Affiliate Marketing vs Dropshipping (Which One Is Better In 2022)

Do you want to start an online business but you don't know which one to choose between dropshipping and affiliate marketing?

Don’t worry because this article will show you which one is the best between these two business models.

Just to give a brief overview, affiliate marketing is whereby you partner with some of the biggest companies in the world and you advertise their products and service on their behalf. If a customer buys the product through your affiliate link, you earn a commission which varies from one company to another.

On the contrary, dropshipping is a business model whereby you find cheaper products on sites like Alibaba and Aliexpress. You then open your ecom store (e.g. Shopify) and you send some traffic to your ecom store through paid or free methods. If a customer places an order, you then contact the supplier in China to ship the product to the customer's address. (You can also opt to stock some inventory)

That was just a quick overview about the two business models. But in order to determine which one is better, l am going to compare these two business models based on the following aspects:

Without further ado, let me jump straight into more detail.

1. Cost

In terms of cost, l think affiliate marketing is less costly to start since you don't need inventory in order to get started. All you need is an affiliate link that you can send traffic to, and when someone buys through your link, you earn a commission. An affiliate is simply a middleman who connects buyers to the right products and services.

In order to get started with affiliate marketing, you only require a small budget of less than $100 in order to create a website (if you want to) or maybe you can start a YouTube channel for free.

However, dropshipping might require at least a few thousand bucks for inventory, since you might need to buy some few inventory for your ecom store. You might also incur shipping costs and packaging costs, which are very rare in affiliate marketing.

Also, you might need some money to run ad campaigns, since most Shopify stores relies on Facebook ads in order to get leads and sales.

You also need a small budget for using the Shopify software, since this software requires a monthly subscription which normally starts at $29/month, but it varies depending on the plan and features that you choose.

Based on this cost analysis, it is clear that affiliate marketing is less costly to start, since you don't necessarily need any inventory. Dropshipping business might require a few thousands in order to get started since you need to cover for inventory, shipping, packaging, amongst others related costs.

2. Profit Margin

(Profit Margin = Total Earnings – Total Costs)

Most dropshipping businesses have a profit margin of around 25% - 30%. However, some may only yield around 10% profit since some products are not very profitable. Most dropshipping businesses looks like they make a lot of profits especially if you see those Shopify earnings bars.

But note that those earnings are just revenues not profits. So if you see someone making $100k in revenue, just calculate 30% of that amount to see the highest possible profit margin of that ecom business.

On the contrary, profit margins for affiliate marketing might be as high as 100% and let me tell you why.

With affiliate marketing, you don't incur any overhead cost and you can get free organic traffic through SEO search traffic. In that case, all the money that you get is 100% profit since you don't necessarily incur any overhead cost since you're just linking customers to the right products and services.

However, if you choose to use paid traffic, you might yield profit margins of around 90% (if you know how to run profitable campaigns).

Most people confuse profit margin with revenue. Profit margin is what you actually take home after you deduct all your costs.

Thus, it is very clear that affiliate marketing has higher profit margins than dropshipping, since affiliate marketing has low overhead costs.

3. Inventory

As discussed earlier, you definitely need some inventory in order to get started with dropshipping. However, some people uses the traditional method whereby they advertise products which they don't have in hand. If a customer places an order, the store owner will then contact the supplier in China to ship the products directly to the customer.

This might have a negative impact on your business since there might be delays in shipping the product from China to the customer's location. Also, the supplier might run out of stock, whilst you have a lot of pending orders. So you need some few inventory to be on the safe side.

On the contrary, affiliate marketing does not need any inventory since the company deals with all those issues. You simply need some affiliate links and you start sending traffic to your link, and earn a commission if a customer buys through your links.

4. Customer Service

With dropshipping, you have to deal with customer service, since you will be the face of the business. In dropshipping, it is common that there is always some complaints from customers due to reasons like wrong product shipment, breakages, poor quality products, delays in shipping, amongst other burdens.

You might also need to deal with refunds, since some customers might ask for a refund if they feel like your products are not good enough.

However, affiliate marketing weeds out all the customer service stress, simce the company deals with all these issues. You only need to send traffic to your affiliate link and the company takes care of the rest.

5. Barriers To Entry

Since affiliate marketing is easier to start, there is some few barriers to entry because affiliate programs are free to apply, maybe you might just need a small budget for starting a blog. As an affiliate, you promote other people's products which is a great advantage since you don't need to invent your own products in order to get started.

However, dropshipping involves more barriers to entry since it requires at least a thousand bucks for inventory, product shipping, packaging, amongst other related costs. Thus, you need to gather some significant amounts of money in order to get started with dropshipping.

6. Scalability

In my opinion, l think affiliate marketing is highly scalable since you might sell as many products as you want, since the companies handles all the fulfilment and other after-purchase related burdens.

However, a dropshipping business might be hard to scale especially if you're running the store by yourself. Due to human’s limited capacity, it might become more difficult to run once you start receiving some huge orders, unless if you choose to employ a store manager.

Another cool thing about affiliate marketing is that you can promote various products at once by starting several blogs. For example, you might create a blog which promotes weight loss products and you build that blog to a certain level until it is now ranking on Google and getting consistent traffic.

You might then decide to create another blog based on another topic, build the blog to a certain level, then rinse and repeat the process for several topics/products.

(Affiliate marketing is more of a set and forget type of business).

However, this might be difficult to do with dropshipping, since it might be difficult to run several stores at once (unless if you employ some store managers).

7. Advertisement

With dropshipping, you definitely need to run Facebook ads in order to get customers to your store. However if you have a following on social media, you might get free traffic from that following.

Even though ads are useful in affiliate marketing, you might get traffic from SEO if you have a blog or maybe a YouTube channel. But bear in mind that ads are also necessary in affiliate marketing if you want to scale up very fast.

8. Risks Involved

It is clear that affiliate marketing is less risky since you don't necessarily need to own your own products. Thus, any uncertainties that may incur will only affect the company rathet than the affiliates.

On the contrary, dropshipping involves a lot of risks since your products might be taken by the customs authorities if they fail to adhere to certain standards. Also, products might go out of style whilst you have some unsold stocks hence leading to loses. There might also be breakages involved in the shipping process, which might lead to returns and refunds.

Thus, dropshipping is more risky than affiliate marketing.

9. Control

There is no doubt that affiliates have less control on products which they promote since companies might decide to slash their commission rates e.g. the case of Amazon. Also, some companies might decide to shut down their affiliate programs e.g. Siteground recently closed their affiliate program in other regions of the world.

Thus, this might negatively affect you as an affiliate if you have built a blog which focuses entirely on promoting that particular product.

Also, some companies are very strict when it comes to the way you advertise their products since some companies restricts the use of certain keywords in your ad campaigns.

However, with dropshipping, you have more control in the running of the business, since you will be promoting your own products. Thus, you can make your own decisions without having to consult another person/company.

Which One Is Good For Beginners?

This question is a bit difficult to answer simply because each person has his/her point of view.

But in my opinion, l think affiliate marketing is more beginner friendly since you will be promoting other people’s products, which in most cases are big brands that people already know and like e.g. Apple, Nike, Adidas, Gucci, etc. (These companies already did the brand awareness part for you).

However, dropshipping might be difficult for beginners, since most people are so sceptical when it comes to buying from random Shopify stores. In most cases, the products that you will be selling are not known brands, thus people might have some doubts in buying those products.

Also, a lot of beginners have a limited budget thus it is good to start with affiliate marketing, since you can get up and running in less time with limited resources.

Once you become good at selling other people's products, it might become easier to venture into ecommerce using the selling skills that you have gathered from affiliate marketing.

Also, affiliate marketing is a bit ‘easier’ to get some money than dropshipping (provided you put in the work).

Thus, you might start with affiliate marketing and you then use the money and skills that you gain from affiliate marketing to start an ecom store.

Which One Is More Passive?

There is no doubt that affiliate marketing is more passive than dropshipping. This is so because affiliate marketing involves less overhead staff like customer service, packaging, shipping, amongst others.

(Affiliate marketing is more of a set and forget business model)

Dropshipping is less passive since you have to deal with all these issues and also, you have to continuously renew your ad campaigns since most dropshipping businesses relies on paid traffic.

If l was asked to rate the level of passivity of each of these two business models, l would give affiliate marketing 90% and dropshipping a cool 60%.

With affiliate marketing, you put in the work upfront in building a blog or a YouTube channel. But once its built, you can generate sales on autopilot for months or even years to come for work that you have done in the initial stages.

Summary

(The table below summarises all the issues which were discussed in this article)

Final Verdict

Having discussed these issues, l think you now have a clear picture about the characteristics of each of these two business models. I think by now you have made a decision on which one is the right fit for you.

Whether you choose affiliate marketing or dropshipping, the idea is to start something today and commit to it, results will come along the way.

You should know that there is a lot of dropshippers who earn 6 figures, as well as affiliates who also earn that range. Thus, the idea is to choose a business model which resonates with you, the one that you enjoy the most.

Also try to find some successful people in your industry, look at what they did to get to that level, and you add your own twist to their formula in order to get better results (its better to remodel success than to reinvent the wheel).

If resources permits, you should try to look for a mentor who can grab you by the hand and walk you through the journey so as to cut your learning curve into half or less.

A mentor knows which pitfalls to avoid since he/she travelled the same road in order to achieve that level of success.

If you want to know how to get started with affiliate marketing, check out this article.

Frequently Asked Questions

Can I Use Shopify For Affiliate Marketing?

You can promote Shopify by simply joining their affiliate program.

Once you get approved, you can start to create content around this software via a Blog, YouTube, Social Media, or any other platform that you wish.

The most important thing is to find people that needs to start online stores then you will redirect that traffic to the Shopify app via your affiliate link.

When those people upgrade to the paid plans, you will earn some commissions and there is a ton of money to be made from this affiliate program since most businesses are shifting their operations to online platforms.

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