Affiliate Marketing vs. Dropshipping: how do you make the right choice? A lot of people get stuck by trying to do all of them at once, loosing focus and not being successful at any! Don’t make the same mistake, think carefully and only go with the one that you think suits you the best!
Choosing the right business model is your first challenge. It is an important decision—one that you should be sure of. Everything else that you do later will depend on this choice.
Affiliate marketing and dropshipping are two of the most popular business models to choose from.
But what is the better one?
Today, I will help you make that decision:
We will discuss:
- What is Affiliate Marketing?
- How Does Affiliate Marketing Work?
- How to Provide a Good Customer Service in Affiliate Marketing
- How to Make Money in Affiliate Marketing
- Benefits of Affiliate Marketing
- Disadvantages of Affiliate Marketing
- What is Dropshipping?
- How Does Dropshipping Work?
- How to Provide a Good Customer Service in Dropshipping
- Benefits of Dropshipping
- Disadvantages of Dropshipping
Are you ready? Let us get started!
What is Affiliate Marketing?
Affiliate marketing is a business model done by promoting the product of another company. If you make a sale, you get a commission.
Once you get accepted in an affiliate program, you will receive a link that will serve as a tracker. It is your personal link. This link tells the company if a sale came from your efforts. Without this link, the computer system will never know that you referred the customer.
However, you do need to note that you are only marketing the products. You are not, in any way, a seller of the product.
Thus, you will only be earning a commission—you cannot put a profit on top of the selling price, and you also cannot offer discounts without the company’s consent.
Affiliate marketing is a performance-based business between three parties:
- The company
- The affiliate (you)
- The consumers
The company is usually a product or service developer. They are the sellers. Many of them are found in places like ClickBank or Share-A-Sale.
You are the affiliate marketer. Your job is to convince the consumer that the company’s product is something that they should buy.
Companies use affiliate marketing to increase their sales without spending money. The affiliates are not paid for creating content such as YouTube videos or blog posts.
How Does Affiliate Marketing Work?
Your only task in affiliate marketing to promote the products. In a nutshell, here is how it works:
- You register for an affiliate program
- You receive your link
- You post this link in your marketing channel
- Customer clicks your link
- Customer goes to the company’s website
- Customer buys
- You get a commission
You do not process the sale, and you do not ship it. The transaction is strictly between the seller and the consumer.
How to Provide a Good Customer Service in Affiliate Marketing
Technically, it is not customer service. Rather, we can call it audience service. As an affiliate marketer, your duty is to guide your followers about the product you are endorsing.
Therefore, you need to give your audience real insight about the product you are offering.
To be able to serve your market, you need to become an authority. If you are promoting a product like a meal replacement shake, you need to be an expert about health and nutrition. You have to be an influencer. You have to be someone they can believe and trust.
Without credibility, your affiliate marketing efforts are not going to work. You can advertise as much as you want, but nobody is going to buy because they do not know you or trust you with their money.
The least you can do for your potential customer is to buy the product yourself, or at least get the trial version, and test it yourself. Don’t be ‘that guy’ that spreads fake reviews without even setting eyes on the product first hand!
How to Make Money in Affiliate Marketing
You earn income in affiliate marketing through commissions. The average affiliate commission rate is between 5% – 30% depending on the program and brand you are working with. Although some digital products can be even higher at up to 75%.
There are two types of commissions that you can receive. These are:
- Flat commission
- Recurring commission
In a flat rate or one-time commission, you only earn once per sale. A good example is Amazon. If you promoted a headphone that costs $300 and your commission is 5%, you get $15 from that sale. If the customer buys again, you get another commission.
Recurring commissions are usually smaller, and most of the companies that offer this are tech companies. Also, these are companies that charge their customers on a monthly basis.
A good example is Shopify. If a customer subscribed to the plan, you get 20% of the $29 he pays. In this case, your commission is $5.8 per month. For as long as this person is using this service, you get paid a commission.
Furthermore, there are three more ways that you can get paid in affiliate marketing. It is not limited to consumers purchasing a product. This will be defined in the agreement between an affiliate and the brand.
There are several models with how you get paid. These are:
- Pay per sale – this is the usual deal in affiliate marketing. An affiliate gets paid whenever a customer buys a product.
- Pay per Lead – in this payment method, an affiliate only needs to convince the market to visit the website and do a specific action (i.e. subscribe, turn on email alerts, etc.), and then he or she gets paid.
- Pay per Click – this might be the easiest way to get paid. Whenever the link is opened, the affiliate immediately gets paid. The goal of this is to generate traffic to the company’s website.
The last pne is rare, and doesn’t usually pay a large sum of money. If you want to be a successful affiliate, focus on pay per sale or pay per lead programs. Pay per lead is often known as CPA and these offers are usually found on specific CPA networks. Note that some of these can be hard to get into if you are new to the industry.
Benefits of Affiliate Marketing
Let us take a look at the advantages of affiliate marketing, and why you might want to choose this business model.
- Free to start – if you want to start being an affiliate, you don’t have to pay anything for marketing if you don’t want to. You just have to sign up for affiliate programs that fit your interests. If you decided to market the product through blogging, you might need to spend a little to generate traffic to your blog site.
However, if you choose to advertise through social media, and you already have a lot of followers to begin with, it is rare that you will still need to invest in advertising services. You can just improve how you promote your product. Being able to start without having to pay anything also means low to no risk at all.
- Minimal Requirements – when applying as an affiliate, you only need a laptop and an internet connection. You do not even need a whole lot of education in the tech and marketing spaces. You don’t need to reach a certain age, working experience or educational attainment.
- Marketing tools – another good thing about promoting an affiliate product is the fact that you don’t have to make your own campaign materials. You don’t have to create your own banners or hire someone else to do it. The company you will be partnering with will give you all the necessary resources to market the product efficiently.
- Passive income – one great dream of an entrepreneur is to get paid even while doing nothing. Affiliate marketing is a passive income where your assets can earn money even if you sleep. This can be especially true if you market something with a recurring commission.
- No Customer Service– As as you refer a customer and they do the action required for you to get paid, that’s it! No customer support needed from your side. This can save a lot of heartache 🙂
As you can see, affiliate marketing requires little cost and not a lot of work to earn money. It is one of the best forms of passive income out there.
Disadvantages of Affiliate Marketing
Be aware though, there are also a few downsides to affiliate marketing. You need to know these before you start this business so you can prepare yourself.
- Low barrier to entry – this is good and bad at the same time. Anyone can join the program, and everyone who does is your competitor. All of you will be wanting that traffic. Because of this, you have to consistently think of new marketing styles to appeal to your target market.
- Unsteady Income – although this is considered as one of the jobs where you can earn passively, you still have to realize that it could be unstable in the future. You should always have reserve money to back you up in hard times. A good example of this is the massive reduction in affiliate earnings at Amazon over the past 3-4 years. A lot of those affiliates have seen their incomes at least halved, and this could go down more in the future. As an affiliate, you don’t own or have any control over the programs you promote, be aware of this.
For example, you may earn $100 this week from commissions, and don’t get paid for a whole month after. This is why affiliate marketing should go hand in hand with good money management and preperation.
- No consistent customer base – if you are promoting a product, it may get difficult for you to find a committed consumer base. Once they bought the item, it is not likely that they are coming back to your site.
- No control – because of the increasing competition, you may want, at some point, to stand out using discounts, promos, and vouchers. However, you don’t have control over the product’s price. The companies may even reduce the affiliate commission, which has happened in Amazon twice already.
Study the cons of affiliate marketing carefully, and have a business plan around it. If you want to do this, always remember that it is subject to forces you cannot control. Affiliate marketing is great only as a side source of passive income, not as a full-time job.
What is Dropshipping?
Dropshipping is a business model where you make retail sales. However, you do not buy your inventory. Being a dropshipper has almost the same definition as an online seller.
The only difference is that they do not have the products with them. Instead, they communicate with a third-party manufacturer who will supply the commodities to their store. The supplier will also be responsible for the shipment of the products.
With a dropshipping business, even though you are partnered with a supplier, you still have full control and responsibility for your products. The product’s price, source, description, and marketing strategy will largely depend on your decisions.
This type of business saves you the hassle of manually monitoring your inventory data. It also saves you from spending extra time taking care of the products you offer.
How Does Dropshipping Work?
Dropshipping involves a continuous process between three groups:
- The dropshipper, which is you
- The supplier; you can find many of them in Oberlo
- The consumers
In a nutshell, this is how it works:
- Dropshipper puts up an online store
- Dropshipper displays products from a supplier
- Customer orders the item and pays for it
- Dropshipper orders the item from the supplier
- Supplier ships the item to the customer
As you can see, dropshipping is what is called arbitrage. You are functioning as a middle person between the buyer and the manufacturer.
How to Provide a Good Customer Service in Dropshipping
In contrast to affiliate marketing, you are fully liable and responsible for the products sold to your market. Even though you have a supplier, you cannot tell your customer that you don’t have anything to do with it as an answer to their complaints.
They got the product from your store, therefore meaning (in the customer’s eyes) that it came from you no matter what. Because of this, you are in charge of returns, refunds, and issues if there are any that may arise.
To avoid customer dissatisfaction in the first place, you must thoroughly do research about your products and your supplier. Know even the smallest details like their trust rating, location, shipping duration, and most importantly, their product quality.
You need to buy a product from the dropshipper to test it. You must be able to hold the product in your hands, and also experience how long it takes for your supplier to ship the item.
How to Make Money in Dropshipping
The profit you make is the difference between your supplier’s price and your price. If you are selling a dress that the supplier sells for $9 and you sold it for $25, your profit is $16.
It might get a little overwhelming in the beginning. There are a lot of factors you should consider, like the product’s initial cost, expenses, your market’s budget, and profitability.
You need to know how much money is needed to run your business and use that figure to identify how much profit you need to just break even. Many dropshippers fail because they sell products with a profit of $1, thinking that they will make money by volume.
It does not work that way. If your monthly expense is $300, and your profit per product is $16, how many products do you need to sell to make $300?
Always calculate your costs, and then choose products that have higher profit margins.
Benefits of Dropshipping
Let us take a look at the benefits of dropshipping.
- Partial control – being the owner means you have the ability to make decisions in your business. You can change the product prices, remove the products, create discounts, and a whole lot more.
- Low start-up cost – you can start dropshipping for as little as $29. Just go to Shopify and sign up for an account. That $29 is already inclusive of a fully functional store.
- Accessibility – like other businesses that are operated through online means, you can also access your dropshipping store anywhere and anytime. You only need an internet connection. You can even manage your business on a mobile phone.
Dropshipping is easy to start. The main challenge that comes with the business is making sales. You need to do a lot of marketing so people will find out about your store and buy from it.
Disadvantages of Dropshipping
Like all businesses, there are some cons to dropshipping. Take a look below and see if you can work out something about these disadvantages.
It is an active business – dropshipping is not similar to affiliate marketing. In affiliate marketing, you make a sale without getting involved. You can sit idly after making promotional posts. In dropshipping, you have to monitor your store and process every order immediately.
If you take too long in forwarding them to your supplier, they may file complaints or worse, they may cancel their orders from your store.
You also have to do occasional research about product and marketing trends. You need to be active in the business to be able to compete.
No control over quality and shipping – as a dropshipper, your items are with your supplier. The supplier can take time getting the product from the warehouse, and also ship late. This is beyond your control, but it is still linked to your performance.
The key to succeeding in dropshipping is choosing our products and suppliers wisely. You need to first make a purchase and ensure that the supplier offers high-quality goods. If the shipping takes a while, you can at least set your customer’s expectations, so they do not cancel.
Can be costly– although the startup costs are low, I think you will find that a lot of dropshippers end up spending a lot on paid advertising to drive traffic to their stores. Yes, you could write blogs posts to do the same, but it will take a lot longer and it is rare I hear dropshippers doing this as their main strategy. The exception to this is if you already have an audience on social media you could sell to.
Which is Better: Dropshipping or Affiliate Marketing?
The better business model will mainly rely on your end goal and personality.
If you are looking for a passive income, and if you are not ready to commit in an active business, affiliate marketing is the better choice for you.
If you like serving customers, and if you want to have your brand, choose dropshipping. It works best for people who love active income sources and those who love the challenge of competition.
In conclusion, both business models possess their own upsides and downsides. Both affiliate marketing and dropshipping can earn you a lot of money if you do it right. There is no right and wrong choice here—it all depends on your passion. Just don’t try to do them both! I have seen way too many people with ‘shiny object syndrome’ that end up doing this and failing at both!