Let’s clear the air with all the confusion that there is between Dropshipping and Affiliate marketing. While they are clearly not the same business model, they have some similarities. In this post, I am going to compare the two. So, what is the Difference Between Dropshipping and Affiliate Marketing? Let’s set some foundations with defining the models.
What is dropshipping
Dropshipping is one of the most attractive online business models. Not only does it have an incredibly low barrier to entry, but you also have a degree of control over your profit margins. The idea is as straightforward as can be.
You source a product and sell it at a higher price. That is commerce 101. The key difference between retail and dropshipping is that you don’t have to handle the stock. I know that sounds incredible, but be aware that it is not without its pitfalls.
What is Affiliate Marketing
You will often find affiliate marketing referred to as referral or refer-a-friend marketing. We have all looked for product recommendations online. In most cases, you end up on a website that compares several candidates and picks a winner. When you click on one of the links within their content, affiliate sites will receive some commission per sale generated. To put it simply, you advertise products and get paid when they sell.
Affiliate marketing, like dropshipping, has no requirement of physical inventory. The difference is that in affiliate marketing, you are paid only if an actual sale is generated.
Both affiliate marketing and dropshipping generate earnings based on results. You make money when products are sold. We have already explained that you don’t need to get a warehouse or additional storage space for either business model.
Affiliate marketing has a lot of legwork involved. The barrier to entry is much higher than dropshipping. I have run dropshipping businesses that made earnings within minutes or hours of listing a product.
Most affiliate payouts are after 40-60 days of the transaction being made. In the meantime, you may have expenses piling up. These might include content writing, video content creation, hosting, and so on. This is where most people give up. I have been fortunate to purchase sites at discounted rates when owners are in dire need of cash.
In contrast, most drop shipping models put you in a position to collect cash from the customer before the product is shipped. You would be able to use that money to pay for the product and make a tidy profit.
There are many bells and whistles that you can add to both models. For the sake of this comparison, I will use a reasonably good business with a brand as an example.
Branding: Free – $100
Content: $3000+ for 100 000 words of affiliate content.
Best Practices For Affiliate Marketing
- Keep your costs as low as possible when you start. This is often an issue with both business models. There is plenty of software and services that you can use to quicken your returns. However, if you are not careful, these will slowly add up and eat a chunk of your profit.
The biggest culprit in my experience and software subscriptions. I advise you only to keep the software that you cannot do what you need to do without. Everything else is a luxury. Some of us can afford these luxuries, but it does not mean we need them.
Spending $200/m on software that you don’t need will see you shell out $2400. Multiply that across several programs, and you start to see what I mean.
- Do not try to take on too many projects at the same time. I built up a portfolio of 14 sites in 2020. While the lockdown and having a team helped, it certainly takes its toll. It’s easy to get burned out. Another worry is that the quality of work starts to suffer.
- Deal with the brands and suppliers directly where possible.
I would recommend working on no more than one site at a time if it is your first time doing affiliate marketing.
Best Practices For Dropshipping
- Do your research. Most dropshippers fail because they jump into it without enough information. In most cases, that leads to avoidable mistakes.
- Keep some cash in hand. I cannot overstate this one. Things can go well for so long that you forget the need to have a healthy cash flow. The unexpected can turn your business on its head. It may a customer returning a product to you instead of to the factory/supplier. Another annoying one is a customer claiming not to have received a product.
- Build relationships with suppliers. There is a higher barrier to entry for your competitors when you and the supplier walk hand in hand. You can also avoid some of the issues outlined above this way.
- Practice good customer service. You will be surprised how far a few polite responses can go. The adage rings true in this instance, “The customer is always right.”
Common Problems with Affiliate Marketing
- There is a bit of a wait between sale and cashout.
- It may take months to see your first sale.
Common Problems with Dropshipping
- You don’t have control of returns.
- You cannot do anything about quality control.
When is affiliate preferred to dropshipping?
Affiliate marketing is more hands-off than drop shipping. That means beyond driving traffic to the supplier; you may never have to do anything else. There are many moving parts to it, but that is the basis of it. Affiliate marketing fits into the “passive income” bracket that we have all heard about.
If you build a good affiliate site, it will make money for years even if you never touch it again. You cannot say the same about dropshipping.
When is dropshipping preferred to affiliate marketing?
Dropshipping is better than affiliate marketing for new internet entrepreneurs. If you are low on funds and want something easy to start, it may be the ideal option. You can start seeing profits immediately, when it may take months for that to happen with affiliate marketing.
This comes down to the business owner’s strategy. My opinion is that it’s better to keep your head above water with affiliate marketing than to use dropshipping.
- Affiliate marketing is more hands-off. You can set the goals and forget it, while in drop shipping, you have to be involved in various aspects of the process. You remain the main point of contact for the customer.
- Affiliate marketing is more passive because you let the suppliers handle the rest of it.
If you want to invest long-term, try affiliate marketing. For those that want a quick buck with little to no investment, dropshipping may be a better option.