In this article, I am going to review two very different online business models – Affiliate Marketing and Dropshipping. So if I wanted to start an online business, which is the best one? To make an informed decision about what is best for you, you need to understand both models and the benefits and drawbacks of both. Affiliate Marketing is where you promote someone else’s product and earn a compensation when you refer sales. So you, basically, find products that appeal to your audience, promote these products (or services) to others, and earn either a percentage or a flat amount on each sale that you generate for the merchants that you promote. You don’t get to dictate the price of the product or the commission earned. For example, if you decide to run a fitness site, you could promote fitness related products – gym gear and supplements. You join “XYZ Supplements” affiliate program. You write a review on your site about the product and include your affiliate links. Someone clicks on the link, gets redirected to the merchant’s website, buys the product, conversions are tracked, products are shipped to the customer, and you get paid! So you don’t have any of the headaches of selling products – your only job is to write a post and market to your audience. Dropshipping is where you curate and list products on your site. So in this example, you create a store of products but you are the middleman. You take orders, handle payment processing and customer service issues but the manufacturer ships the product for you. So instead of having a warehouse and holding product and all the costs associated with that, you partner with a drop shipper who stocks and ships the inventory. You get to set your own product price. So you basically buy wholesale and mark up the prices. Suppliers will suggest a retail price and you need to see what similar products are selling for so that you don’t price yourself out of the market. But, you get to decide what you want to charge!
Common Elements to Both Business Models:
- With both, you are responsible for marketing the product to your customers.
- You are not responsible for holding inventory or shipping goods to the customers.
- Both can have limitless earning potentials.
- Dropshipping and affiliate marketing don’t require a lot of time to set up so you can start your business pretty quickly.
- Both are relatively low-risk business models & can be started with little investment.
Benefits of Affiliate Marketing:
- Start-up costs are relatively low.
- You don’t need to set up a store.
- You never have to worry about order fulfillment or stock issues.
- You don’t have to deal with customer service/support.
- Payments are automated through the networks with set payment dates.
- This business model is relatively passive. There is some upfront work writing your post but once you have it up and running its all about driving traffic.
- You can determine the brands and quality that you want to work with.
Negatives of Affiliate Marketing:
- While you can (attempt) to capture their information prior to sending them off to the merchant, you don’t own the customers and can’t continue to reach out to them (unless you’ve implemented a way to capture their email address or other information).
- You need to have a lot of traffic to your site, or be consistently investing into marketing, to make money.
- You are relying on commission and not all programs are created equal.
- People can eliminate affiliate links and go directly to the site you are promoting.
- Some merchants would pay you only for new customer referrals.
- There is a lot of competition out there and to build a powerful site, you need to build compelling content and be skilled in SEO.
Benefits of Dropshipping:
- Product selection is key. The beauty of this model is that you don’t need to decide your niche right away. You can set up a general assortment of products and rely on sales data to see what your area of focus should be.
- You can potentially earn a higher profits as you control the product price.
- You are building a brand – you are not promoting a brand for someone else.
- You own the customer data so you can retarget and do lots of fun email campaigns to your customers.
- You can get repeat business and recurring orders from your customers.
- You can have affiliates send you traffic by running your own affiliate program.
- You don’t have to spend money on stock or a warehouse.
Negatives to Dropshipping:
- Finding reliable suppliers. This will make or break your business. Make sure you order samples and are confident in the product, how it’s shipped and shipping timelines.
- Finding the right product selection. Some products will work and some won’t. It can take a lot of trial and error to figure out what sells.
- Customer Support. There is the headache of dealing with customers upset about lost orders, canceled and delayed orders.
- Setting up your site is a little more difficult and costly – you need payment processor accounts, software to run the site and take orders and customer service software.