Affiliate marketing and dropshipping are becoming popular as effective strategies to make money online. These methods do not require much investment since a third party will take care of the product stock and shipping process.
In addition, beginners can start with affiliate marketing and dropshipping right away without knowing much business knowledge. But which model is more profitable for your business in the long run?
This article compares affiliate marketing vs dropshipping from different aspects, including their ease of start, profits, and earning potential. You will also get a comparison table to weigh their pros and cons and see how they can meet your business requirements.
Affiliate Marketing vs Dropshipping: Overview
Basically, affiliate marketing involves your promotion of other business brands to generate more revenue for them. While having a dropshipping business means you use your brand name to sell another company’s products.
Below are the definitions explained in detail.
What is Affiliate Marketing?
When you join an affiliate marketing program, you will earn money by advertising others’ products/services to your audiences. The unique affiliate link inserted in your content directs potential buyers to the merchant’s website, encouraging them to purchase.
The affiliate website can track conversions to identify the affiliate the sales come from. Consequently, if someone makes a transaction with your link, you will get a commission as a certain percentage of the sale.
You can expect most affiliate programs to run on fixed commissions. Some may also pay you for website clicks, leads, app downloads, or free-trial users. Many platforms, such as ClickFunnels or AliExpress, utilize affiliate marketing for their business development.
What is Dropshipping?
Dropshipping is known as a beginner-friendly eCommerce business model that enables you to work with various suppliers and sell their goods on your website. You needn’t worry about holding inventory and shipping these items to customers with this type of business.
Furthermore, you are able to decide your own selling prices, meaning your earned profits are the margin of your retail prices minus the wholesale costs. But you would also be responsible for its general operating procedure, including initiating marketing campaigns and taking care of customers.
When you receive an order from a customer, you will pay the wholesale price and forward it to the supplier. Then, the supplier will process this order on behalf of your store and ship the products directly to your buyer.
Dropshipping vs Affiliate Marketing: Ease of Start
Both models are fairly easy to start with, but being an affiliate marketer is simpler than running a dropshipping store. This is because you do not have to build a retail website and support customers, allowing you to put more effort into marketing.
In fact, you canjoin an affiliate program at no cost, especially if you already have large followers on social media or run a personal website. Many interesting affiliate programs are available for you to consider joining, such as these best affiliate program on the UpPromote marketplace.
Before collaborating with a platform as their affiliate, you should determine your niche and promote relatable products to your audience. Moreover, your blog content should be optimized with suitable keywords and appropriate SEO practices. That way, you will have better online visibility and attract more organic traffic to the website.
On the other hand, opening an eCommerce dropshipping business requires you to invest much more time and effort. A lot of tasks are under your management, including market researching, finding a dropshipping supplier, setting up product prices, and handling customer support.
Also, you need to develop clear communication with your suppliers to solve product returns, wrong orders, and other delivery issues. It is crucial to work with suppliers you can trust since your product supply depends on these sources. Your business might be at risk if you choose the wrong supplier, so consider essential aspects like their reputation, service, and product quality.
Affiliate Marketing vs. Dropshipping: Earning Potential
To compare the earning potential you can have between affiliate marketing vs dropshipping, a dropshipping business brings a more steady income as it can
While being an affiliate marketer means you are only the referrer of another business with no control over the product offer, including retail prices. This may somewhat lower your earning potential than the dropshipping model.
Furthermore, affiliate sales are not long-term beneficial for them being one-off transactions. Most customers do not click on the same affiliate link twice for the same product.
Here is a report from Influencer Marketing Hub in 2023 showing how much money affiliates make yearly from their marketing efforts. As you can see, more than half of the statistics indicate that most affiliates make less than $10K annually, which is not considered a handsome rate to rely completely on for a living.
Understand that as an affiliate, your role is to support other companies in enhancing their online exposure and promoting their products. Once they gain enough popularity, potential buyers will visit their official page.
Nevertheless, affiliate marketing takes less time to set up, so you can start earning sooner with this business model.
Similarities and Differences Between Affiliate Marketing and Dropshipping
Take a look at what affiliate marketing vs dropshipping have in common and the aspects that differentiate them:
Similarities between Affiliate Marketing and Dropshipping
- Both enable you to run a business without the need to stock shipping goods or inventory.
- Both business models are relatively low-risk.
- Both can be started immediately without much business knowledge.
- Both can be high earning.
- Both have low costs for startup.
- Both require you to apply similar marketing skill sets, such as creating ads and driving traffic to a landing page.
Differences between Affiliate Marketing and Dropshipping
- With dropshipping, you sell products directly on your website. With affiliate marketing, the customer clicks on your affiliate link and is taken to another page.
- With dropshipping, you have to manage customer service by yourself. With affiliate marketing, the website selling the goods will handle any customer issues.
- Dropshipping enables you to earn higher profits due to setting up your own prices. An affiliate marketer cannot control the price or commission rate.
- With dropshipping, you can receive an instant payment once the transaction is done. While affiliate marketing takes 1-3 months to pay your commission fees.
Pros and Cons of Affiliate Marketing vs Dropshipping
|– Simple to start- No need for customer support- Low-cost startup- Good source of passive income
|– Low initial commissions- No control over prices- May lose affiliate links via hacking or removal- Limited advertisement
|– Grow your own brand- Higher profit rates- Easy to scale- Instant payment
|– Requires customer support- No control over service quality- Price competition with others
Pros and Cons of Affiliate Marketing
Simple to start
To become an affiliate for a specific platform, all you need is to sign up for their affiliate program and begin to include unique affiliate links in your blog content. Apart from that, such programs do not require any licenses or certifications to become a member.
Personal websites and social media channels are popular platforms that many affiliate marketers use for product promotion and affiliate link sharing with their audiences.
No need for customer support
Being an affiliate marketer means you are not responsible for customer orders, inventory management, and delivery processes. You can also promote these products on various platforms, enabling a solid audience through these channels.
Your job as an affiliate is to motivate your target audience to purchase goods via your affiliate links. This helps you concentrate on increasing the effectiveness of product promotion to boost the conversion rate.
Almost no affiliate program asks you to pay an upfront cost to be their partner. The only expenses you have to handle are marketing costs, such as running advertisements or buying hosting space.
Good source of passive income
It is true to claim that you can make money anytime, anywhere, as an affiliate marketer. When your marketing strategy is compelling enough, you will be able to generate more conversions from your links easily. That is why you need to find the right platform and run product promotion ads.
Low initial commissions
Because you need to attract visitors to click on your affiliate links, it will take some time to gain high traffic and create conversions. Thus, the money you may have to spend on ad campaigns can cost more than your commission. As a result, most affiliates earn less money at the beginning.
Additionally, you may need to reach a specific target sale number or invest in a long sales process to be paid in some programs. This can cause difficulty in financial planning as you have little idea when you will get the money.
No control over prices
Promoting other brands’ products means you have no control over the products or their prices, so you cannot make any changes for them to suit better with your audience. Their images and description need to stay exactly the same as on the referred site.
May lose affiliate links via hacking or removal
A lot of online customers find an affiliate link spammy or suspicious because it usually includes unstructured letters and numbers. So instead of clicking on your link, they might visit the brand’s website directly, limiting your marketing efforts and reducing your commission.
Aside from that, affiliate links are potentially exposable to hackers who may steal your commission. For this reason, consider using link cloaking, as it also makes the links more trustworthy and professional.
By signing up for an affiliate agreement with a company, you may face a few restrictions in advertising their products. Some programs do not allow you to promote on certain social channels, holding back your earning potential.
In case you violate any of their terms and conditions, the company has the right to ban you from being their partner.
Pros and Cons of Dropshipping
Grow your own brand
Choosing the dropshipping model will be a great idea if you want to enhance personal branding and run your own business. Being the store owner lets you control the entire business’s operations and prices, which is highly beneficial in the long run.
The stronger your product’s image, the more brand recognition and customer loyalty you can achieve.
Higher profit rates
You have more chances of earning high profit rates with dropshipping as you get to decide the product prices. Even when you spend money on marketing, it still brings a better income than an affiliate marketer. Remember to keep the prices reasonable and competitive when you raise them.
Also, you can promote your products in any way possible for not being bound by any terms and conditions. Feel free to increase sales by adding an affiliate program to your store.
Easy to scale
With a dropshipping business, you can attract online buyers better and encourage them to repurchase than affiliate marketing. It also helps you reach a wider audience by selling various goods worldwide. Plus, your marketing campaigns can be more flexible with renewed target audience for sales conversion.
Since you are able to optimize your web design, landing pages, and product descriptions to your brand preferences, it will boost your website traffic and conversion rate.
Your dropshipping payout comes after the buyer pays for the order at your online store. That means you can withdraw the money anytime you want.
As it improves your cash flow, it is much easier to manage and grow your business.
Requires customer support
Dropshipping websites are basically eCommerce stores; therefore, you should support your customers to ensure their order has been successfully processed. It requires you to have responsibility and work with the supplier if any problem with these orders arises.
You might want to try hiring virtual assistants on Fiverr, Upwork, or other freelancing websites to simplify this workload.
No control over service quality
Because you cannot get access to the stock in a dropshipping business, there is no control over the product quality and delivery service. As a result, your customer might experience product defects or shipping delays.
A lot of dropshipping suppliers only deliver the order at their convenience, leading to products arriving late for customers. If your business receives complaints about late delivery, it will result in negative reviews and customer loss.
Price competition with others
More and more people are starting their online business with dropshipping as it is a low-risk model. This causes the industry to become more competitive, with many sellers offering the same goods as yours in popular niches.
Having to compete with others in pricing will make you want to lower your prices to stay competitive. However, your business may experience lower profits because of this. That is why it is crucial to analyze the market for a good pricing strategy.
Which is More Profitable: Dropshipping or Affiliate Marketing?
In terms of earning profits, most people make more money with dropshipping than being an affiliate marketer. The reason is that you get to decide the profit margins, allowing you to earn more than 30% margins.
For instance, you can buy an item at a $15 retail price from a supplier, then sell it to your buyers for $30. If you are able to provide high-quality goods, people may come back to shop more from your store.
Meanwhile, the average commission rate for affiliate marketers is between 5 to 30% of the sale. Certain digital products like online courses or web hosting could offer a higher commission, but this target niche is incredibly competitive.
Furthermore, when you use affiliate marketing, customers are less likely to visit your page again once they get to the referred site. However, if you can offer new products constantly, there is a better chance of gaining higher profit.
Conclusion: Choosing the Best Option for You
Both affiliate marketing vs dropshipping are fantastic models for you to begin an online business. They work great for anyone who has a limited budget wanting to pursue a low-risk business. However, you need to be clear about your business goals and requirements to choose a suitable model.
In short, a great model that requires little management effort would be affiliate marketing. Alternatively, you should opt for dropshipping if you want to build your brand name from an online business. Whether you choose any of them, you need to work hard and invest time to succeed.