Dropshipping vs Affiliate Marketing- Which One is Better?

Nowadays, there are and are developing a large number of different models of Internet business, including dropshipping and affiliate marketing. In this article, we will analyze both models and find out what is more profitable to do in 2020.

With dropshipping, you sell the supplier's goods with your markup, without buying the goods in advance. In the case of affiliate marketing, you sell a product or service to a company and receive a percentage of the transaction.

Although dropshipping and affiliate marketing have their own characteristics, there are some similarities between them:

• Starting a business does not require the availability and self-shipment of goods;

• Business models with relatively low risks;

• High profitability with the right approach;

• Possibility of quick and easy business launch;

• Require approximately the same marketing skills, such as creating advertising creatives, driving traffic, etc.;

• Low initial investment.

After we have figured out a little with the common features, we offer a closer look at both business models, highlighting their advantages and disadvantages.

What is dropshipping?

Dropshipping is a business model that can be used to sell physical goods around the world without having them in stock. You do not need to have your own warehouses, conduct an inventory and send goods yourself.

As soon as the order arrives in your online store, you pay for the goods to the supplier, and already he directly sends the goods to your buyer.

To date, dropshipping is one of the most profitable business models in the field of e-commerce and at the same time involves minimal initial costs.

This business model is great for a budding eCommerce entrepreneur or people who want to test certain product categories on their audience.

Benefits of dropshipping

When choosing between dropshipping and affiliate marketing, analyze how much money you can actually make. Commissions in affiliate marketing can often be low compared to revenues from the sale of goods on the dropshipping model.

With dropshipping, you can buy a $10 item and sell it for $40, allowing you to save a significant portion of the profits after deducting marketing costs.

When working on the affiliate marketing model, commissions are a percentage of the sale of goods, which in any case is lower than the margin of the product itself.

Given your percentage, marketing expenses, and other additional expenses, you get a significantly lower result. Doing dropshipping, you are likely to be in a more favorable financial position. Creating an asset. By doing dropshipping, you create an asset– your brand.

Your store's website generates cash flow: you earn by investing in advertising, content, and other methods of driving traffic. After a year, if you decide to move to another niche, you can sell your business.

Doing affiliate marketing, it is not always possible to create an asset. Some partners make money by creating content on different platforms, for example, videos on YouTube.

However, in this case, you will not be able to sell your channel on YouTube. Operational control You have control over the product catalog, website design, landing page optimization, and more.

You can analyze user behavior on your site and quickly make various adjustments if necessary. Also, with full access to the payment service, you can set flexible settings of the antifraud system and quickly determine why people cannot complete the order on the site. The more control you have, the higher the chances of success.

Benefits of dropshipping with Shopify

Disadvantages of dropshipping

Regular customer support is your responsibility. The main disadvantage of dropshipping is that you, as a store owner, are responsible for customer support. Fortunately, you can easily delegate this responsibility to an individual specialist who can be found on any popular freelance exchange, such as Upwork.

Outsourcing gives you time to focus on marketing and store optimization, which allows you to grow your business faster and better.

About how to provide a high level of customer support in dropshipping, how to avoid returns and save on the training of relevant personnel, we told in the article "How to provide high-quality customer service, working on the dropshipping model?".

The need to organize a team. Dropshipping involves a high level of responsibility: you need to find goods, build a store, set up advertising, connect a payment system, organize a support service and much more.

With the right approach, all this will certainly bear fruit in the form of money earned, but at the start you will need to immerse yourself in all the processes as much as possible and it is desirable to find a partner, and then delegate some processes to employees or freelancers.

Disadvantages of the dropshipping business model

Affiliate marketing. Who is a partner?

The partner promotes a service or product that is sold by another person. It could be a celebrity promoting a clothing line for a brand, or a fitness instructor selling a healthy food line. Instagram is a great platform to visually see affiliate marketing in action. You can view the profiles of ordinary people posting images with branded products tagged with tags. When you click on an item, you will be taken to a store that is not associated with a person.

A more common example: A marketing specialist directs an audience to an affiliate site using tools such as Facebook and Instagram/Google ads, a blog on the site, their own Youtube or Telegram channel, and many other options.

Affiliate marketing works on the principle of paying a commission: the partner receives a certain percentage of each sale of

goods. In many cases, it is a highly profitable business model with low costs.

Benefits of Affiliate Marketing

You don't have to pay to be an affiliate. When working on an affiliate marketing model, costs tend to be quite low.

You don't have to pay salaries to employees, make refunds to customers, pay various administrative costs and much more. The only costs that a partner usually incurs is an advertising budget. Since your job is to drive traffic, you need to allocate money for advertising on Facebook, Instagram, Google, etc.

However, since this is a business expense, you will probably be able to write it off as a cost when filing a tax return. Since your job will mostly involve marketing, which doesn't take a lot of time, you'll be able to combine this type of earnings with other work.

Of course, it is necessary to analyze the entire potential amount of work first. If you're using Facebook Ads as your primary audience engagement channel, you'll need to prepare ad creatives, texts, prepare accounts, and set up campaigns.

Next, your job is to test, control, and scale your ads. You don't have to worry about creating a product. You don't have to worry about shipping. All you need to do is make sure you're directing targeted traffic to the seller's landing page. Customer support is not your concern.

In affiliate marketing, the partner "supplies" the seller with applications or ready-made customers.

Subsequently, the seller solves all issues regarding support. If the customer is not satisfied with the goods received, the seller processes the return. If the customer needs help, the seller should help him. Thus, the increase in the number of customer support requests does not affect the amount of your work.

What is affiliate marketing and how does it work?

Disadvantages of affiliate marketing

The maximum you can earn is a percentage of the sale. The biggest disadvantage of affiliate marketing is that you get paid interest. You may have spent $100 on advertising alone to get back $50 in interest payments.

The payment of affiliate commissions, as a rule, is much lower than the markup in dropshipping. Even if your commission is a few hundred dollars, the margin on the sale of goods is much higher.

Also, you don't have the ability to set your price. For example, if people are interested in a product but think its cost is too high, you can't lower it to meet your audience's demand.

delays in payments Partners may encounter unfriendly and irresponsible sellers of goods, as a result of which they may face financial difficulties.

There are many great affiliate programs that provide timely payments. However, sometimes even large companies don't pay on time. Imagine that you have set up and already optimized your ads, but you do not have the money to pay for the upcoming billing.

In this case, you will have to put advertising on pause, as a result of which the optimization will be knocked down.

Manufacturers may be in the process of closing or bankruptcy and, most likely, the partner will not immediately know about it and will continue to work hard trying to get their share of the

sale. In the event that the seller declares bankruptcy, the partner loses any money due to him. You receive money only through a referral link. When promoting a product, the partner is assigned a link that will track purchases.

Most people do not realize that you receive only a percentage of the value of the goods, and may mistakenly believe that buying on an affiliate link will cost more.

This way, users can manually navigate to the website you recommend without clicking on your link. Since they did not use your link, the seller receives 100% of the profit, and you are left without payment.

There is no control over products and prices. As a partner, you cannot control the product you promote.

You cannot control the appearance, description, prices or after-sales customer service. This severely limits what you can do as a marketing partner in terms of advertising. You may not be able to mention some of the features of the product due to lack of information or your authority.

If you haven't seen the product live and used it, you'll only be able to rely on photos or videos. They can be outdated or of poor quality, which makes it difficult to effectively promote the product.

Advantages and disadvantages of affiliate marketing

Which is more profitable: dropshipping or affiliate marketing?

It is impossible to say with certainty which model is better - both there and there have their advantages and disadvantages. In affiliate marketing, your main responsibility is advertising, in dropshipping there are much more business processes that need to be paid attention to: goods, suppliers, marketing, online store, customer support, payment system.

Traffic can be handled independently, but it will be extremely difficult for one person to organize and establish a stable operation of the dropshipping business.

If you are just starting your way in Internet entrepreneurship, we recommend that you start to understand marketing or immediately find a partner who already has enough experience to organize a business.

If you have extensive experience with advertising tools and make money on it, we advise you to test such a niche as dropshipping.

If you don't have enough knowledge and experience in this area, find a partner and start exploring the direction together, and then share responsibilities.

This way, you can find out which model of work suits you best. Subsequently, you will be able to start working with partners who will take care of most of the advertising concerns.