Dropshipping vs affiliate marketing: what to choose? This question bugs lots of people looking for additional sources of income.
Dropshipping and affiliate marketing are commonly mentioned in various articles that list the best eCommerce strategies. That’s why both of these models are quite well known to Internet users: they see these business types described everywhere, and they assume both of them are interesting to try out.
However, when it comes to the actual business launch, lots of these people understand that they don’t have much actual knowledge about these strategies. That’s why today, we’re going to answer common questions to help you choose between these models!
Dropshipping vs affiliate marketing: what’s easier to start?
To answer this question, we need to consider several different aspects of launching an online business – let’s list them below separately!
Which one is more affordable to launch?
Most likely, if a person is looking for a source of online income, he or she has a somewhat tense financial situation and can’t afford large-scale investments.
From this point of view, it seems quite promising to register as an affiliate. It’s free to join any affiliate program, and, as a rule, you won’t have to pay any regular fees as a member.
Still, it’s not enough to simply be registered as an affiliate – to make money, you actually need to promote the company products or services. To do this, you need some kind of an online page or account: there, you will place your educational or entertaining product posts, reviews, tutorials, etc.
It’s possible to make these pages for free. For example, a business-dedicated Instagram account or a Facebook page won’t cost you anything at all, and you will be free to fill them with the necessary content.
Or, instead, you can get an affiliate resource that requires tiny expenses: for example, your personal blog. To start a blog, you only need to sign up for web hosting (about $50/year), buy a domain name (about $10/year), and install WordPress ($0). So, with a recurring yearly payment of about $60, you will be an owner of your personal independent blog where you can post anything you want and communicate with your potential buyers!
At the same time, dropshipping business may require a bit larger investments. To dropship, you need to have an online store that can accept incoming client orders and process their payments. It means that apart from domain and hosting, you also need to acquire a technical solution that lets your website perform as a proper store.
If you have a relevant eCommerce background, you can launch a fully functional dropshipping store without massive expenses: in this case, you will need to assemble it by your own effort. But, if you’re a newcomer who doesn’t want to spend time on this and prefers buying a ready-made solution, even one of the cheapest options on the market will cost you $347. While it’s not a large sum of money for some people, there are lots of newcomers who just can’t afford it at that point of their lives.
So, if your main criteria for choosing an online business model is the amount of startup costs, affiliate marketing might be a better option.
Which one is easier to learn?
Here, we don’t have a winner 🙂
To run a dropshipping store, it’s not enough to just understand how to manage it from a technical point of view. It’s also crucial to understand what niche to take, which products to offer, which audiences to target, and what promotional strategies to use. In other words, a dropshipping store owner needs to gain extensive market knowledge and apply it wisely to achieve favorable financial performance.
Affiliate marketing, in turn, works best when an affiliate has a first-hand experience of using the promoted product or service, especially if it’s a complex thing that requires its user to have some special knowledge. For example, it’s not likely that you can advise your followers on the best adhesives for non-woven wallpapers if you’ve never managed an apartment redo. So, as an affiliate, you need to learn every single detail of the product or service you’re promoting, and figure out this product-related concerns that your target audience has. You need to know how they formulate their Google search queries, and what they believe to be the most credible sources of information.
Therefore, both affiliate marketing and dropshipping business imply quite active subject learning.
Which one has simpler legal regulations?
From this point of view, again, these business models are somewhat similar.
As for now, neither dropshipping nor affiliate marketing is regulated by some universal global-scale industry law. Instead, every particular company has its local laws with regard to these businesses.
For example, European and American companies that run affiliate programs often ask their newcomer participants to submit their tax IDs during the registration. Besides, they may oblige the affiliates to follow some specific rules while creating and distributing their promotional materials. They may ask the affiliates to mark their posts with special hashtags, and in general, to make it clear to the readers and the followers that the materials contain sponsored links.
What is more, a country may have a specific governmental body that regulates influence marketing efforts: for example, there is the FTC in the USA, ICPEN in the UK, etc. So, before proceeding with your affiliate registration, it’s crucial to check the legal terms specified by the company itself, and the local laws regulating online promotional activity it this particular region.
The same is true for dropshipping business. An interesting thing about it is that you can source dropshipping products quite easily. AliExpress sellers don’t care whether you are a business representative or a private individual, so they won’t ask you for any official documents when you’re placing an order.
However, you’ll need to provide some legal information while registering your account in a chosen payment gateway – otherwise, you won’t be able to accept and process the incoming payments.
Also, you will need to stick to the customs legislation of your buyers’ countries of residence. Most typically, it is forbidden to ship hazardous items (knives, fireworks, chemicals, etc.), drugs, smoking mixtures, and similar products. Again, each country has its specific regulations in terms of products allowed for importing, so you’ll need to make your own research here.
And of course, don’t forget that the profit from an online business might be taxable. Even though not all the dropshipping entrepreneurs register their ventures officially from day 1, they usually do it in some time, when their turnover grows bigger.
What is the difference between making affiliate sales and dropshipping?
This question concerns the people who wonder how both of these businesses work in real life.
Simply speaking, a dropshipping sale means selling a product you don’t own and arranging its delivery without shipping it by your own effort.
The transaction only happens on the Internet: your store visitor pays for a product you display, and you transfer this order to the actual product seller along with the buyer’s shipping details.
To buy the product from the original seller and make it sent to the customer, you pay the seller the initial product price. This price is lower than the made-up price you put in your store, so the difference between your buyer’s payment and the actual product cost is your profit from the sale.
An affiliate sale, in turn, means that you don’t make any transactions yourself at all. All you do is motivate other people to buy the product you promote on a specific condition.
When you register as an affiliate, you receive a unique piece of code and detailed instructions on its use. To put it simply, you insert this piece of code in all the product links you put in your promotional materials. The ultimate goal of your promotional materials is to inspire the readers to click on this link and make a purchase after getting redirected on the company site. When this person completes the order successfully, you receive your affiliate commission: a predetermined percentage of the buyer’s order payment.
Dropshipping vs affiliate marketing: what is more profitable?
To answer this question, again, we need to consider several aspects that influence the entrepreneur’s profit.
Profit margins you can set
In dropshipping, you are free to set any price markup you wish (however, it should still be reasonable, otherwise your store visitors just won’t buy overpriced products).
In affiliate marketing, your commission fee is determined by the rules of the affiliate program you’re registered in. Therefore, you get a fixed sum of money from every purchase you facilitate.
It means that with a due approach, dropshipping business can bring you higher profits. Still, you need to keep it in mind that dropshipping sales don’t happen by themselves. In other words, to boost shoppers’ activity on your website, you need to pay careful attention to your products presentation and marketing activities.
Dropshipping profits are easily available: when a store visitor pays for the order using your in-store payment gateway, you receive the money almost immediately, as soon as the payment processor approves and transfers it. Then, you simply need to subtract the initial product price from this sum and send it to the original product supplier. What’s left on your account is your profit!
With affiliate marketing, this process is a bit more complicated. Every program has its own regulations in terms of the payment period. Most typically, you receive your commission payments not right after an affiliate sale happens, but in 1 calendar month since the last purchase made in the previous month.
Again, the terms might vary a bit, but the usual rule is that you receive the money in 4-6 weeks after facilitating an affiliate sale.
Dropshipping vs affiliate marketing: summing it up
What’s the conclusion?
Affiliate marketing is a wonderful type of eCommerce venture that doesn’t have a massive initial cost. It is the best option for the people who can’t afford any business expenses right now, but would love to use the profits from this enterprise to finance their next, larger venture.
Dropshipping business suits the people who can afford making some startup investments right now – and potentially, as its profit margins are basically unlimited, it can keep bringing its owner considerable sums of money over a long period of time.
Both the businesses are perfectly legal, but they require the entrepreneur to make individual research to figure out the local laws regulating this type of online activity.
And, most importantly, both business models require patience and effort: with learning and experimenting, you can achieve outstanding financial results regardless of the model you’ve chosen!