While retail stores aren’t going away, pause for a moment and think about the exploding growth of online shopping. It is expected to grow to a whopping $4.8 trillion in revenue by 2021. Convenience plays a big factor especially for those who live in remote areas or those that just can’t be bothered.
This means that now is great time to join the bandwagon and make some profit.
Which now leads us to ask, dropshipping or affiliate marketing?
Both dropshipping and affiliate marketing are great ways to create an online business. While they differ in set up, structure and how you manage the business, I think it all comes down to what you want out of the business, what you’re willing to put in, and which one is better suited to you.
Remember, if you have any questions or want to offer you own personal review or feedback, feel free to share any insights you have at the bottom of this page.
What is dropshipping?
Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. So when a customer orders a product, you purchase the order from a supplier who ships it directly to the customer.
Unlike retail stores, you don’t need to purchase stock or have your own inventory. You need to find a wholesaler or manufacturer to handle the delivery and fulfillment of the customer’s order.
So think of yourself as a middleman. You connect with suppliers for products and you sell it on your website. You then make your profit by increasing the price.
For example, you can sell a $10 product for around $20. Shipping will affect your price margin, however you should be reasonable. Otherwise, your product may not sell if the markup is too high.
While you don’t have to worry about stocking products, you do have to work on having good customer service. After all, customers will buy from your online store.
You have to be the one to answer any questions they may have or handle any refunds since it’s your reputation at stake.
What is affiliate marketing?
When you help a company to generate sales, you get a commission. By promoting others’ products or services, you earn for each referral or sale that you make.
You don’t have any actual product inventory and you also don’t have control over the price. As an affiliate marketer, you refer your customers to buy a product based on your recommendations. From there, you get a percentage of the sale that will be paid by the affiliate program or affiliate network you are a part of.
As an affiliate, you can begin to make money as an affiliate as soon as you have a site to help you sell products or services. And then you can look for affiliate programs or affiliate networks that are appropriate to your chosen niche, as they will want to know how you will recommend their products or services.
Click here to learn more about affiliate marketing.
What are the pros and cons for both dropshipping and affiliate marketing?
If you want to start an online business and you’re looking at promoting other people’s products (instead of creating your own), dropshipping and affiliate marketing are great options because they let you run your business without manufacturing anything. You don’t have to rent or buy a warehouse, hire staff, and deal with shipments and deliveries.
You also get to run a business that will provide you passive income in the long run and allow you the flexibility to work when you can. You can do it as a full-time business or even start as a part-time business.
Both are also low risk so you don’t have to worry about bankruptcy.
Here are the advantages of dropshipping –
- Bigger profit margin. Essentially, you determine how much you price your products and how you manage your expenses.
- It really feels like a business. You set up an online store, you look for suppliers, you determine your products’ price, you connect with customers, and you handle orders and payments.
- Lower overhead expenses as compared to brick-and-mortar businesses. It really helps that you don’t have to deal with inventory or managing a warehouse. Eventually, you will have more expenses but it will still be lower as compared to traditional businesses.
Here are the advantages of affiliate marketing –
- It’s very easy to set up. Start by creating your website and then sign up with affiliate programs or affiliate networks relevant to your niche. You don’t need to contact suppliers.
- You don’t have to process orders. You don’t need to connect with suppliers, you don’t need to handle transactions, you don’t need to collect money or even issue refunds.
- You don’t have to worry about customer support. Customers will contact merchant directly. You need to focus on promoting the affiliate offers of the affiliate network or affiliate program you joined.
- It is suitable for beginners. You can build a business even without a product or service to offer, and you don’t really need much experience.
Here are the disadvantages of dropshipping –
- It’s more challenging to set up. You need to incorporate your business because your suppliers will ask you for your business information, your tax identification number, and business address. You also need to set up a business bank account to keep your funds separate from your personal funds since you need to be able to send the payment to the suppliers. If you live outside of the United States and want to do business in the United States, you will find it challenging to open a US bank account that it may be better to incorporate in your own country.
- You need to contact suppliers and find ones that are dropshipping friendly. There are suppliers that are open to dropshippers and those that are not. You need to build a storefront that you can show them and you need approval to sell their products. You also need to let them know how you will add value and make them money.
- You need to process orders. You need to have the infrastructure in your online store platform to manage transactions and process payment.
- You need to keep on testing ads, products and audiences. Launch your product, test, repeat. It’s a constant process of trial and error which can be a pain. There are products that will not work and will not be profitable. Every time you want to try a new product, you have to go through the entire process again – speak with a supplier, create a new store and test.
- Be prepared to spend for paid advertising like Adwords or Facebook ads. Dropshipping is heavily dependent on paid traffic.
Cons: affiliate marketing
Here are the disadvantages of affiliate marketing –
- You do not determine pricing. Some products and services change their prices from time to time so you just need to check to make sure that what you place in your website is up-to-date.
- Some people skip the affiliate links. People can hover over hyperlinks and think they need to pay more when using the link. So they order the product directly from the merchant which affects your revenue as an affiliate. That’s why it helps to shorten your product links.
- You need to generate and increase traffic to your site. You need to learn and understand how to use SEO (Search Engine Optimization) to rank a website in search engines like Google and get free traffic. You can also look at utilizing email marketing so that you can continue to connect to your target audience.
- You need to build an authoritative website or build a personal brand. You need to produce relevant content and create backlinks in yor site. You can also consider having a YouTube channel or using social media to increase your followers.
Both are great ways of generating passive income, but I think its about finding which one works for you. Some people even do both and there’s no problem with that. You have to ask yourself:
- Would you rather leverage other brands and promote suitable products or would you rather have more control over what you offer to your customers?
- Do you want to deal with the hassle of looking for suppliers and constantly dealing with customer service?
- Do you want a business that’s more flexible or would you prefer to be more involved in operations and daily management?
- How much experience do you have and how soon do you want to start?
If you ask me, while you can create money with both, I will go for affiliate marketing. It runs on free traffic and as long as you put in the work, it will continue to produce consistent results in the years to come.
I also tried to do dropshopping, but I got stuck in the business foundation that it got so frustrating. For me, being an affiliate marketer works.
Bringing it all together
At the end of the day, each business will have its pros and cons and will require hard work, dedication and commitment. There are other people with a similar idea so its natural that you will have some competition, which means that its crucial to establish trust and credibility.
You need to build the foundation to improve your ranking in search engines. You also need to gain experience and not give up. You will not get success overnight, but you’ll get there.
If you want to learn how to build a powerful authoritative website and how to increase traffic, let me know and I can show you how. You can create a successful online business as quickly as possible.
If you have any questions or any feedback, please leave them below and I will be more than happy to help. Hope you enjoyed reading this!