Affiliate marketing and dropshipping are very similar revenue models that both involve you earning revenue by selling someone else’s product.
What we want to examine is which of these revenue streams is better. Is there one that’s better for all businesses? Is there one that makes more sense for you even if most businesses are choosing the other?
These are questions we’re going to answer in this post.
Affiliate marketing vs dropshipping
Affiliate marketing is one of the most common revenue models for entrepreneurs and content creators alike.
It’s one of the most low-risk business models out there as it involves you earning revenue by recommending other businesses’ products to an audience. You earn revenue when your audience purchases those products.
Dropshipping is a low-risk business model as well since you don’t pay for the products you sell until they sell. Your profit margins become your revenue.
In this business model, you sell someone else’s products as if they were your own, but a third party handles order fulfillment and shipping for you.
Affiliate marketing and dropshipping are quite similar, and truth be told, one isn’t better than the other. They simply have specific use case scenarios each one is better suited for.
What is affiliate marketing?
The affiliate marketing business model is used by bloggers, YouTubers, social media influencers and podcasters.
Here’s how the affiliate marketing model works.
An affiliate marketer joins an affiliate program for a product or service they want to promote. They’re given a special affiliate link, which contains an affiliate ID that’s unique to them.
The affiliate marketer then promotes the product or service to their audience and asks them to click their affiliate link to purchase it.
When they do, the affiliate marketer is given a portion of what their audience member paid as a commission at no additional cost to their audience member. The cost is paid for by the business operating the affiliate program.
Affiliate programs are free to join. Some require you to generate a minimum amount in order to keep your membership active while others allow all affiliate marketers to stay, even if you don’t generate any revenue.
Most affiliate commission rates are between 2 and 10%, though some go as high as 30%.
If your commission rate is 10%, and the product you’re promoting is $25, you’ll earn $2.50 for every sale you generate for that product since 10% of 25 is 2.5.
Most affiliate programs require you to meet a minimum threshold of $100 in order to receive a payout, which is typically done through PayPal.
So, at $2.50 per sale you generate for this product, you’d need to generate 40 sales in order to be eligible for your first payout.
This is why it’s recommended that affiliate marketers diversify the products they recommend by joining more affiliate programs and promoting a variety of different products.
What is dropshipping?
The dropshipping business model is used by entrepreneurs, small businesses, content creators and influencers.
This is how this model works.
You launch an online store, but instead of purchasing inventory, you find what’s known as a dropshipping supplier.
A dropshipping supplier is a business that allows you to sell their inventory as your own. They even package orders for you and ship them out to your customers.
Sometimes dropshipping suppliers are the manufacturers who made the products, but typically, they’re middlemen that connect ecommerce businesses to manufacturers.
Products are typically unbranded, though in a white labeling dropshipping model, the dropshipping supplier applies your branding to the product.
Print-on-demand dropshipping is popular as well.
In this model, you sell designs on t-shirts, coffee mugs and other products. The dropshipping supplier applies the design to the product when an order comes in, then packages it and ships it out to your customer.
You earn revenue through the profit margins you make.
If your dropshipping supplier charges you $20 for a product, and you sell it to your customer for $35, you’ll earn $15 from each order.
Dropshipping is a low-cost way to get into ecommerce, but it carries a bit of risk, such as not having any control over anything.
Affiliate marketing & dropshipping pros
Affiliate marketing pros
- Free to set up
- Lots of options to choose from
- Fulfills audience needs
- No customer support needed
- No product management required
- Generates passive income
Like we said, affiliate programs cost nothing to join. You may spend a bit of money creating content to promote affiliate links, but this is likely content you were going to create, anyway.
There are even a lot of affiliate programs to join and a lot of affiliate products to choose from, especially if you join an affiliate program for a store that sells a lot of different products, such as Etsy and Amazon.
Plus, your audience has specific wants and needs, which you need to offer solutions for in one way or another.
Affiliate products allow you to fulfill those wants and needs without you having to create them yourself.
And because those products aren’t your own, there’s no need for you to manage customer support or offer ongoing maintenance and product updates.
Best of all, as long as web pages that feature your affiliate links receive continuous traffic, you’ll always have passive income when you operate an affiliate website.
Dropshipping pros
- Cheap to set up
- Payments are immediate
- You maintain a little control over your revenue
- Plenty of options to choose from
- Helps you grow your own brand
- You can launch your own dropshipping affiliate marketing program
A dropshipping store is one of the easiest ways to start an online business.
All you really need to pay for is a domain and hosting for whatever ecommerce platform you want to use. There may be additional costs here and there, but for the most part, dropshipping is cheap.
Payments are also immediate. You don’t need to wait for orders to be finalized or wait to see if your customer requests a return.
You also have a little more control over your revenue than you do in the affiliate business model. This is because you can increase the retail price for your product however much you want to receive a higher profit margin.
There are also plenty of dropshipping suppliers and platforms to choose from if you don’t like the quality or revenue one offers.
And although you’ll be selling someone else’s products, you’re actually passing them off as your own. Selling a specific product for a specific purpose helps you grow your brand.
You can even launch your own affiliate program to allow influencers to promote your products.
Affiliate marketing & dropshipping cons
Affiliate marketing cons
- Payouts are often delayed
- No control over price
- No control over product quality
- Unreliable source of revenue
- May diminish your credibility among your audience
To avoid paying affiliates for orders that result in returns or refunds, affiliate programs often delay payouts by 30 or 60 days.
So, if your reader uses your affiliate link to make a purchase on June 1, you may not receive payment for it until the first week of July or August.
You also have no control over the price of the products you promote or the quality of them. You may lose a major source of revenue if a product or service you promote suddenly drops in quality.
This is also why affiliate marketing is such an unreliable source of revenue.
If the company who makes the affiliate product you promote cuts your commission rate, ends their affiliate program or suffers from negative PR, your affiliate earnings will dwindle unexpectedly.
Furthermore, some members of your audience will be more weary about your content if you promote affiliate products.
They may not take your reviews seriously, or they may accuse you of favoriting affiliate products over other products.
Dropshipping cons
- Requires an online store
- No control over product quality
- No control over shipping
- Requires customer support
- Unreliable
You may not make or ship your own products as a dropshipping business, but you still need to set up an online store.
Like affiliate marketing, you have no control over product quality, and even worse, you have little control over shipping.
Your dropshipping supplier fulfills orders for you, and if they start packaging orders wrong or take too long to ship, they won’t receive complaints for it, you will.
One thing dropshipping suppliers do not take care of is customer service, so you’ll need to reply to customer support tickets on your own.
Dropshipping is also just as unreliable of a business model as affiliate marketing is in that any supplier or product may diminish in quality or go out of business, which puts your own business in jeopardy.
Should you choose affiliate marketing or dropshipping?
When it comes down to it, you should choose the affiliate marketing route if you want to create content and dropshipping if you don’t.
It’s also a good idea to do both.
If you’re an affiliate marketer, launch your own online store with dropshipping products, such as merchandise made by a print-on-demand supplier. You can do this easily with a platform like Sellfy.
If you’re a dropshipper, create your own content, and monetize it with affiliate marketing.
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