of scams out there that you have to keep your eyes peeled at all times for.
Some people will sell stuff they would ever use themselves, other people only make money teaching you how to do affiliate marketing, but don’t do it themselves.
There is also a TON of shit products out there that suck, that someone will tell you to promote, because they make money off of YOU promoting it, and so on.
- Dependency on polices – if the company decides to stop the affiliate program, there is nothing you can do about it. The same is true if they decide to ban your account (if you’re caught doing anything shady) or if they decide not to pay you.
Fortunately, you can shift “rather easily” by changing company…but if you’re stuck with Amazon, for example (which had a massive percentage cut for affiliates) your business might be gone overnight.
Affiliate marketing is simple to set-up. If you are okay with creating an asset that will take some time to make money, affiliate marketing is a business model you need to look into.
Pros And Cons Of Dropshipping
- Relatively Small capital required – You can build a dropshipping store for as little as $29 per month and without any inventory required.
Depending on the method that you decide to use, to send traffic to your site, you’ll need a higher or lower budget (paid vs free traffic). But all-in-all, it’s a lot smaller cost, than some other businesses and definitely a lot cheaper to set up, than a physical brick and mortar store.
- Lots of suppliers to choose from – There are thousands of dropship suppliers in AliExpress.com (and on other websites too) and you can choose from millions of products to sell.
There is also a lot of good hot products that sell very well, new ones selling everyday, there are evergreen products and products that are seasonal…basically, there is a lot of variety, and if you pick a good product and supplier from the start, you’ll have a good headstart.
- No limit on profits – Another good thing is that, it is up to you to choose how much profit you want to make on the products that you’re selling. You can sell your product at 2, 5, even 10x the price you’ll be paying your suppliers.
Dropshipping success stories will tell you that this liberty to put a massive mark-up on their items is what made them rich.
- Easy to make sales – It’s actually not that hard to make sales fairly quickly with your store. You can make a sale in as little as a week after launching if you’re doing paid ads through Facebook or using Instagram influencers for example (the latter of which is a very fast and profitable way to do it).
Making sales with dropshipping, (depending on the traffic source) will be the least of your troubles, trust me.
- Dealing with suppliers (and customers) – If the supplier’s products are low-quality or if shipping is delayed, there is nothing you can do about it. Plus, the delivery times can be a mess, especially when they’re shipping from China.
If you want to do dropshipping long term, you’ll want to have more control over what the supplier is doing. You’ll have to start building a relationship with them, ask them if they can lower the prices (when you’re selling more volume) and all of that…it can get messy.
If there is any problem with the product, the customer is going to ask YOU. If you’re doing many sales per day, you’ll have to hire people to deal with customer support, because otherwise you’ll be bottlenecked at some point.
- Competition – This is a tricky one, because competition is usually good! It means that you can “do better” than them and win. But there are a lot of people in the dropshipping space. So much so, that you might be selling the same products as they are!
You might find a “winning product” start running a Facebook ads campaign that starts doing well, it might get picked up by the myriad of different spy tools out there (that spy on the competition) it might show your “winning product” to your competitors, who might drive down your sales and make your ads cost more.
Usually, the early bird gets the worm here. Dropshippers are always looking for “a winning product”, once a winning product get’s picked up by the competitors…it’s no longer a winning product. That’s why so many dropshippers don’t show their products.
- Active business – Once a customer places an order, you have to place this order your self and inform your supplier. Your dropshipping store, is not going to move without your involvement.
This ties a little bit with what I was mentioning before. You’ll have to constantly be on the lookout for problems that might arise.
Plus, if you’re getting customers through ads (which is what 99% of people will teach you to do) you’ll have to deal with ad account bans, scaling, possible chargebacks and whatnot.
- Financially challenging – If a customer asks for a refund or return because the product sent to him is incorrect or broken, you will suffer the financial losses associated with it.
But that’s nothing!
What if an ad that was working, no longer works, and you can’t scale. What about them chargebacks and refunds? How do you pay for the virtual assistants that are helping you out is something doesn’t work?
Apart from this, what is the long-term play here? Because, unless you’re constantly selling high volumes of products, you can’t grow.
Once you realize this, you’ll notice that you’ll have to either sell more, or actually create a “brand” something that will entice people to buy products off of you for a long time. This involves private labeling (turning the products you buy into “your own brand”), warehouses (so as to keep the shipping costs low) and a lot of money…
If you love customer service and you want to be actively involved in a business that you can call your own, you want to consider dropshipping. It is like building an online retail store, but without the cost of keeping your own inventory.
The long-term play being, that you’ll want to create an actual brand, a customer base and a more “solid” asset, because otherwise, you’ll find yourself selling products non stop.
Affiliate Marketing VS Dropshipping Conclusion
At the end of the day, your choice should depend on your passion. I would personally recommend affiliate marketing, for beginners. It’ll give you the foundations to learn a lot of the skills that you need, and you don’t have to spend too much money testing out.
Do not expect instant results, in any case, especially in affiliate marketing.
Both business models are easy to build even if you are not a pro, but they are equally tough to grow. No matter what you choose among the two, you need to know as early as now that you have to put in a lot of work.
Choose what best fits your personality.
There are people who do not like doing customer service, that do not want the nuances of dealing with refunds, contacting suppliers, negotiating, scaling ads, “on a moments notice” market research, massive testing, and more. If you are one of these people, you should not do dropshipping.
On the other hand, there are people who do not like to not see near to instant return on their work, who are not willing to go the distance, learn the foundations, do not like to position themselves as an expert about a particular niche, and gather an audience, you should not get into affiliate marketing.
Great post Pablo ! Keep the good work.
Thanks Shriniket! Glad you enjoyed it 😀