Most online small businesses can be categorized into two: affiliate marketing vs. dropshipping. So, if you’re considering starting a side hustle, you probably encountered both. Affiliate marketing and its difference from dropshipping are among the most heated discussions found in various online forums. Let’s dive into the difference between both business models and determine which one is the most ideal for beginners.
Affiliate Marketing vs Dropshipping 2022
If you scour through the internet, you’ll get more than 1,170,000 results about affiliate marketing and dropshipping. On a closer look, both business models’ key similarity is that you’re selling a product or service from a third-party. Also, in both models, you will not be responsible for the shipping and product quality.
The only role you have is to be responsible for your own branding, the whole marketing, and the promotion process. It sounds easy, but it actually depends on your strategy, eagerness, and social media presence.
The Similarities
Here are other characteristics that affiliate marketing have in common:
- It’s your responsibility to promote the product.
- No inventory or shipping responsibility.
- Limitless income opportunity for both models.
- Possible for fast set-up and launch.
- No need for a large investment.
- Low-risk
With many things in common, it’s no wonder there’s an ongoing debate about dropshipping and affiliate marketing. Now, what’s the difference between them both? It all comes down to the compensation scheme. Affiliates earn a commission from a certain percentage generated from the number and amount of conversion.
Meanwhile, in dropshipping, you can come up with your own price for the product on top of the product’s base price. So, the difference between your price and the actual price will be your commission. First, we need to dive into the details of each model:
Affiliate Marketing: Business Model
Affiliate marketing is a form of advertising where a person can become an affiliate for a company or online marketplace. It’s an agreement for both parties where an affiliate needs to drive customers using their specialized link towards the company’s product or services.
Affiliates are not in the position to decide the percentage of their commission.
The percentage of commission will be entirely up to the company or online marketplace. As an affiliate, you’ll agree to the terms and conditions set by them. The most profitable affiliate products nowadays often involve software, hosting platforms, and digital services. However, health supplements, technology, and pet care are also considered profitable niches for 2022.
Affiliate Marketing Business Scheme at a Glance
- First, you place an affiliate link to your website or social media.
- Consistently promote the product. You can also boost the ads for a wider set of audiences.
- Earn a commission for every purchase made from your affiliate link.
Example
If you want to target a niche for pet care, you can search for pet care brands online that have an affiliate program. It’s up to you which platform to promote your affiliate link.
Here are pet care brands that offers affiliate programs:
Take note that some affiliate programs will have requirements for the number of engagements you receive on your platform. However, there are some affiliate programs out there that don’t require a traffic statistic. As for Amazon Affiliates, their program requires their affiliates to drive at least three qualified sales within 180 days upon your application’s approval.
Dropshipping: Business Model
As for dropshipping, you can sell various products from different suppliers on your own website. The main advantage of this model is that you can decide the amount of commission you’ll receive.
Affiliate Marketing Business Scheme at a Glance
- First, you set a price for a specific product on top of the supplier’s dropshipping price.
- If a consumer places an order on your site, it pays you the total price for your product (your commission + actual dropshipping price).
- You need to fulfill this order and forward it to the vendor. You’ll pay the dropshipping price.
- After receiving your order, the vendor will now ship the product to the consumer. The product is on the way while you gain your commission.
Example
If you want a niche that involves wooden watches, you can set up a Shopify store to support various dropshipping suppliers. Once you set up your Shopify store and do all the branding, you can add the dropshipping supplier to your website. Shopify has a convenient feature that will add the product you choose from a supplier to your website.
Key Takeaway: The Difference
In the end, it all comes down to the freedom of setting up your commission. However, looking at it closely, dropshipping needs more attention than affiliate marketing. For dropshipping, you’ll need to have a fast response rate whenever a client orders from your website. On the other hand, as an affiliate, you only need to promote the product.
Affiliate Marketing Pros and Cons
After establishing the similarities and differences about the business model of affiliate marketing and dropshipping, let’s proceed on weighing the pros and cons of each. As a beginner, all of this can be not very clear. At this point, it’s fine if you’re still trying to wrap your head around the concept of each business model.
The main question that’s playing on your mind right now must be about which business model to choose. Don’t worry. We still have a lot more to discuss in this article to differentiate affiliate marketing and dropshipping completely.
Pros
Easy to start and launch
You don’t need to worry about order fulfillment, delivery issues, or any stock issues. In fact, you can just set up a social media account or build your blog. Then, you can join various affiliate programs available online, search for a product you want to market, and start promoting them. Your main cost concern will only be about marketing costs such as paid advertisements and domain costs.
Don’t need customer support.
As an affiliate, you exempt yourself from the role of being a customer service provider. The main point of affiliate marketing is that customers don’t buy from you. You’re just a bridge linking your customer to the actual brand. So, as customers click the link you provide, they don’t expect you to provide any form of customer support.
All the work required on your part involves marketing strategy and product promotions. Once a customer clicks your link and purchases the product, you get a commission! And the cycle continues. So you need to brush up on your marketing game to ensure more successful conversions.
Great passive income
It might sound like a lie to call affiliate marketing a passive income. However, the great thing about affiliate marketing is that once you posted your promotions, it’s up to the internet to let people discover your products. Of course, you need to have an adequate promoting strategy to get high engagements. But in the end, it will forever be available on the internet, and as time passes by, more people are going to discover your products.
Cons
Fixed commission percentage
The downside of affiliate marketing is the fixed percentage for commissions. Whichever affiliate marketplace or brand affiliate programs you applied to, they have a set of terms and conditions for your commissions. Sometimes, the amount of money you spend on advertisements costs more than the commissions you earn.
The only option to increase the odds is to have a better strategy for promoting the products. However, some programs may motivate you more as they offer specific bonuses and perks once you reach a particular requirement or performance.
Encounter problems with payment
It’s important to be aware that each affiliate program has a certain threshold before you can access your earnings. So it means it will take you a long time before you can cash out. Of course, this payment system is discouraging on your part, especially when you encounter a 1 or 2 dollars setback. Aside from the payment threshold, there are delayed payments due to a backlog or issues concerning the merchant.
Affiliate links can be removed
As a lot of people don’t understand, there are a lot of peculiarities involving affiliate marketing. Affiliates are often seen as spammers or scammers that take the consumer’s money. So if there are instances where customers know you’re an affiliate, they will be instantly suspicious of you.
Some consumers see affiliates as someone who cheats them for extra money. However, it’s not true.
Of course, some cases are where customers are supportive and buy from your affiliate link to support you. However, this only works if you managed to have a trustworthy online presence.
Dropshipping Pros and Cons
After learning the pros and cons of affiliate marketing, we now move on to dropshipping.
Pros
Fast payouts
Compared to affiliate marketing’s payment scheme, dropshipping’s payouts are more favorable. Once a customer purchases a product from your website, you immediately receive your commission. So, you don’t have to worry about payment thresholds.
Room for more income
As you have complete authority to decide your store’s pricing, your chances of earning are higher than affiliate marketing. So, if you want to earn more, you can raise the product’s price, as long as you don’t go overboard on the pricing. Of course, you have to make sure you have a relatively strong marketing strategy to ensure your first sale.
More chances to have loyal customers
Most online stores with a great branding strategy have more possibility to gain loyal customers. You can retarget and chase your customers until they finally make that first purchase.
Cons
Needs customer support
The downside of dropshipping involves customer support. Once a customer makes their purchase, you need to immediately fulfill the items and order the product from your supplier. The advantage of dropshipping websites, they are mostly mistakes as eCommerce stores, especially if you have a great website design and storefront.
When customers make their purchase, they don’t expect that they are buying from a third-party source. So, they expect quality customer service on your end. However, nowadays, there are various strategies to make dropshipping work easier. For example, you can outsource freelancers to work as your virtual assistant. Otherwise, you have to do it all by yourself.
Smaller target audience
Most dropshipping consumers are impulse buyers. Most online buyers compare products before making a purchase. There’s a high possibility that they will find a lower price for the product you are selling. Who wants to overpay?
So, you need to take advantage of impulse buyers and develop an undeniable approach that will make consumers totally in love with your product. Another thing to consider is your chosen niche. Before proceeding to dropship, you need to make sure you have low competition while conducting your niche research.
Little to no control over shipping and quality
It’s inevitable to receive complaints about the shipping time and quality of the product. Some products will arrive at your customers that have damage on them. Sadly, as the face of the brand, you will be the main receiver of customer complaints.
No matter how fast you fulfill the order on your end, the problem lies in your chosen dropshipping supplier. It’s up to the supplier when to ship the orders. So expect to experience delays regarding the shipment. However, the main problem for both you and the supplier will be the courier. You both have no control if ever a courier gets delayed.
If you’re planning to pursue dropshipping, you have to prepare to deal with shipping and product quality complaints.
Which is More Profitable?
In the end, we see dropshipping as more profitable than affiliate marketing as it gives you complete reins on how much you can get for a commission. Also, the dropshipping business is more convenient in terms of payments. So if you want total control over the amount of your commission and appreciates immediate payouts, dropshipping is the one for you.
Conclusion: The Winner
After reading the full details about affiliate marketing vs. dropshipping, which business model sounds the most appealing to you? In the end, if you’re a beginner, it’s best to focus your energy on dropshipping. The business model of dropshipping is more favorable for fast payments.
However, it’s important to be ready to also act as a customer service provider for your brand. If you have extra funds to hire a freelancer who can provide customer support, then that’s more convenient on your part. Now, it’s time for you to start your niche research!
