Ranjit is a social media advertising consultant and blogger at Appstale. He loves to write about different social media marketing techniques and how to make money through affiliate marketing.
Dropshipping and affiliate marketing both are the most popular ways to make passive income online, but which one is better for you? Let's understand both business models with their pros and cons.
One of the most heated discussions in the affiliate forums is Dropshipping vs Affiliate Marketing; which one is more profitable? Honestly, both of these verticals can help you make more money provided there is a lot of hard work invested in it.
You do not hold your product inventory in both cases, and you cannot control the product quality and shipping. But still, you are responsible for complete marketing and promotional activities.
In this guide, we will provide detailed information about dropshipping and affiliate marketing, along with its pros and cons?
Similarities in dropshipping and affiliate marketing
As mentioned earlier, both in Dropshipping and Affiliate marketing, you do not own a product. However, other factors are dropshipping and affiliate marketing share in common. Here are a few of them:
● In both cases, you are responsible for the promotional activities for the product you don't own.
● You don't have an inventory of products.
● There is no limit in terms of income opportunity.
● The entry-level barrier for both businesses is low.
● Low-risk involved compared to other businesses.
What is Dropshipping?
You can sell products from different vendors on your website without holding any inventory in the dropshipping business model.
Visitors will place an order on your dropshipping website. You forward the order details to a third-party vendor, generally a wholesaler or manufacturer, and the vendor ships the product on your behalf.
As a seller, you don't need to handle the product directly, but you have control over the final pricing of the product. In short, you can decide the commission you receive on each sale of the product.
Pros of Dropshipping
Low entry barrier: Unlike brick and mortar businesses that require huge capital to start, dropshipping requires very little to no investment.
The only investment needed to start a dropshipping business is to buy a domain name and optimal web hosting. You can also create your website using eCommerce website builders like Shopify.
However, it requires an additional investment if you choose to promote the products through Facebook or Google ads. As a website owner, you have complete control over the pricing and promotional activities.
More earning opportunities: You can easily make more commissions with the help of dropshipping because of the control over product pricing. Further, you can expand the product collection to increase your earnings.
With many advertising platforms at hand, it is easier to promote the products on each platform and reach potential buyers.
Even after deducting the investment for hosting, domain, and advertising, a drop shipper gets more income than an affiliate marketer.
Easier to scale: As customers cannot differentiate between an eCommerce store and a dropshipping store, it is easier to scale. If some of your products go viral among customers, a dropshipping store can grow as a brand in the long run.
If you are successful in promoting products and getting sales, you can quickly scale your business in a short time. You can use any medium or platform to promote or sell your products without any restrictions.
More control over products: In dropshipping, you have control over the product pricing. You can re-target your customers with the available data to boost your sales. Further, you can upsell and cross-sell your products to increase the average order value.
You also have control over the vendor who supplies the products for your dropshipping store. If you find the quality of the products provided by one vendor is not so excellent, you can always switch to another vendor.
With so many dropshipping vendors available online, you can choose one with faster shipping and quality products.
Cons of Dropshipping
Customer support management: As the orders on your dropshipping store keep pouring throughout the day, it is essential to keep your customer informed about their order and the time of product delivery, failing which it leads to cancellation of product.
When scaling a dropshipping store, it is crucial to hire a virtual assistant to perform customer support activities.
Little control over shipping: Delays in shipping can occur depending on the vendor's convenience. Sometimes the delay can last from a few days to weeks.
So, the shipping does not always happen as you promise to your customers. Longer shipping time is a significant drawback of dropshipping business model.
You can reduce the shipping time by using faster shipping services, but it may add some additional cost to your product.
Low prices in popular niches: There is always heavy competition in popular niches. Most of the time, customers tend to compare the products listed on your website with those listed on popular eCommerce stores.
To sell your products, you need to come up with innovative ways to attract customers. You don't stand a chance to price your product higher than the competitors unless it has a WOW factor in popular niches.
What is affiliate marketing?
Affiliate marketing is a business model where you sell other people/organizations' products and earn a fixed commission on each sale.
Unlike dropshipping, you need not worry about the shipping and pricing of the products. You need to promote the products and earn commissions.
It is a revenue-sharing-based business model. As an affiliate marketer, you act as a mediator between consumer and merchant.
In the affiliate marketing ecosystem, there is a merchant who creates or sells a product. A merchant may be a retailer, manufacturer, or wholesaler.
You, as an affiliate marketer, promote products to end customers. When a customer buys the product through your link, you will get a commission for that.
Affiliate marketing pros
Free to start: Most of the popular affiliate programs are free to join. You need to sign up and start promoting their products on your website.
You can also promote affiliate programs through other channels like social media, forums, ebook, email marketing, and influencer marketing without any website.
The only cost involved in creating the affiliate marketing business is to purchase a domain and hosting. However, if you choose to promote through other channels like YouTube, there is almost zero cost involved.
Earn passive income: If you know the right way to promote affiliate products, it is easy to gain passive income from affiliate marketing. Unlike other business models, it does not require a full day of work schedule.
You can earn a large amount of money through affiliate marketing by investing a few hours a day. To become a successful affiliate marketer, you need to get traffic from organic sources as there are low margins to promote products through ads. You'll be in charge of your work shift and overall productivity.
No customer support needed: Since customers get redirected from your affiliate website to the merchant website, and the final transaction happens there, you need not worry about providing customer support on the product's sale.
It is one of the most significant advantages of earning passive income through affiliate marketing.
Affiliate marketing cons
Fixed commissions: Unlike dropshipping, where you have control over the end pricing of the product, affiliate marketing provides simply a fixed commission on each sale.
Since the commission is fixed, you will end up with lesser passive income if you overspend on promotions. Some of the affiliate programs are providing recurring commissions to their affiliates which creates stability in affiliate income.
However, this business model is not easily scalable due to limited promotional activities and budgets.
Delayed payments: Though most popular affiliate companies pay their customers on time, some unreliable merchants delay the payment.
Sometimes, merchants also shut down their websites without any notification to the affiliates. So, it is essential to choose the right affiliate company to receive timely payments.
Affiliate links removal: Sometimes, visitors tend to remove the affiliate link and enter the merchant URL manually, reducing the chances to get commissions from your affiliate links.
It happens because visitors feel suspicious about the affiliate links, and they always try to find the legit source of the product.
However, you can resolve it using a link cloaking plugin, which makes ugly and long affiliate links into visually appealing links.
No control over products: In affiliate marketing, you cannot control the look and pricing of the product as it entirely depends on the merchant website.
As you are not aware of the product quality, you only need to rely on the product photos and information given on the merchant website to promote it.
If you are serious about affiliate marketing, you can use the product you want to promote before writing its review.
Which is more profitable?
As a beginner having little or no experience, affiliate marketing is a good business model to start.
However, if you want to make more passive income or need more control over products and pricing, dropshipping is a suitable business model.
Now that you are aware of the pros and cons of both business models, you can pick either of them and start building your passive income. However, both these verticals require hard work and skills to earn a decent income.
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