There are substantial differences between affiliate marketing and dropshipping, but also some striking similarities.
Amongst other things, they both allow a low-risk, low-cost start-up for a small company, which is extremely appealing to entrepreneurs and start-ups, especially in the atmosphere of economic turmoil stirred up by 2020 events. And both have high earning potentials, using pre-existing business models to build upon.
But which method pays more? Maybe it’s difficult to find a hard and fast answer, as there are plenty of other factors to consider. One method may be more suitable for your business than the other. Let’s investigate.
What is Affiliate Marketing?
Put simply, affiliate marketing is the process of getting paid for every sale generated from the affiliate’s promotion.
For example, if I was to promote raincoats for dogs right now, as an affiliate for the dog raincoat company I would earn revenue based on how many people click through and purchase the product (I’m not affiliated in case you were wondering).
There are three parties involved, and their relationship must be understood to thoroughly grasp the concept. First, there is the vendor, the creator of whatever product or service is being potentially sold.
Then there is the affiliate, who is an individual or business entity of some kind who promotes the product or service via their marketing channel, taking a share of the sale.
Finally, there is the customer, who purchases the product or service via the affiliate’s channel. The way affiliates get paid depends on the type of agreement they have with the vendor – usually by click, by lead or by sale.
Some of the successful affiliate marketers out there are eBay and the ‘Glory Cycles’ website, Amazon and the amazing ‘Gear Patrol’ website dedicated to writing insightful gear recommendations, and, finally, ‘Every Day Carry’, providing reviews of survival kits and items.
What is Dropshipping?
Dropshipping refers to a business model where a store doesn’t keep its products in stock, instead, it purchases the product from a third-party vendor and has it shipped directly to the customer.
This means that the seller doesn’t have to store products, and doesn’t come into contact with them at all – they will usually have an agreement with a retailer or wholesaler.
Dropshipping companies are successful because they create far more business than the company who produce or stock the products are able to. Some good examples of companies that dropship are AliExpress (pretty much a patchwork of everything website), SaleHoo, and Doba.
Which One is Best for Me?
This entirely depends on how your business is structured. Obviously, if you intend to sell physical goods to end customers, dropshipping seems like the best model for you.
So, if you promote kitchen goods in a market where they are not readily available, let’s say Le Creuset for example, there is no real use for affiliate marketing. Find yourself a wholesaler and dropship away!
For an example of affiliate marketing in action, let’s look at asiabet.org – this site collates data and information on the best online casinos in India and other parts of Asia, and with each click through receive a share from the casino it promoted, keeping in mind the best intentions for the readers and casino enthusiasts.
For example, they have informative content on various games like rummy, poker, or teen patti, and their reviews are always on the spot, with discerning comments about the features of each casino they promote.
Pros and Cons of Affiliate Marketing
Once you set up your channel, be it a blog with affiliate links or a site with click-through ads, affiliate marketing is an excellent source of passive income. Post the content and sit back watching the cash roll in (hopefully).
Also, you’re not responsible for the customer service side of the business – the vendor handles all of that. If you do get a customer contacting you for some reason, simply redirect them.
However, a drawback of affiliate marketing is that you are only working on commission – you only get a tiny slice of the pie. It may be tricky to find the right match with a vendor and your marketing channel.
And you can’t set the price of the product or service you’re affiliated with, leaving you at the mercy of the vendor’s price and percentage offer.
Another problem is getting paid on time – of course, some vendors are great and prompt with the commission, but some leave you well down the list of expenses at the end of the month which will affect the cash flow of your business.
And yet, another issue is people seeing the website link when they hover over it on your article – they may assume the product is cheaper direct from the vendor and bypass your link entirely.
Pros and Cons of Dropshipping
Starting a company to sell products that require production is a hefty investment. You need to design the product, test it, patent it, and myriad other things that are costly and time-consuming.
As a dropshipper, you avoid all those start-up costs and headaches, and can get going as soon as you have a website and an agreement with a vendor or wholesaler. There is no need to store and inventory, and no need for a physical storage unit or storefront.
Not having to manage inventory is also a major plus – many stores have production problems and various types of delays. No need to worry about that as a dropshipping company.
Cash flow improves, and you’ll have tested products to sell right away.
On the downside, there are so many dropshipping companies now, and competition is fierce. This is because all these companies aren’t selling unique products, they’re all selling the same product.
A lack of quality control and prompt shipping is also a factor, as is the loss of bulk discounts – you are providing one product at a time.
So, the answer to our original question is… it depends. On your business model and on the products or services you’re interested in providing or promoting. The best thing is to take a long look at your business and see what fits best.