Which is the best business model for you, affiliate marketing vs dropshipping?
Dropshipping Vs Affiliate Marketing Differences
The differences between affiliate marketing and dropshipping are in their business model and ownership. As the name suggests, a drop shipper owns no inventory; they let a supplier store and drop the merchandise for them.
Suppose you are an affiliate marketer, on the other hand. In that case, you need to run your own website where traffic is directed and then invest in digital marketing campaigns to convince visitors to make purchases from you.
As we can see, there are clear differences between the two business models. Now it’s time to look at each one individually and list their pros and cons so you know which business model better suits your unique talents.
What is affiliate marketing?
Affiliate marketing is a business model where you earn commissions by promoting someone else’s product. In other words, you earn money for each visitor that clicks through your link and makes a purchase on the merchant site. You don’t have to own or operate the actual product being sold.
In popular online platforms like Amazon and eBay, the merchant can be anyone. It could be a giant company, or it could be a freelance seller, just like you.
The affiliate program takes care of everything else. You promote your selected product to earn money and the affiliate program keeps track of things for you. All payments are handled by the affiliate platform so that you don’t have to deal with all kinds of tax and customer support headaches.
You don’t even need any inventory. One of the biggest benefits is freedom in choosing which products to promote as an affiliate marketer.
Your only task is to bring traffic to their site through your marketing efforts, whether that’s via banner ads, social media, or other means.
Since there are no upfront costs required from you (no inventory, no salaries, etc.), this is one of the best business models for anyone looking to get started quickly while maintaining a lot of flexibility.
The Pros of Affiliate Marketing
Affiliate marketing is a fantastic way to make money online from the comfort of your home. You are not restricted to opening hours or holidays, so you can run your business around any other part-time or full-time job you may have.
The affiliate platform takes care of all customer service concerns and fraud protection for you. This means more time for actual selling – saving you countless headaches in the long run.
The Cons of Affiliate Marketing
Some people might think that being an affiliate marketer would be synonymous with laziness because there’s a lot less work involved compared to running your own store and worrying about everything else that goes with it. But if done right, it can get results where even 50% commissions per sale could reach up to a six-figure income. It’s just a matter of how much work you’re ready to put in and what niche you choose to specialize in.
Affiliate marketing and any other online business model must be approached differently than the brick-and-mortar style of retailing. You must also factor in things like competition, conversion rates, lifetime customer value (LTV), customer acquisition cost (CAC) among others when it comes to affiliate marketing.
What is dropshipping?
Dropshipping is similar to affiliate marketing, the main difference being that you don’t promote someone else’s product but instead just sell it as a merchant.
The selling process is similar to the affiliate marketing model, except that you never have to touch or ship any products yourself. Instead, your job is still only to attract the customer and deliver the manufactured items from the supplier/manufacturer straight to your customers’ doors.
But how do drop shippers handle their orders?
While most businesses require an upfront payment from their customers before they can order a product, with dropshipping, all transactions are done after the fact. Your suppliers just ship out products directly to your customers once these orders come in.. .so you don’t need any stock as normal eCommerce companies do.
This strategy has its pros and cons, of course. On the one hand, you don’t have to worry about managing your inventory, but on the other hand, you also can’t control your cash flow because it all depends on when customers buy from you.
If you are looking to start a business that requires minimal investment and where you can set up shop quickly, then dropshipping might be an option for you. It’s easy to get started, and there are no minimums or wastage like with normal eCommerce stores. You just put up your store, promote your products online using social media ads or search engine marketing (SEM), and dropship.
The Pros of Dropshipping
The biggest upside to dropshipping is there are no upfront costs required. You don’t even have to worry about managing your inventory since all the supplies are handled by your manufacturer/supplier directly.
This means not having to worry about ordering and purchasing products, not having to find places for storing said products, and a reduced need for staff when compared with those that run their own eCommerce store.
It also means you can get started much quicker than any other business model, making it an ideal choice for people who want to start a business at minimal cost as well as people who only desire part-time or flexible jobs.
The Cons of Dropshipping
The downside of dropshipping is that it’s different from any other model out there, meaning you will have to get the word out about your store.
Being a dropshipper also means you need to rely heavily on your suppliers, which could result in delays if they don’t manage their stocks effectively.
The supply chain can be difficult and complex at times, so this requires a lot of risk management skills as well as strong relationships with your supplier/manufacturer.
Being able to develop good vendor relations allows for better communication and more flexibility when dealing with stock issues or manufacturing delays compared to completely outsourced drop shippers. These kinds of things are inevitable, especially in today’s industries.
The general cons of dropshipping is that you are just working for profit share – similar to affiliate marketing contracts.
Another downside of dropshipping is that although there are no minimums or inventory costs like in other business models, you will have to spend a lot on advertising and marketing and social media promotion campaigns if you want your store to be successful.
You also can’t control the cash flow since it’s all based on when customers buy from you, which means you will have to ensure your cash reserve is good enough at all times.
Dropshipping is an easy way to set up a store and start earning money right away. But you have to keep in mind that it requires more time, effort, and budget to be successful than many other business models out there.
You also need to remember that with dropshipping, just because you put up your store on the internet doesn’t mean people will automatically find it and buy from you… there’s still marketing involved.
But suppose you are looking for a good passive income. In that case, affiliate marketing could be more suitable as there are low startup costs. You only need to market products rather than worry about managing your inventory or shipping/delivery details.