Many entrepreneurs looking to make money online explore affiliate marketing and dropshipping business models because of their relatively low barriers to entry. Both models have low startup costs and don’t often involve physical space rentals or inventory tracking.
While affiliate marketing and dropshipping can earn you passive income, both business models come with pros and cons you should consider before venturing in either direction. Depending on your preferences and style, one may be easier to manage and grow than the other, and more profitable as well.
In this article, we'll break down everything you need to know to choose between affiliate marketing and dropshipping. Read on for the pros and cons of both.
Dropshipping vs. affiliate marketing: Overview
Dropshipping is where the supplier carries the inventory and ships it to the customer on your behalf. With dropshipping, you set your own prices and are responsible for marketing, and earn money based on the profit of each sale.
Affiliate marketing has a few key similarities to dropshipping. Your suppliers carry inventory and ship the product, but you don’t necessarily act as the point of sale. Dropshipping involves setting up a storefront, while affiliate marketing is more about acting as another marketing channel. This being the case, you earn money based on a commission structure.
Let's take a closer look at both dropshipping and affiliate marketing business models.
What is affiliate marketing?
Affiliate marketing is where someone promotes a brand's product or service for a commission. This might mean showcasing a clothing line or advertising a company's vegetarian meals.
Instagram is a great place to see affiliate marketing at work. People post pictures with tagged products that link directly to the brand's store. Clicking on the product takes you to the brand's website, where you can buy the item. TikTok is also a powerful social channel for affiliate marketing, especially with its focus on snappy video content.
The affiliate marketing model works on commission. Affiliates earn a percentage of every sale they drive.
To begin as an affiliate marketer, you need to join programs offered by brands. You can discover companies looking for partners by browsing networks that connect affiliates with merchants. After choosing a product to promote, you earn money by directing visitors through special tracking links that identify you as the source of the sale.
Parties involved in affiliate marketing
There are three key players in affiliate marketing:
- Seller: The business or supplier that starts the affiliate program and seeks to have their goods marketed.
- Promoter: The person or organization that advertises the seller's products to boost sales and receives a fee or commission for each successful sale.
- Buyer: The person who buys the product through the promoter's link. After a purchase, the business receives the payment and later distributes commissions to the promoters.
Affiliate marketing pros
No cost for being an affiliate
It’s relatively inexpensive to get started as an affiliate marketer. Affiliates usually don't have to pay any fees, since merchants often cover the costs on affiliate networks like ClickBank or Amazon Associates. Affiliates generally need to pay only for their own website and hosting, which keeps expenses down.
However, as an affiliate marketer, you are responsible for marketing expenses since you're driving traffic to the merchant's website.
Potentially reliable source of passive income
An affiliate marketing business can be a great way to earn passive income. Initially, you need to set up ads or create content to drive sales. Once that's in place, your ads can keep running and generating revenue in the background.
You don't have to create or ship products. Your main task is to direct targeted traffic to the merchant's landing page to boost conversions.
After creating content with tracking links, that material can keep earning money for months or years ahead. A blog post you publish today might still generate commissions long into the future.
No customer support to worry about
In an affiliate marketing business, the affiliate supplies the merchant with their leads. Even if your marketing content paints you as an expert in that particular product, you’re not a customer support agent and don’t speak for the companies you support.
If the customer isn't satisfied with their product, the merchant handles the refund. If a customer needs help with a specific aspect, the merchant is responsible for helping them. So, when it comes to customer inquiries, all you need to do is direct customers to the merchant.
Freedom to choose what you promote
Affiliate marketing gives you the freedom to recommend products across various categories or focus on specific niches that you’re more passionate about. When one product stops performing well, you can shift to promoting different items without major changes to your business.
Affiliate marketing cons
You only make a percentage on every sale
When comparing dropshipping versus affiliate marketing, the biggest disadvantage of affiliate marketing is you're paid a commission. This means you might spend $100 in ads to make only $50 back in commission fees, or less depending on your campaign’s effectiveness and conversion rate.
As an affiliate marketer, you also can’t set the price of the products that you’re promoting. If potential customers see your ads or other marketing content and decide to churn based on the price, you can’t reduce how much the product costs to meet audience demand.
The payout from an affiliate program is generally a lot lower than dropshipping. Even if your commissions are several hundred dollars, the odds are the cost of the product is higher. This means finding the right people will cost more as well. Also, you don't have the opportunity to set the price.
For example, if people are interested in the product but feel the cost is too high, you can't lower it to meet the demand of your audience. In addition, since you can't set the price of your earnings, you'll likely make a lot less than if you were the merchant.
People can ignore the affiliate link
Sometimes, if you don't use a URL shortener, people can see that it's an affiliate link by hovering over it. They might think buying through the link costs them more, even though it doesn't. As a result, they may go straight to the site without clicking your link.
Many potential buyers are skeptical of obvious affiliate links, which can cost you commission earnings in the long run. Also, some countries require you to tell your audience that your links are affiliate links. This might make people avoid clicking on them.
No control over products and pricing
With affiliate marketing, you can't control the product you're promoting. You can't change its look, description, or retail price. This can limit what you can do as an affiliate marketer.
Additionally, you may not be able to mention certain features, due to your terms and conditions. Also, the photos you receive may be outdated or low quality, making it hard to promote the product effectively.
Since you're recommending someone else's merchandise, you have no influence over quality, cost, or service. When a merchant delivers poor experiences to customers, it can damage your reputation and credibility.
Risk of affiliate link removal
Affiliate marketers often overlook the risk of having their tracking links removed, but it's a real issue. Sometimes users remove affiliate links due to concerns about their online security or privacy. This can hurt your income since you won't get credit for sales made through those removed links.
Link removal can also lead to affiliate account closure if the program considers it a violation of their terms. Affiliate programs might see this as fraudulent activity or misuse, which could result in warnings, penalties, or even termination of your affiliate account.
Commission payments can change
Programs may modify their payment structures without much warning. Major networks have reduced their rates multiple times over the years, which can dramatically affect how much money affiliates can make.
Building trust takes time
Creating an audience that believes in your recommendations enough to head to a merchant’s page requires patience and consistency. Affiliate marketing demands that you establish authority and credibility to draw in followers, and then continue delivering opportunities for engagement to maintain retention and new audience growth.
Also, traffic doesn’t necessarily lead to commissions. You can build an audience but getting that audience to transform from viewers to buyers takes a lot of trust-building and creativity.
What is dropshipping?
Dropshipping allows anyone to sell products from suppliers on their own website. When someone purchases a product from the dropshipper's website, they place an order with the supplier. The supplier then packages and ships the product to the customer. There's no need to carry any inventory at all.
The dropshipping business model is ideal for first-time ecommerce entrepreneurs or people who want to test products in different markets. It’s a viable way to earn extra cash part-time or build a complete ecommerce business without having to manage the entire value chain.
Parties involved in dropshipping
The dropshipping model involves three main participants:
- Dropshipping store owner: Receives the order through their online platform and sends the details to the manufacturer.
- Manufacturer: Processes the order from the store owner, produces or sources the item, and ships it directly to the shopper.
- Shopper: The end user who makes purchases from the dropshipping store.
Dropshipping pros
Dropshipping is a low-risk business model
When comparing dropshipping versus affiliate marketing, dropshipping tends to be a little less risky in various ways.
For one, dropshipping gives you access to the funds you generate rather quickly. With an affiliate marketing business, there may be thresholds you need to reach before you can cash out your first check.
Dropshipping allows you to have high margins
When dropshipping, you can buy a product that costs $1 and sell it for $19.99, which allows you to keep a substantial portion of the sale price as profit after marketing costs have been subtracted.
With affiliate marketing, commissions are a percentage of the product. Yet, you're left with a much smaller percentage when you factor in your marketing costs and other expenses.
When comparing affiliate marketing versus dropshipping, you'll likely be better off financially as a dropshipper.
You're building an asset with dropshipping
With dropshipping, you'll have your own professional website. You'll make enough money to invest in advertising, content, and profit-generating techniques. A year from now, if you decide to move on to another niche, you can sell your business to someone else.
So when you're building a dropshipping store, you're building an asset: a brand that’s more of a full-fledged business rather than the personal branding of an affiliate.
You have more customer data
With affiliate marketing, since you're sending the traffic to another website, you have no control over retargeting. You have data pertaining to the sorts of buyers who go from your campaigns to the merchant’s page, but this doesn’t translate as well to actual buyer behavior. You’re not the point of sale, so the customer data isn’t as complete.
On the other hand, with dropshipping, traffic comes to your own website and you can track what works and what doesn’t at the point of sale. The checkout will match your website's branding. Also, you have control over the design of your landing pages, product copy, website design, and more.
As you have more data and more control over how you use your data across all ecommerce channels, you better your odds of converting the customers that discover you.
You don't need a large following to begin
While affiliate marketers often rely on existing audiences to drive sales, dropshipping doesn't require you to have an established following. This makes it more accessible for newcomers who want to start an online business right away.
Dropshipping cons
You have to manage customer support
The main downside to dropshipping is that you're responsible for customer support as the store owner. Whether it's a product-related query or a complaint related to the shipment, you have to answer the customer.
Fortunately, you can easily outsource this component of dropshipping by hiring a freelancer with clear guidelines and responses they can use as a representative. Sites like Upwork are great for outsourcing tasks like customer support as you scale your store.
You can't check product quality
You don't get to see or handle the items before selling them, so you can't judge if they're any good. You rely on descriptions and pictures without firsthand knowledge of what you're offering, though you can lean toward suppliers with positive reviews or who’re willing to send samples.
You can also order products to test them, but that involves a bit of a financial investment upfront.
Your success depends on supplier reliability
Suppliers are key to your dropshipping business. If they don't send orders on time or provide products that disappoint customers, it reflects poorly on you. Dissatisfied customers might leave bad reviews that damage your reputation and deter others from buying.
To ensure this doesn't happen, choose suppliers with good track records and regularly check their performance. Communication and regular follow-ups can help maintain high standards.
Increased competition affects profit margins
When many sellers offer the same popular items, competition can force prices down and reduce your earnings. This happens especially with common products from large marketplaces, where many dropshippers compete for the same customers.
More initial setup required
Creating a dropshipping store demands more work upfront compared to affiliate marketing. You'll need to build product listings, configure payment systems, and establish relationships with suppliers before you can make your first sale.
Being paid as an Amazon affiliate
If you're an Amazon affiliate outside of the US, you can only be paid by cheque or gift card. However, to receive the cheque, you must have made at least $100. Yet, not everyone succeeds at making $100 when the percentages are very low. With dropshipping, you get paid what you made.
Dropshipping vs. affiliate marketing: Similarities
While dropshipping and 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 potential.
- 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.
Dropshipping vs. affiliate marketing: Which is more profitable?
Both dropshipping and affiliate marketing can make you good profits. So why not integrate the two and make the most of both business types? You can do this by adding a store to your affiliate website.
This way, you can sell both your own and affiliate products, giving more choices to your audience and earning money from commissions and sales.
Or, you can start a private-label dropshipping affiliate marketing business, where you sell items under your brand while also having affiliate partners promote them. This approach lets you build your brand and benefit from affiliate marketing simultaneously.
In general, though, dropshipping offers better earning potential because you control the retail prices on your website. Affiliate marketing earnings depend on what brands decide to pay you, while dropshipping lets you determine your own profit margins based on market conditions and competition.
Final thoughts on dropshipping vs. affiliate marketing
Affiliate marketing and dropshipping both have distinct advantages and disadvantages, and choosing between the two means weighing a variety of factors.
With affiliate marketing, you can achieve success without incurring high costs, but relying on other businesses can be hard to manage and make it hard to predict long-term financial stability.
Dropshipping isn’t significantly more reliable, but you do have more control on the process. You set your own prices for the products you sell, which can lead to higher profits than affiliate commissions. When you do win customers, they stick around your online store, as opposed to leaving your affiliate page to make final purchases with the merchant.
Overall, dropshipping is ideal for starting an online business with minimal upfront costs. While both dropshipping and affiliate marketing need dedication to succeed, dropshipping offers a hands-on approach to building your business.
Affiliate marketing vs. dropshipping FAQ
Can you pursue both affiliate marketing and dropshipping?
Yes, it's possible to pursue both businesses at the same time. With affiliate marketing, you can reach new audiences without any upfront investment. Dropshipping allows you to try out different products without dealing with inventory, storage, or delivery logistics.
Is dropshipping easier than affiliate marketing?
Dropshipping can work well if you have a setup where you can add products without keeping inventory. Affiliate marketing might suit you more if you have a large social media following and can promote items your followers would love. It all comes down to what you're good at and what resources you have.
Should you take the affiliate marketing or dropshipping route?
If you enjoy content creation and engaging with an audience, the affiliate marketing route could be ideal. In contrast, if building a brand and managing an online store sounds exciting, then dropshipping is the way to go.