When discussing affiliate marketing vs dropshipping in terms of business ideas for making money online, a lot of similarities come into play:
- Both businesses exist mainly thanks to the wonders of the Internet.
- In both cases, you are not the owner of the product, but you act on the owner’s behalf.
- Affiliate marketing and dropshipping require similar skill sets to be successful.
I elaborate on each of the similarities below, but at this point you’re probably wondering:
Is affiliate marketing and dropshipping basically the same thing?
Despite many similarities, your role as a prospect entrepreneur is different in each field. But I got ahead of myself. Let’s talk first about what each of these businesses is.
What is Affiliate Marketing?
We’ve talked about this topic extensively on this blog. If you want a full answer, you can visit the affiliate marketing startup guide that we have prepared. Or go straight to the article describing how to make money with affiliate marketing.
The TL;DR version is that in affiliate marketing you dedicate your marketing efforts and knowledge to facilitate sales of someone else’s product in exchange for a commission.
You are not acting as any kind of store. In fact, you don’t exist as far as the prospect consumer is concerned. You do what the product owner doesn’t want to do or doesn’t know how to do. So you are getting people to buy the owner’s product (or perform any other action deemed valuable by the owner).
Once you scale up, you may want to start your own agency and develop a brand, but on a lower scale, you are invisible. But still essential.
What is dropshipping?
Dropshipping is related to having your own ecommerce business. In fact, we have already talked about differences between affiliate marketing and ecommerce in one of our previous articles.
The key difference between dropshipping and ecommerce lies in the fulfilment of product delivery. When running an ecommerce store, you have your own warehouse and a pile of products that you sell.
The dropshipping business model, however, works by delegating the handling of the product to the wholesaler or manufacturer.
You run a store that has its brand and online presence. But when a customer makes an order, it is fulfilled by your supplier. You get the money from the customer, and the supplier gets the money from you.
The difference between these two amounts is your profit.
There are a number of ways to get suppliers. You can contact either the manufacturer or wholesaler directly, or use one of many platforms that facilitate just that. Let’s go over each option separately.
- Manufacturer. The cheapest option, as it reduces the number of intermediaries, but the hardest to get, because manufacturers usually have some requirements related to order sizes.
- Wholesalers. The best option, if you can find one yourself. Wholesalers are often prepared to act as dropshippers but that comes with a price – it’s slightly higher than what you can get from a manufacturer, as it has to include wholesaler’s commission.
- Platforms. There are many aggregators of dropshipping suppliers, the chief among which is Alibaba. Shopify, the biggest ecommerce store builder, has its own dedicated platform Oberlo that integrates with it and allows you to search for suppliers through Alibaba and other aggregators. Dropshipping has become a quite standardized business activity.
Now that we covered what both of these businesses are, let’s talk about what they have in common, how they differ, and finally, which one is better to make money online.
Affiliate marketing vs dropshipping: similarities
If you are proficient in how the Internet works, both of these options will be a great fit for you. That’s why many affiliates and dropship store owners share certain qualities: young, high on the Internet knowledge, and low on budget.
The other similarities go as follow:
If, at least once, you have followed the process of finding a profitable affiliate marketing niche you will be glad to hear that the same logic and same steps can be applied for starting your own dropshipping venture.
You look for a potentially profitable niche, research the competition, check out available offers and start to advertise.
If you are good in one line of business, you should do fine in the other.
Working with 3rd party offers
In both lines of work you deal with a product you don’t have. It doesn’t mean that you bear no responsibility for the product. When you run a dropshipping store, you handle returns because you are the seller in the eyes of a customer.
But it takes a specific mindset to deal and advertise products that you don’t own. You have to adapt quickly and have a sharp insight to instantly figure out the advertising angle.
This mindset is an advantage in both cases.
You have to be visible on the web to get any visitors. That’s obvious. And ways to make yourself visible are similar.
The only difference that comes into play is that with a dropshipping store you may want to get as much organic traffic as possible. This means a lot of SEO work that is virtually non-existent in affiliate marketing. Affiliate marketing is almost 100% based on paid traffic.
Affiliate marketing vs dropshipping: differences
Let’s talk about differences.
There are some, and as a result, they make one option better for some people over the other.
Types of products
Dropshippers handle physical products while affiliate marketers very often advertise digital offers. This is not a rule as many affiliates are happy promoting various diet pills or wonder creams, but dropshipping equals material offers.
This comes at a price that will pop up in the paragraphs below.
Digital offers are easily scalable. There may obviously be some limitations, chief among which are:
- Conversion caps
- Market size
- Your infrastructure
However, broadly speaking, you can scale from 100 to 1000 digital offers without increasing your efforts ten times.
This is a major pain point with physical products. Such a product has to be manufactured, packed and shipped, and all these elements don’t scale that well. You cannot ask your supplier to ship 100 products on one day and then ask for ten times more the next day.
More products means that bottlenecks may appear in the form of:
- Supplier’s processing capabilities
- Delivery service capacity
- Your ability to handle increased numbers of consumer questions and returns
None of the above problems exist in affiliate marketing.
With the aforementioned scaling problem comes another: flexibility. In affiliate marketing you are free to jump ship and ditch an unprofitable marketing niche or even a whole country. You can sit in India and advertise products for Eastern Europeans one day and move to Latin American countries the next day.
This is not possible with dropshipping. Suppliers cover only certain geographical areas, you also need to have delivery services for a given country figured out and costs of operating in various verticals carefully calculated.
With affiliate marketing, you simply select a different GEO in your traffic source platform, and optionally, translate your landing page to a local language, provided that your offer is allowed for this new GEO.
Affiliate marketing vs dropshipping: Where’s the money?
By now, you know what differentiates each business type. Choosing one over another seems like a personality choice: some people may prefer to own their own store while others like to live invisibly in the digital space.
But what should a profit-oriented person choose?
While in both lines of work you can make decent money with a relatively low initial investment, I would argue that affiliate marketing can bring more money with a lot less effort.
The reasoning behind follows from the points made above. Affiliate marketing gives you:
- More scaling opportunities
- Bigger flexibility
- Bigger margins
- Wider selection of offers
While at the same time requiring:
- Smaller initial investment
- Less paperwork & hassle
To prove my points, let’s go deeper and see where exactly the money is being made.
How to make money with dropshipping?
The revenue in the dropshipping business is the difference between what you earn from selling a product and what you pay to your suppliers. The further up you are in the supply chain, the bigger intermediaries’ margins are, and the smaller your revenue is.
This revenue has to be high enough to cover marketing expenses (cost of traffic, software, hosting, design) and still make some profit.
What’s more, the initial investment has to cover not only start up expenses but also secure a cash buffer for the supplier. Remember, the processing of a customer payment can take days while you have to pay the supplier the moment the customer makes an order.
Now let’s look at the affiliate marketing money flow.
How to make money with affiliate marketing?
In affiliate marketing, your revenue is the difference between your payout for the offer and marketing expenses. That’s it. You don’t pay an offer owner for using their offer.
Offers in affiliate marketing are free to use.
You skip a major cost factor. Combine that with all the points made above about scaling and flexibility and you see why affiliate marketing is a more financially viable option.
You still have to pay for traffic and tools, such as an ad tracker, but those are the same investments that you have to make with a dropshipping business.
Dropshipping is reselling gold, while affiliate marketing is digging for gold yourself.
Low on budget, proficient in the digital world, and in high need of cash? Affiliate marketing is for you!
Affiliate marketing vs dropshipping is a personality and financial choice
The dropshipping business lies somewhere in the middle between traditional retail and the fully digital world of affiliate marketing. If you prefer that, if you like to have a brand with your name on it, if you like to sell physical products, then dropshipping is for you.
However, if you are a truly digital being that learnt how to scroll a touchscreen before learning how to open books, then you will feel right at home in affiliate marketing.
Real world is messy. It has its limitations. The digital world offers you a career choice not bound by those limitations.
Start in affiliate marketing now with the best affiliate ad tracker on the market.