Dropshipping Vs Affiliate Marketing: Similarities
While dropshipping vs affiliate marketing have many differences, they also have quite a few similarities:
- Both allow you to start a business without requiring inventory or shipping goods
- Both are relatively low-risk business models
- Both have high earning potentials
- Both are easy to start working on immediately
- Both require similar skill sets such as the ability to create ads, drive traffic to a landing page and other marketing skills
- Both businesses have low startup costs
Let’s look at the pros and cons of both starting a dropshipping and affiliate marketing business.
What is Affiliate Marketing?
So basically what Chilcote is referring to in this question above is an affiliate marketing type of relationship. An easy way to explain what that is, is take for example that I wrote a review for a specific pen, and talked about how that pen is what I write with all day.
Then at the end of the review, I’d share a link and say, “Hey, by the way, here’s a link for you to go and buy that pen!”
With affiliate marketing you are promoting other people's products similar to drop shipping. One of the big benefits to affiliate marketing though, and one of its biggest advantages that draws people in, is you do not have to handle orders.
What is Drop Shipping?
If you don’t already know what drop shipping is, it’s the retail method in which you don’t keep products in stock. Instead of warehousing, you partner with a drop shipping supplier that stocks its own inventory. You transfer customer orders and shipment details to them, and the suppliers ship the order directly to the customer. Here’s a graph to help you understand the drop shipping business model:
Drop Shipping vs Affiliate Marketing
Let’s talk about an example that I always give because I think this will help to demonstrate the differences between drop shipping vs affiliate marketing. Funny enough, this paddle board example is one that I have been talking about since I started Drop Ship Lifestyle in 2013!
Let's say you decided to make a YouTube video about paddle boarding. You got a bunch of views and now you're like, "Wow, I want to have people buy these paddle boards from me. I want to make money off this."
So then you’ll start building an audience that cares about paddle boards. Now, you can compare these two options.
If you promote someone as an affiliate, meaning you refer your traffic and audience to someone else’s store, you could earn 10% commission from each sale. So if the paddle board is $1,000, you would make a $100 every time someone used your link to buy their own paddle board.
Note: In my experience, 10% is an average number for affiliate marketing commission. Some affiliate programs pay less, and some are pay more.
Whereas with dropshipping a paddle board, these numbers vary also. But if you set things up properly, you can expect to make about 25% net profit on each sale. That means instead of someone going to the site you refer them to, you send them to your site to buy that $1,000 paddle board. And instead of making $100, you will make $250 net profit.
At this point, what a lot of people are probably thinking is whether or not it is worth 15% of potential profit to have a business that is “hands-off”. By “hands-off”, people commonly think that I mean you are not processing orders or handling customer service. And I don't want you to think this way because it's a much more complex situation. It's not that simple.
And the Winner is: Dropshipping
An affiliate marketing business is a great business to have as you can become very successful without incurring much cost. There are many advantages of this business model. But the disadvantages are heavily weighed around money you could lose by relying on other businesses. For this reason, even if you continue with affiliate marketing, having a dropshipping element is a good idea. It can help ensure a steady flow of income for your business. Running an online store makes you more money for the following reasons:
- You set your own product prices which are higher than affiliate commissions
- Dropshippers earn far more from physical goods than affiliates do
- You have a better chance of going viral or having a really successful ad campaign
- You can have affiliates send YOU traffic when running a store
- Customers will be more likely to come back to your website to buy more when dropshipping. Whereas when customers of an affiliate tend to go to the website you referred them to
- The cost of goods is low (allowing you to set affordable pricing for customers while having high margins)
- The everyday workload is light saving you time (time is money, of course)
- You can build a bigger audience as you’ll be your own brand
- You know through high order volume and reviews if the product will be an easy sell
