Very often, when someone wants to start their own online store, they are faced with two options – dropshipping or affiliate marketing. Dropshipping is when the manufacturer/trader sells the goods and delivers them to the customer on your behalf. In this business model, you determine the prices of the products and do the marketing.
Affiliate marketing is similar. The merchant delivers the products to the customer instead of you. Although you are again in charge of marketing, in this business model you have no role in the price of the goods, but you receive a commission based on the sales made.
In this article, we will explain the advantages and disadvantages of dropshipping and affiliate marketing in order for you to decide which is more profitable and beneficial for you.
What is dropshipping?
The dropshipping business is a business model in which you sell certain products that you do not personally own, but send to the buyer when he makes a purchase. Your “supplier” delivers the relevant goods to the buyer on your behalf.
There are three key players in the dropshipping model – the manufacturer, the retailer (s) and the customer. The manufacturer’s role in the dropshipping business includes creating products, making inventories, and delivering products to customers on behalf of the retailer (on your behalf), replacing defective products, and restoring stocks. They sell products to the retailer at wholesale prices, accepting the risk of unsold goods.
The retailer sells the manufacturer’s products on its website under its own brand. It is his responsibility to select and market the products. They are also responsible for managing customer inquiries and complaints.
The customer buys the products directly from the retailer. If questions or problems arise, they contact the retailer from whom they purchased the product. Therefore, the responsibility lies with the trader who sells the goods.
Dropshipping: advantages and disadvantages
Low-risk business model
When comparing dropshipping to affiliate marketing, dropshipping tends to be a little less risky for a variety of reasons. First, like affiliate marketing, dropshipping does not carry inventory or deliver goods. This makes both models quite low risk. However, with dropshipping, the risk is even lower as your funds come to you every week.
With affiliate marketing, there may be thresholds you need to reach before your income can pay off. For example, if you are an Amazon partner outside the United States, you can only pay by check or gift card. However, to receive the check, you must have made at least $ 100. However, not everyone manages to do so when the percentages are really low. With dropshipping, you pay for what you sell immediately.
Opportunity for high margin
When deciding between dropshipping and affiliate marketing, consider how much money you can make. Affiliate marketing commissions can often be low compared to the dropshipping model. With dropshipping, you can buy a product that costs $ 1 and sell it for $ 20, allowing you to keep a significant portion of your profits after marketing costs have been deducted.
You create an asset
When you drop goods, you are actually building an asset – your brand. With the dropshipping model, you will have your own professional website. You will earn enough money to invest in ads, content, and other sales generation techniques. After a year, if you decide you want to move to another niche, you can sell your business to someone else. However, not all affiliates have their own assets. Some of them make their money by creating videos on YouTube. However, you cannot sell your YouTube channel.
You are responsible for customer support
The main disadvantage of dropshipping is that as the store owner, you are responsible for the support. Fortunately, you can easily outsource it to a professional. There are many freelancers on sites like Upwork & Freelancer.com who will help you at affordable prices. All you have to do is provide instructions and general answers to the customer service representative. By outsourcing this component, you free up your time to focus on marketing and optimization. This allows you to grow your business faster.
What is affiliate marketing?
The affiliate marketer (or partner) promotes products that a merchant sells. This could be a celebrity promoting a clothing line or a fitness instructor selling a health food line. Instagram is a great platform to spot affiliate marketing in action. You can see the profiles of ordinary people who post images with branded products.
With affiliate marketing, you get a commission for the products sold. The percentage of the commission depends on the agreement between the affiliate and the affiliate providing the products or services.
Affiliate marketing: advantages and disadvantages
There is no price for being an affiliate
When using this model, the costs are usually quite low. There is usually no affiliate fee, as the merchant usually covers administrative fees for networks such as ClickBank or Amazon Associates. The only costs an affiliate usually pays for are their own website and a low-cost server. As an affiliate marketer, however, you are required to pay for marketing costs, as you are the one who drives traffic to the merchant’s website.
Great source of passive income
Affiliate marketing is an excellent source of passive income. There is a bit of pre-work to understand the ads or create content to convert into sales. However, once that happens, you can run ads and make money. You don’t have to worry about creating a new product. You do not need to worry about sending the products. All you have to do is make sure you’re sending highly targeted traffic to the merchant’s landing page to manage conversions.
You take a percentage of the sales made
When comparing dropshipping and affiliate marketing, the biggest disadvantage of affiliate marketing is that the payment is on commission. You may spend $ 100 on ads to get back $ 50 on commissions. Affiliate pay is usually much lower than the dropshipping model. You also do not have the opportunity to set the final price of the products. For example, if people are interested in the product but think the price is too high, you can’t reduce it to meet your audience’s demand.
Payments may be delayed
In the battle between dropshipping versus affiliate marketing, the second business model may have financial management difficulties. This is because some merchants may be unreliable with their payments. There are many great affiliate programs that make payments on time. Sometimes, however, one of the companies you choose may not pay on time.