With global e-commerce sales estimated to reach $8.1 trillion by 2026, it’s evident that the business landscape holds potential for everyone. If you would like to seize this opportunity, it’s crucial to identify the path that suits you best.
Dropshipping and affiliate marketing are some of the most popular online business models and since they require pretty low capital for starting, they are a perfect and safe option for beginners.
Let’s dive into both of these businesses and find out which one is best for you.
Understanding The Affiliate Marketing and Dropshipping Business Models
To select the right model for your online business, you must grasp the fundamentals of both dropshipping and affiliate marketing.
What is Affiliate Marketing？
Affiliate marketing is simple; you gain money by promoting a product, service, or content created by another company or business. You will usually be given a unique link called an affiliate link from the business.
When a person clicks on the link they will be directed to the website of the business where they can make a purchase.
If the customer buys something you will receive a percentage of the sale as your commission. Sometimes even if the customer doesn’t make a purchase but simply uses your link you still earn a commission.
There are various methods to engage in affiliate marketing; all you have to do is build a community of followers who trust you.
One way to do this is through social media: Twitter (now X), Instagram, and TikTok are some of the popular channels to start from. Once you have a decent following, you can begin affiliate marketing. All you need to do is add your affiliate link to the content you’re posting and that’s all.
Other channels you can use are blogs where you can review and compare products from a certain niche such as gardening, fashion, or tech. Podcasts and YouTube can also do this. Just ensure that the content you create is related in some way to the product you’re promoting.
Pros And Cons Of Affiliate Marketing
1. Easy To Start: All you have to do to get started in affiliate marketing is find a company that offers an affiliate programme.
Joining an affiliate programme is free for the majority of well-known companies with an online presence, making this an easy process. Once you get your affiliate link, you can then start promoting.
The only major work involved in starting an affiliate marketing business is building a community to promote.
To do this, you might have to learn about content creation and marketing strategies such as inbound marketing and in order to make your content attractive and enjoyable.
2. Source Of Passive Income: When you are just starting, you will need to put in effort to create your content and market it but once everything is up and running, affiliate marketing can be a great side hustle.
3. Customer Support Isn’t Required: Unlike traditional business owners who often have to handle customer inquiries, order management, returns, and product-related issues, you can focus exclusively on promoting products and driving sales.
This means you get to channel your efforts into developing and enhancing your promotional strategies and attracting more potential customers.
1. Issues With Commission: At the start, it will take time for your affiliate links to convert to sales since you’ll need to generate online traffic who’ll engage with the links. So, you may need to spend more money on marketing resulting in lesser earnings at the beginning.
Moreover, considering that you will only earn a small portion for each sale, you will need to generate a number of sales in order to accumulate a substantial income.
Additionally the inability to adjust pricing poses a challenge as you are unable to lower prices if your target audience perceives them as too high. Consequently the sole means of boosting your earnings lies in putting in effort and striving for performance.
2. Your Affiliate Link Can Be Removed: Potential visitors can choose to manually enter the merchant’s URL instead of using your affiliate link. This is usually because visitors can get suspicious and skeptical about affiliate links as they seek the most legitimate source for the product.
You can overcome this, by being transparent and upfront about your role as an affiliate and the fact that you benefit when people click on your links. This transparency can help alleviate skepticism and potentially prevent losses in your earnings.
What is Dropshipping?
Just like affiliate marketing, dropshipping is an easy-to-start business. Dropshipping involves selling products from your website without the need for warehousing, managing, and shipping products.
Here’s a breakdown of how the business works:
- As the business owner, you act as the middleman between your supplier and your customer.
- When a customer places an order for a product from your store, you provide your supplier with the order details and customer information.
- The supplier will be in charge of the entire fulfilment process from packaging to shipping the product directly to the customer.
What this means is that you get all the benefits of having a business with a physical store without any of the hassles of warehousing and order fulfilment.
You get to sell the product of your choosing and set your product prices. However, you’ll be in charge of finding your supplier, marketing your products and your store, dealing with customer care, and others.
This business model is great for beginners who don’t have the resources or time to set up a complete traditional store or don’t have the know-how to manage inventory.
Pros And Cons Of Dropshipping
1. Create Your Brand: Dropshipping allows you to start your own business and establish a brand. When you run a dropshipping business, you have the autonomy to set prices and manage your operations.
This level of control allows you to craft a distinct brand image for your products, fostering customer loyalty and enhancing brand recognition.
This capacity to build a strong brand can yield numerous long-term benefits for your online business.
2. Low Startup Capital Needed: In contrast to conventional retailers, who need to invest substantial capital in purchasing and warehousing inventory, dropshipping allows sellers to procure products only after securing a sale and receiving payment from customers.
This low-risk method allows for starting a dropshipping business with minimal financial resources while simultaneously providing access to a diverse array of products.
3. High-Profit Margins: Since you have the authority to set the selling price for your products, it’s feasible to gain higher profit margins in dropshipping.
It’s essential, though, to ensure that the pricing remains both reasonable and competitive within the market.
4. Flexibility: Dropshipping affords you significant flexibility since you aren’t bound by strict terms and conditions.
You have the freedom to employ diverse promotional methods for your products, and you even have the option to incorporate an affiliate program into your dropshipping store to stimulate sales.
1. No Control Over Inventory: As you don’t maintain local stock you lack control over the shipping service and product quality.
This can potentially lead to issues for customers, such as shipping delays or product defects. While certain suppliers may consider making changes, they generally hold the most authority over the product.
Implementing modifications often requires meeting minimum order quantities or could incur additional costs to make it viable for the supplier.
Furthermore, many dropship suppliers determine product delivery schedules at their discretion, which can result in your customers’ orders being delayed.
This can significantly impact your business’s performance, potentially leading to negative reviews.
2. Customer Support Required: In cases where issues arise with a customer’s order, it falls upon you to take responsibility and collaborate with the supplier to resolve them.
With a continuous influx of orders, maintaining clear communication with customers regarding their purchases and estimated delivery times is important.
You can also choose to streamline this process by hiring a virtual assistant through a freelance platform.
If you need info on how to start your own dropshipping store, check here for a detailed explanation.
Comparison: Affiliate Marketing Vs. Dropshipping
When it comes to starting an online business, the debate is usually whether to go the affiliate marketing route or the dropshipping route. This is not surprising as they are similar in a lot of ways.
- They both require very little startup capital while having high earning potential.
- They are low-risk businesses.
- You don’t need to hold any products or inventory.
- They can both become great sources of passive income if done right.
- The skills needed for both businesses are pretty similar.
In dropshipping, your profit is determined by the difference between the sale price and your expenses. Here’s an example, if you sell a tech gadget like a laptop for $700 that costs you $450, you make a total profit of $250.
Dropshipping has the potential to be highly profitable, especially if you can devise an efficient marketing strategy.
Affiliate marketing on the other hand provides lower profit margins. Suppose you’re promoting tech gadgets through an affiliate program.
You refer customers to a partner retailer, earning a 5% commission on each $1,000 laptop sale. This translates to a $50 commission.
To generate substantial income in affiliate marketing, it’s essential to find cost-effective ways to attract qualified traffic.
By providing meaningful and interesting content, you can make money in the affiliate marketing space.
Amount of Attention Needed
Running a successful dropshipping store demands constant attention and effort. You must maintain your marketing efforts to keep your store visible and attract customers.
Additionally, order processing is essential unless you automate this task.
Keeping your product offerings up-to-date is also crucial; if a product becomes unavailable or discontinued by the supplier, you need to stop promoting it immediately.
Customer support is another key aspect, as you’ll need to reassure customers and address concerns related to order delays or tracking issues.
Maintaining an affiliate marketing business is comparatively less demanding. While generating traffic remains important, you won’t need to obsessively manage advertisements and ad spending.
The absence of physical products to sell means you have no orders to process and no direct customer support to provide.
Consequently, even if a user clicks on an affiliate link for a racket but ends up buying a toaster, you still earn your commission.
Affiliate marketing’s attention requirements primarily revolve around creating fresh content to attract users, and these websites can often continue to generate income with less immediate attention, even when left idle for periods.
Long-term Business Potential
In the long term, dropshipping businesses have several viable pathways to explore. One common approach is to continue growing the business by scaling advertising efforts and expanding the customer base.
Furthermore, dropshippers can opt for automation, transforming their operations into a passive income source.
Another avenue for dropshippers is brand development. By creating and nurturing a distinctive brand, entrepreneurs can introduce proprietary products with potentially higher profit margins.
Successfully building a brand image can result in significant long-term profitability and brand recognition.
Lastly, dropshippers have the option to sell their businesses through online marketplaces like Flippa or the Shopify Exchange.
This can be a lucrative exit strategy, allowing them to capitalize on the value they’ve built in their business over time.
On the other hand, affiliate marketing businesses also offer diverse long-term strategies. One primary focus is on content expansion and audience growth.
Affiliate marketers continually create valuable content and aim to expand their audience, leading to an increase in affiliate income over time.
Diversification is another option, where affiliates can introduce their products or services that align with their brand and audience interests.
This approach broadens income streams and enhances long-term revenue potential
Finally, affiliate marketers have the option to sell their websites if they no longer wish to manage them.
Selling a successful affiliate marketing website allows them to realize the value they’ve built and can be a strategic choice in the long run.
Now, the question at hand is, which path suits you best: affiliate marketing or dropshipping? If you’re in pursuit of a business that reduces managerial responsibilities, affiliate marketing might be the ideal choice.
However, if your aim is to cultivate a unique brand, dropshipping can offer an excellent opportunity.
If you do decide to start a dropshipping business, a niche I’d recommend you to start with is clothing and fashion.
It is an easy space to get into and you get access to a high quality dropshipping supplier such as Globallyfulfill who can help guide you towards making correct decisions in your product choices.
Remember that both dropshipping and affiliate marketing require patience, diligent effort, and unwavering dedication to achieve success.