If you are considering setting up an online business, you most likely have come across dropshipping and affiliate marketing, and you may be wondering which is better. Both models are inventory-free with reasonable profit margins. They have no entry barrier, and you can get started within a short time with a relatively low initial cost.
To help you determine which one would be best suited for you, this article compares the different aspects of drop shipping vs. affiliate marketing, including their business and operational models, level of risk, and benefits of one over the other.
Interesting Statistics About Affiliate Marketing and Dropshipping
Before we delve into the two business models, here are some interesting statistics to serve as our discussion basis.
- The number of online buyers has been increasing steadily in the last decade. It is expected to grow to 2.14 billion in 2021 from 2.05 billion in 2020.
- 85% of online buyers, investigate in Google before making a purchase
- As search interest in “affiliate marketing” is up over 200% since 2015, based on Google Trend statistics
- According to KPMG, 55% of people search online to get recommendations and check reviews for products before purchasing.
- In 2017, 23% of the global online sales were fulfilled through dropshipping. Dropshipping revenue in 2017 was valued at $85 million.
- Drop shippers can earn up to 50% more in profits than eCommerce businesses that stock up on their own products.
Affiliate Marketing vs Dropshipping Business Model
As an affiliate marketer, your primary role is to promote a merchant’s products. Typically, affiliate marketers set up a website or YouTube channel to review products in a given niche. If a customer likes a product you have reviewed, they click on the affiliate link you have provided, leading them to the merchant’s website to make a purchase.
Dropshipping works such that you can set up a website with various products from different manufacturers. When a customer makes an order for a particular product, you forward the order details to the manufacturer. The manufacturer packages and ships the product directly to the customer.
You are in charge of marketing, promotions, and customer support for products listed on your website. Therefore, you serve as an intermediary between the customer and the merchant while providing marketing and customer support.
Dropshipping is an ideal business if you are looking to start an eCommerce business without having the burden of product design, inventory management, and shipping. It also offers an opportunity to test various products on customers if you would like to eventually delve into eCommerce with your own products and stock for bigger profit margins.
Affiliate Marketing vs Dropshipping Profit Model
In dropshipping, you set your product prices. Your profit margin is the difference between the manufacturer’s price and your set price. On the other hand, you earn a commission on the products bought through your affiliate link for affiliate marketing.
You get your profit immediately for dropshipping as you deduct it from the order amount forwarded to the manufacturer. Conversely, for an affiliate marketing business, payments are made periodically. The timelines vary from one affiliate marketing program to another. Some require that you meet a minimum threshold to be able to cash out.
Affiliate Marketing vs Dropshipping Level of Risk
Although both models are relatively low-risk, there are some challenges associated with these online business models. For both models, you do not have control over inventory and product design. As such, the manufacturer can alter or pulldown a product from the market without consulting with you.
When compared to affiliate marketing, dropshipping offers you control over your brand and marketing. You can set up ads to drive customers to your website. Customers do not need to know that the products are being shipped from various manufacturers. Once they add a product to the cart, it goes to the cart on your website.
Contrariwise, when a customer clicks on an affiliate link, they are led to another website. Therefore, with affiliate marketing, you are constantly sending traffic out of your website to other websites.
Affiliate Marketing vs Drop Shipping Similarities
While there are many differences between dropshipping and affiliate marketing, the two have a few similarities, including:
- Both business models do not require you to have an inventory of the products or to ship the merchandise
- Both models are relatively low risk
- Both present a potential for earning a good income
- Both require skills such as driving traffic to your website, website design and management, and other online marketing skills
- Both are relatively easy to set up with low startup costs, with the main expenditures being website design and marketing
- There are no blockers to entering both businesses. You do not require special licenses, professional qualifications, or even to pay subscription, membership, or franchise fees
- You can work with hundreds of products from different merchants
Benefits of Affiliate Marketing Over Dropshipping
It Is a Great Source of Passive Income
You can easily set up your affiliate marketing platform to bring in recurring passive income. Setting up an affiliate marketing site requires a lot of work upfront as you review various products.
However, as long as you have taken measures to drive consistent traffic to your website, a single product link can be clicked on numerous times by different customers, therefore, driving sales on the merchant’s website. On the other hand, with dropshipping, you need to update your website with promotions regularly.
You Don’t Have To Worry About Customer Support
Your primary role as an affiliate marketer is to drive leads to the merchant’s website. Unlike dropshipping, you are not tasked with offering customer support for the products you are promoting.
It Is Easy To Find Affiliate Marketing Products To Promote
Once you have identified a niche for your affiliate marketing, it is easy to find merchants and affiliate programs with a simple search online.
Some of the leading affiliate programs are ClickBank and Amazon Associates and, Shopify Affiliate programs. You can also reach out to the top companies and merchants in your niche to determine if they have an independent affiliate program for their products.
On the other hand, 84% of eCommerce retailers say that finding reliable suppliers is one of the biggest challenges of setting up this type of business. The ideal supplier for a dropshipping business should be able to meet the increasing demand for a product.
Benefits of Dropshipping Over Affiliate Marketing
Dropshipping Returns Are Generally Higher Than Affiliate Marketing
In affiliate marketing, a higher affiliate commission is often a result of selling a higher-priced product which can be difficult to sell online. As for dropshipping, you may get a product at a wholesale price of $1 and be able to sell it for, say, $19.
Also, since you have some control over price, you can reduce or increase the price according to the customer demand for optimized profit margins.
With affiliate marketing, you cannot adjust the price according. Besides, some customers in your target audience may be hesitant to buy through an affiliate link as they assume they will be charged more.
You Get To Interact With Customers
This gives you first-hand information on what customers like and dislike and how you can improve your services and adjust prices to suit their needs. In addition, customers can refer other customers directly to your website, and you can also retarget previous customers.
With affiliate marketing, you only score one sale per customer. In most cases, referrals are to the merchant’s website. Since there is no customer base, you need to have a consistent marketing effort to drive customers to your website.
Which Is Better Between Affiliate Marketing and Dropshipping?
None is better than the other. With an effective strategy, you can make a high income with either model of online business. Both are relatively low risk and require low initial capital. Each presents its pros and cons, and it is up to you to analyze them to determine which model would be suited for you.
Alternatively, if you have the resources and time, you can test out both models. Some dropshipping eCommerce websites incorporate affiliate marketing in their marketing strategy.
You could combine both to set up an eCommerce website with a blog where you review your catalog’s various products, reducing your marketing expenditure.