Ecommerce entrepreneurs have more options than ever when it comes to business models. Two of the most popular are affiliate marketing and dropshipping. But which one should you choose to start your online business?
In this comprehensive guide, we’ll dive into the pros, cons, differences, and examples of affiliate marketing versus dropshipping to help you determine the best fit. Let’s dig in!
What is Affiliate Marketing?
Affiliate marketing is a business model where you earn commissions promoting other companies’ products.
As an affiliate, you publish special links to the merchant’s website through content creation, paid ads, email marketing, and other methods.
When a visitor clicks your affiliate link and completes a desired action like making a purchase, you earn a % commission.
Some key aspects of affiliate marketing:
- Commissions – Affiliates earn preset commission % on referred sales or leads. Rates vary from 5-75%+ depending on the merchant.
- Tracking – Merchants provide affiliates with special links that apply a tracking cookie or code to identify referred visitors and credit affiliate commissions.
- Networks – Many affiliates join affiliate networks like ShareASale, CJ Affiliate, Impact, etc. These provide access to hundreds of merchant programs.
- Recurring revenue – Many affiliate programs pay commissions on repeat customer purchases over their lifetime. This provides ongoing residual income.
- Costs – The startup costs for affiliate marketing are relatively low. No need to create or ship products. Main costs are marketing and content production.
- Work involved – Being an affiliate still requires significant effort to drive traffic, convert visitors, and scale your promotional strategies. Affiliates hustle!
In summary, affiliate marketing allows entrepreneurs to leverage established brands and products to earn commissions by driving tracked sales and leads.
Now let’s compare this to the other business model – dropshipping.
What is Dropshipping?
With the dropshipping model, you set up an ecommerce store selling products shipped from a third-party supplier.
When customers place orders through your store, you simply passthe sale details to your supplier and they ship the products directly to the customer for you.
Some key aspects of dropshipping:
- No inventory – You sell products without needing to buy and store physical inventory upfront. The supplier handles fulfillment.
- Flexibility – You can sell a wide range of products by listing items from multiple suppliers. Quickly test new products.
- Low startup costs – Avoid the hefty costs of purchasing bulk inventory. Start selling for under $100.
- Automation – Many tasks like order processing and delivery can be automated to streamline operations.
- Challenging scalability – Scaling dropshipping is harder due to reliance on suppliers. Margins get slim at high volumes.
- Customer experience – With no control over shipping and inventory, delivering consistently great service is difficult.
In summary, dropshipping allows selling products to customers while outsourcing sourcing, shipping, and fulfillment entirely to the supplier.
Now that we’ve explained both models, let’s compare them across some key factors:
Affiliate Marketing vs Dropshipping: Key Model Differences
|Products Sold||Promote other companies’ products||Sell your own products through your store|
|Inventory||None – merchant fulfills orders||None – supplier fulfills orders|
|Costs||Very low startup costs||Low inventory costs but other overheads|
|Margins||Earn commission % on sales. Varies widely.||Keep retail margin on products. Tends to be low.|
|Payment||Receive commission payments from merchants.||Customers pay you directly, then you pay suppliers.|
|Branding||Promote other brands primarily.||Build your own brand since you own storefront.|
|Customer Experience||No control – merchant handles order fulfillment.||No direct control – suppliers handle fulfillment.|
|Ease of Starting Out||Easy affiliate networks simplify initial setup.||Sourcing suppliers and setting up fulfillment takes work.|
|Control Over Products||No control – promote merchant’s catalog.||Choose product selection but don’t develop products.|
As you can see from this comparison, affiliate marketing and dropshipping take very different approaches to running an online business.
Now let’s dive deeper into the key pros and cons of each model.
Pros of Affiliate Marketing
Here are the biggest benefits and upsides to the affiliate marketing model:
Affiliate marketing has very little financial risk. You don’t need to create, own, or inventory any products. And there is no overhead beyond your normal website hosting and marketing costs.
Getting started as an affiliate is relatively simple since affiliate networks provide access to thousands of products and handle the relationships with merchants. You can start with just a website.
You can launch an affiliate site for less than $100 in total startup costs. And ongoing costs mainly consist of web hosting, marketing, and content production.
High Potential Profits
Successful affiliates earn extremely healthy payouts and commissions. Top affiliate marketers make six and even seven figures in annual income by driving big ticket sales volumes.
Many affiliate programs pay lifetime commissions for referred customers. This provides passive income that keeps paying as long as customers stay active. Build it once and benefit forever.
Affiliates get to promote a wide range of products across many different brands. Want to switch niche? Just join new merchant programs and update your links and content.
With no need to handle returns, inventory, and fulfillment – the legal liability is very limited as an affiliate marketer. You simply drive interest and sales.
Affiliates enjoy tremendous flexibility to work remotely and set their own hours. No need for warehousing or shipping logistics.
Cons of Affiliate Marketing
Here are the biggest potential disadvantages and downsides to running an affiliate marketing business:
Commissions Depend on Merchants
As an affiliate, you don’t control commission rates or influence product pricing. You must drive sufficient sale volumes to earn high dollar amounts.
If a merchant sells out of a hot product, you miss out on potential commissions until it’s back in stock. No control over inventory.
Similarly, affiliates don’t control product changes. A merchant may discontinue or alter a top-selling item you heavily promoted.
Some affiliate programs prohibit tactics like aggressive paid advertising or promoting discounts. Too many violations risks getting banned.
Cookie Periods Expiring
If an affiliate cookie expires before the prospect completes their purchase, you lose that commission. Typical duration is 30-90 days.
Reliance on Rankings and Traffic
No sales means no commissions. Generating consistent search, social, email, and other traffic requires major effort to maintain and scale up.
Worst case scenario – a merchant goes out of business or shuts down their affiliate program. You immediately lose that revenue stream.
Pros of Dropshipping
Now let’s examine the biggest pluses and benefits to the dropshipping ecommerce model:
Keep the Profits
The biggest advantage of dropshipping is you earn the full retail profit margin on sales rather than just a small percent commission. Fulfillment costs eat into this but margins can still be healthy.
Build Your Own Brand
With your own online storefront, dropshipping allows you to build a brand centered around your products and offerings versus just promoting other merchants.
Flexibility of Products
You can search for and sell almost any products that suppliers can reliably fulfill. Test out product selection to determine optimal offerings.
With no upfront inventory purchases, your risk is much lower than traditional ecommerce. The main costs are website hosting, marketing, and supplier payments.
Many routine ecommerce tasks like order processing and shipping status emails can be automated to streamline the process.
You can build a customer base across different countries by finding and integrating suppliers that ship internationally.
Having your own store means you determine the pricing and margins on products by marking up the supplier costs.
Easier to Start
The startup process is very simple. Just create a storefront, find suppliers, list products, and forward orders to be fulfilled. Minimal complexity upfront.
Cons of Dropshipping
Here are the biggest drawbacks and disadvantages to running a dropshipping business:
Low Profit Margins
After supplier costs and marketing expenses, profit margins per sale tend to be fairly low. Volume is required to earn substantial income.
Reliance on Suppliers
You depend heavily on suppliers for fulfillment. If they experience delays or outages, it negatively impacts your business.
With suppliers shipping directly to customers, you have little control or visibility over product defects, shipping issues, or customer support.
Unreliable Delivery Times
Inconsistent and slow shipping times lead to poor customer experiences. Lack of order tracking transparency.
Suppliers can change pricing, run out of stock, or simply go out of business. The instability can disrupt operations.
Hard to Scale
Ramping to high order volumes strains suppliers. As you grow, dealing with fulfillment and support gets increasingly challenging.
Unexpected spikes in advertising spend or product costs can eat into margins. Harder to stick to a budget.
Popular niches like apparel and electronics attract lots of competing dropshippers making profits inconsistent.
As you can see, both models clearly have their own mix of advantages and disadvantages. Let’s build on this comparison…
Affiliate Marketing vs Dropshipping: Which is More Profitable?
One of the biggest considerations is profitability and money-making potential. So which business model offers better earning potential?
The truth is it depends heavily on your execution and ability to scale operations. But here’s an overview:
Successful affiliates can earn 20-50% commissions on big ticket digital products or even 200-300% margins on leads. Top affiliates generate over $1 million per year.
For dropshipping, typical profit margins are 15-30% after supplier and marketing costs. But retailers have capped upside selling other brands’ products vs creating their own.
Affiliate income tends to be more inconsistent with surges around big promotions and traffic variability. But lifetime commissions provide steady passive income.
Dropshipping profits based on your own funnels tend to be more stable month-to-month. But supplier product issues can severely disrupt earnings consistency.
Affiliates have no control over their commission rates. Dropshippers can mark up prices to increase margins.
Affiliates payouts scale directly with increasing conversion rates and traffic. Inventory and fulfillment costs limit high-volume dropshipping.
For most entrepreneurs, affiliate marketing offers much higher profit potential thanks to healthier margins and better scalability. But dropshipping allows more control over pricing.
Affiliate Marketing vs Dropshipping: How Much Work is Required?
Another key consideration is how much ongoing work and effort is required to operate each type of business. Here’s the breakdown:
Becoming an affiliate through networks is extremely fast and simple to start. Dropshipping requires significantly more upfront work to source suppliers, build storefronts, implement automation, etc.
Affiliates need to consistently produce marketing content, drive traffic, email, promotions, etc. Dropshippers must list and curate products, process orders, deal with suppliers, manage ads, etc.
Affiliates have zero fulfillment responsibilities. But dropshipping involves actively managing supplier relationships and inventory.
Affiliates don’t need to provide customer service. Dropshippers must handle returns, complaints, and questions even if suppliers are involved.
Scaling affiliate marketing mainly requires more content and traffic generation. Dropshipping involves sourcing more suppliers and products.
Overall, dropshipping inherently requires more active management and ongoing work than affiliate marketing. But smart work automation and delegation can ease the workload over time for dropshippers.
Should You Choose Affiliate Marketing or Dropshipping?
We’ve covered a lot of ground comparing these two popular business models. So which one should you choose for your ecommerce business?
Here are a few key factors to help determine the right fit:
Affiliate marketing lends itself better to earning a healthy side income and building passive revenue. Dropshipping is more suited for scaling into a very large business.
Desired Profit Margins
If you want to earn higher commissions and percentages per sale, affiliate marketing offers greater profit potential.
Your Risk Tolerance
Dropshipping requires more moving parts and financial risk than being an affiliate. If you want very low risk, affiliate marketing is preferable.
Since affiliates primarily promote other brands, it’s harder to build your own identity. Dropshipping allows crafting a brand through your store.
Desired Work Involvement
If you want a more hands-off automated business, affiliate marketing involves less active management than dropshipping.
Timeline and Patience
Affiliate sites generate income much faster than meticulously built dropshipping stores. But dropshipping can become more profitable over several years.
There’s really no inherently “better” model overall. Assess your specific goals and strengths. Both can be hugely successful.
A great approach for ecommerce entrepreneurs is actually starting with affiliate marketing to start earning income faster with less risk and work.
Once you gain experience and capital, add dropshipping stores to your portfolio. This takes advantage of both models.
Getting Started with Affiliate Marketing
If you want to start exploring the affiliate marketing model, here are some tips:
- Sign up for affiliate networks like ShareASale, CJ Affiliate, Clickbank, etc. to access thousands of programs.
- Research niches and verticals you’re knowledgeable or passionate about. Competition is lower in uncommon niches.
- Build a website focusing on topics and products related to your niche. Provide lots of helpful information and content.
- Monetize your website by linking to affiliate offers naturally within product recommendations, reviews, etc.
- Promote your affiliate content through SEO, social media, email marketing, influencers, and paid ads.
- Track traffic, commissions, and performance metrics to optimize your conversion funnel over time.
- Diversify traffic sources and build email lists to drive continual traffic rather than relying just on SEO or ads.
It only takes one high-converting visitor to generate a big commission check. Deliver lots of value and scale your reach through paid and organic channels.
Getting Started with Dropshipping
To get started dropshipping, follow these steps:
- Select a niche and identify in-demand, high profit potential products people are actively buying online.
- Thoroughly research potential suppliers on AliExpress, Oberlo, Spocket, etc. and compare reliability, prices, and fulfillment speed.
- Build and customize an ecommerce storefront through platforms like Shopify. Carefully craft branding.
- List products from your chosen suppliers and write compelling descriptions optimized for keywords.
- Set up order automation tools and apps to streamline processing and fulfillment.
- Run paid ads to attract visitors and sales to your new storefront. Start small testing what converts.
- Provide stellar customer service and swiftly address issues to maximize satisfaction and retention.
Dropshipping takes more upfront investment and effort but allows nurturing your own brand and earning higher margins long-term.
Wrap Up: Evaluate Your Goals and Risk Tolerance
If you’re considering an online business, both affiliate marketing and dropshipping offer viable business models with the potential for solid profits.
Carefully look at your personal goals, risk tolerance, desired work level, and timeline to determine the best fit.
Or better yet – build expertise in both areas! Having multiple revenue streams is smart business.
Hopefully this detailed walkthrough of affiliate marketing vs drop shipping models gave you clarity. Now get out there and start executing on your ecommerce business goals. Wishing you huge success!
Frequently Asked Questions
How much does it cost to start affiliate marketing vs dropshipping?
The costs to start affiliate marketing are very low, around $100 or less for a website and basic tools. Dropshipping requires higher startup costs for storefronts, marketing, automation tools, etc closer to $500-$1000.
Can I do both affiliate marketing and dropshipping?
Absolutely! Many ecommerce entrepreneurs use both models. Affiliate sites earn commissions faster while dropshipping stores are built up. This takes advantage of both.
Which is less competitive – affiliate or dropshipping?
Affiliate marketing tends to be less competitive overall since you can focus on very targeted niches and keywords while sending traffic to major merchants with established authority and conversions.
What tends to be more scalable in terms of size – affiliate marketing or dropshipping?
Affiliate marketing has greater long term scalability since you can keep adding new traffic sources and affiliate offers infinitely. Inventory and fulfillment overhead eventually constrain dropshipping scaling.
Which makes more as a beginner – affiliate marketing or dropshipping?
On average, affiliate marketing tends to make more profit for beginners in the first 1-2 years. Building and scaling a profitable dropshipping store takes more time. But dropshipping revenue can surpass affiliate over several years.