Affiliate marketing vs dropshipping – table of contents:
- What is dropshipping?
- The benefits of dropshipping
- The drawbacks of dropshipping
- What is affiliate marketing?
- The benefits of affiliate marketing
- The drawbacks of affiliate marketing
- Affiliate marketing vs dropshipping
What is dropshipping?
Dropshipping is an order fulfillment method where a business doesn’t have its own warehouse or inventory, but buys goods from the manufacturer or wholesaler. It is an intermediary in the whole process. Its role is to collect the order information, handle the payment and pass the shipping data to the supplier.
What is more, it should strive to actively acquire new customers, increase website visibility and generate conversions, which will then translate into higher sales and company profits. This will require, among other things:
- Google Ads advertising campaigns,
- Search engine positioning,
- E-mail marketing,
- Social media presence.
One of the most important decisions you have to make when starting a dropshipping business is to choose the right supplier. The success of your business depends to a great extent on its offer, reliability and effectiveness of the services it provides.
If you want to get a closer look at the offered goods, you need to register with the selected wholesaler. In most cases, this is possible only if you run your own company and provide basic data. However, there are exceptions to this rule and some entities allow for dropshipping to non-registered companies.
After gaining access to the platform, get acquainted with the prices of goods. However, it is worth remembering that these are not the final prices and you are free to negotiate – if you achieve good sales results and cooperation goes well, you can count on more favorable conditions.
Dropshipping can be a good business idea for people who are taking their first steps in the industry or want to expand their product offer.
The benefits of dropshipping
Let’s take a look at the benefits of dropshipping:
- Small initial capital
- Low risk
- A large selection of products
Expenses related to warehousing and inventory management rest with the supplier. On the other hand, the dropshipper’s costs include purchasing e-commerce software, a commission fee for using payment gateways or marketplace portals (Allegro, eBay, etc.), marketing, settling tax obligations, accounting services, and paying employees (if any).
By outsourcing the warehousing and shipping of goods to third parties, many of the risks associated with online sales disappear. Of course, this does not mean that this business model is devoid of all risks. You can find out more about the possible risks of an e-commerce business, and methods for analyzing them, in this article!
You can run such a business from anywhere – all you need is access to the Internet and constant contact with customers and suppliers.
By cooperating with a wholesaler, you can choose different product categories that would work well for your online store. This gives you the opportunity to test the effectiveness of various options, and if something doesn’t work, change the offer.
The drawbacks of dropshipping
- Low profit margins
- Risk of mistakes
The profit margin in dropshipping is relatively low, which is why it is so important to drive your sales and order volume by promoting your store.
The aspects that are advantages of this model can bring some challenges. Low barriers to entry and little risk has resulted in a saturated e-commerce market. This makes it increasingly difficult to achieve a competitive advantage. So it will be necessary here to have sufficient funds for promotion and to develop an effective marketing strategy.
When handing over some of your responsibilities to another entity, you have to take into account the possibility of errors. However, the contact with the customer and the resolution of any problems rests with you.
What is affiliate marketing?
Affiliate marketing relies on the cooperation between an advertiser (a company) and an affiliate (a person who promotes products, brands through sales channels). Sometimes, an affiliate network is also involved in the process, which acts as an intermediary between the two previously mentioned parties. Regardless of the form of advertising, a link to the advertiser’s site must appear in it. You can include it in articles on your blog, in a newsletter to customers or even promote it on forums and social media. You get a commission for the sales you manage to make.
The benefits of affiliate marketing
- Low cost
- Passive income
All administrative fees in affiliate networks are paid by the seller. The publisher usually pays only for the creation of the website and the server fee.
After generating a suitable link to a product or service and promoting it, you can start earning the commission.
The drawbacks of affiliate marketing
- Profit from a percentage of sales only
- It takes time
The affiliate payout is usually lower than dropshipping.
It may take some time before you start generating satisfactory revenue. If you’re placing links on your website or social media, you’ll also need to prepare engaging content that will encourage people to buy the products you’re promoting. Gaining the audience’s trust and converting it into real action is time-consuming.
Affiliate marketing vs dropshipping
Deciding which solution will be more beneficial depends on your expectations and how much you can get involved. Dropshipping will definitely bring you more profit, because you have influence over the prices of products and you set the profit margin – provided you manage to promote your store to potential customers. This is not easy – it’s a highly competitive industry these days.
In affiliate marketing you can only count on commission income, which is usually not high. On the other hand, it requires much less effort and contribution than dropshipping. Both ways are interesting alternatives, and can provide you with passive income. In addition, you will have the chance to gain a lot, valuable experience that you can use in many other professions and industries.