Most entrepreneurs scratch their heads when it comes to dropshipping versus affiliate marketing. Which is the better business model to pursue? Is an affiliate business more profitable than a dropshipping business? Which is easier to manage and grow?
In this article, we’ll break down everything you need to know about affiliate marketing versus dropshipping. Read on to learn which is the right online business for you.
Dropshipping vs. affiliate marketing: Overview
Dropshipping is where the supplier carries the inventory and ships it to the customer on your behalf. With dropshipping, you set your own prices and are responsible for marketing. Whatever profits you earn from sales are yours to keep.
Similarly, in affiliate marketing, the supplier also carries inventory and ships the product. However, while you’re still responsible for marketing and sales, you don’t get to keep all the profits and only receive a commission.
Let’s take a closer look at the dropshipping and affiliate marketing businesses.
What is affiliate marketing?
Affiliate marketing is where someone promotes a brand’s product or service for a commission. This might mean showcasing a clothing line or advertising a company’s vegetarian meals.
Instagram is a great place to see affiliate marketing at work. People post pictures with tagged products that link directly to the brand’s store. Clicking on the product takes you to the brand’s website, where you can buy the item.
The affiliate marketing model works on commission. Affiliates earn a percentage of every sale they drive. It’s often a high-profit, low-expense way to do business.
Parties involved in affiliate marketing
There are three key players in affiliate marketing:
- Seller: The business or supplier that starts the affiliate program and seeks to have their goods marketed.
- Promoter: The person or organization that advertises the seller’s products to boost sales and receives a fee or commission for each successful sale.
- Buyer: The person who buys the product through the promoter’s link. After a purchase, the business receives the payment and later distributes commissions to the promoters.
Affiliate marketing pros
No cost for being an affiliate
In the affiliate marketing business model, startup costs are typically low. Affiliates usually don’t have to pay any fees, since merchants often cover the costs on affiliate networks like ClickBank or Amazon Associates. Affiliates generally need to pay only for their own website and hosting, which keeps expenses down.
However, as an affiliate marketer, you are responsible for marketing expenses since you’re driving traffic to the merchant’s website. Fortunately, these costs can often be deducted as business expenses during tax season.
Excellent source of passive income
An affiliate marketing business can be a great way to earn passive income. Initially, you need to set up ads or create content to drive sales. Once that’s in place, your ads can keep running and generating revenue in the background.
You don’t have to create or ship products. Your main task is to direct highly targeted traffic to the merchant’s landing page to boost conversions.
No customer support to worry about
In an affiliate marketing business, the affiliate supplies the merchant with their leads. Thus, you’re not necessarily the product expert. As a result, the merchant handles all customer support issues.
If the customer isn’t satisfied with their product, the merchant handles the refund. If a customer needs help with a specific aspect, the merchant is responsible for helping them. Thus, when it comes to customer inquiries, all you need to do is direct customers to the merchant.
Affiliate marketing cons
You only make a percentage on every sale
When comparing dropshipping versus affiliate marketing, the biggest disadvantage of affiliate marketing is you’re paid a commission. This means you might spend $100 in ads to make only $50 back in commission fees.
The payout from an affiliate program is generally a lot lower than dropshipping. Even if your commissions are several hundred dollars, the odds are the cost of the product is higher. This means finding the right people will cost more as well. Also, you don’t have the opportunity to set the price.
For example, if people are interested in the product but feel the cost is too high, you can’t lower it to meet the demand of your audience. In addition, since you can’t set the price of your earnings, you’ll likely make a lot less than if you were the merchant.
People can ignore the affiliate link
Sometimes, if you don’t use a link shortener, people can see that it’s an affiliate link by hovering over it. They might think buying through the link costs them more, even though it doesn’t—you just get a commission. As a result, they may go straight to the site without clicking your link.
When people skip your link, the merchant keeps all the profit, and your marketing efforts fall short. Many of them are skeptical about affiliate links, assuming they’re being tricked, even though that’s not the case.
Also, some countries require you to tell your audience that your links are affiliate links. This might make people avoid clicking on them.
No control over products and pricing
With affiliate marketing, you can’t control the product you’re promoting. You can’t change its look, description, or retail price. This can limit what you can do as an affiliate marketer.
Additionally, you may not be able to mention certain features, due to your terms and conditions. Also, the photos you receive may be outdated or low quality, making it hard to promote the product effectively.
Risk of affiliate link removal
Affiliate marketers often overlook the risk of having their tracking links removed, but it’s a real issue. Sometimes users remove affiliate links due to concerns about their online security or privacy. This can hurt your income since you won’t get credit for sales made through those removed links.
Link removal can also lead to affiliate account closure if the program considers it a violation of their terms. Affiliate programs might see this as fraudulent activity or misuse, which could result in warnings, penalties, or even termination of your affiliate account.
What is dropshipping?
Dropshipping allows anyone to sell products from suppliers on their own website. When someone purchases a product from the dropshipper’s website, they place an order with the supplier. The supplier then packages and ships the product to the customer. There’s no need to carry any inventory at all.
The dropshipping business model is ideal for first-time ecommerce entrepreneurs or people who want to test products in different markets. Ecommerce entrepreneurs are known to run their ecommerce stores while studying or working full-time.
Parties involved in dropshipping
Dropshipping also involves three main participants working together to fulfill orders:
- Customer: Makes a purchase from the dropshipping store, selecting from the options the dropshipper offers.
- Dropshipping store owner: Receives the order through their online platform and sends the details to the manufacturer.
- Manufacturer: Processes the order from the store owner, produces the item, and ships it directly to the shopper.
Dropshipping pros
Dropshipping is a low-risk business model
When comparing dropshipping versus affiliate marketing, dropshipping tends to be a little less risky in various ways.
For one, dropshipping gives you access to the funds you generate rather quickly. With an affiliate marketing business, there may be thresholds you need to reach before you can cash out your first check.
For example, if you’re an Amazon affiliate outside of the US, you can only be paid by cheque or gift card. However, to receive the cheque, you must have made at least $100. Yet, not everyone succeeds at making $100 when the percentages are very low. With dropshipping, you get paid what you made.
Dropshipping allows you to have high margins
When dropshipping, you can buy a product that costs $1 and sell it for $19.99, which allows you to keep a substantial portion of the sale price as profit after marketing costs have been subtracted.
With affiliate marketing, commissions are a percentage of the product. Yet, you’re left with a much smaller percentage when you factor in your marketing costs and other expenses.
When comparing affiliate marketing versus dropshipping, you’ll likely be better off financially as a dropshipper.
You’re building an asset with dropshipping
With dropshipping, you’ll have your own professional website. You’ll make enough money to invest in advertising, content, and profit-generating techniques. A year from now, if you decide to move on to another niche, you can sell your business to someone else.
So when you’re dropship goods, you’re building an asset—your brand.
You have multiple chances to lure in a customer
With affiliate marketing, since you’re sending the traffic to another website, you have no control over retargeting.
With dropshipping, the traffic comes to your own website. The checkout will match your website’s branding. Also, you have control over the design of your landing pages, product copy, website design, and more.
As you have more control, you better your odds of attracting a customer and converting them.
Dropshipping cons
You have to manage customer support
The main downside to dropshipping is that you’re responsible for customer support as the store owner. Whether it’s a product-related query or a complaint related to the shipment, you have to answer the customer.
Fortunately, you can easily outsource this component of dropshipping to someone who specializes in it on Upwork.com for an affordable price. All you need to do is provide guidelines and general responses for the customer support representative to follow.
You can’t check product quality
You don’t get to see or handle the items before selling them, so you can’t judge if they’re any good. You rely on descriptions and pictures without firsthand knowledge of what you’re offering. The way to manage this is to choose suppliers with positive reviews and ask for samples if possible.
Your success depends on supplier reliability
Suppliers are key to your dropshipping business. If they don’t send orders on time or provide products that disappoint customers, it reflects poorly on you. Dissatisfied customers might leave bad reviews that damage your reputation and deter others from buying.
To ensure this doesn’t happen, choose suppliers with good track records and regularly check their performance. Communication and regular follow-ups can help maintain high standards.
Dropshipping vs. affiliate marketing: Similarities
While dropshipping and affiliate marketing have many differences, they also have quite a few similarities:
- Both allow you to start a business without requiring inventory or shipping goods.
- Both are relatively low-risk business models.
- Both have high earning potential.
- Both are easy to start working on immediately.
- Both require similar skill sets, such as the ability to create ads, drive traffic to a landing page, and other marketing skills.
- Both businesses have low startup costs.
Dropshipping vs. affiliate marketing: Which is more profitable?
Both dropshipping and affiliate marketing can make you good profits. So why not integrate the two and make the most of both business types? You can do this by adding a store to your affiliate website.
This way, you can sell both your own and affiliate products, giving more choices to your audience and earning money from commissions and sales.
Or, you can start a private-label dropshipping affiliate marketing business, where you sell items under your brand while also having affiliate partners promote them. This approach lets you build your brand and benefit from affiliate marketing simultaneously.
Final thoughts on dropshipping vs. affiliate marketing
An affiliate marketing business is great, as you can become very successful without incurring much cost. There are many advantages to this business model. But the disadvantages are heavily weighed around the money you could lose by relying on other businesses.
Running a dropshipping business makes you more money for the following reasons:
- You set your own product prices, which are higher than affiliate commissions.
- Dropshippers earn far more from physical goods than affiliates do.
- You have a better chance of going viral or having a really successful ad campaign.
- You can have affiliates send you traffic when running an online store.
- Customers will more likely return to your online store to buy more when dropshipping, whereas when customers of an affiliate will go to the website you referred them to.
- The cost of goods is low (allowing you to set affordable pricing for customers while having high margins).
- The everyday workload is light, saving you time (time is money, after all.
- You know through high order volume and reviews if the product will be an easy sell.
Overall, dropshipping is ideal for starting an online business with minimal upfront costs. While both dropshipping and affiliate marketing need dedication to succeed, dropshipping offers a hands-on approach to building your business.
Affiliate marketing vs. dropshipping FAQ
Can you pursue both affiliate marketing and dropshipping?
Yes, it’s possible to pursue both businesses at the same time. With affiliate marketing, you can reach new audiences without any upfront investment. Dropshipping allows you to try out different products without dealing with inventory, storage, or delivery logistics.
Is dropshipping easier than affiliate marketing?
Dropshipping can work well if you have a setup where you can add products without keeping inventory. Affiliate marketing might suit you more if you have a large social media following and can promote items your followers would love. It all comes down to what you’re good at and what resources you have.
Should you take the affiliate marketing or dropshipping route?
If you enjoy content creation and engaging with an audience, the affiliate marketing route could be ideal. In contrast, if building a brand and managing an online store sounds exciting, then dropshipping is the way to go.