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Trying to decide between dropshipping and affiliate marketing?
Choosing the right eCommerce model is vital for launching a successful business. However, understanding the differences between these two popular options can be confusing.
Both dropshipping and affiliate marketing allow you to sell products without actually stocking inventory. However, the way you make money with each follows completely different structures.
In this post, we’ll break down the pros, cons, and key distinctions between dropshipping and affiliate marketing. You’ll learn how each business model works, the revenue potential, and which is better suited for your goals.
Let’s dive in!
The key difference between dropshipping and affiliate marketing is the point of sale.
In affiliate marketing, the affiliate sends traffic to the merchant, who then processes the sale. In dropshipping, the drop shipper processes the sale and then forwards it to the merchant who ships it.
It might seem like a small detail, but this means dropshipping is fundamentally different from affiliate marketing.
Here’s a comparison table to help you understand the differences between dropshipping and affiliate marketing:
| Aspect | Dropshipping | Affiliate Marketing |
|---|---|---|
| Initial Investment | Higher due to costs associated with setting up an online store, acquiring sample products, and marketing expenses. | Lower, often just a website and content creation tools are needed to get started. |
| Inventory Management | No inventory is held; products are shipped directly from the supplier to the customer. | No inventory is held; marketers promote products and direct traffic to the seller’s site. |
| Profit Margin Control | Dropshippers set their own prices, allowing control over profit margins. | Affiliates earn a set commission on sales, which is determined by the seller. |
| Customer Service | Dropshippers handle customer service, returns, and complaints. | Customer service is generally the responsibility of the seller, not the affiliate. |
| Payment Processing | Dropshippers need to manage payment processing and transactions. | Affiliates simply direct potential customers to the seller’s payment gateway. |
| Marketing Focus | Requires a strong focus on marketing to drive sales on your own platform. | Focuses on content creation and marketing to drive traffic to the seller’s site. |
| Revenue Model | Profits are made on the margin between the wholesale price and the resale price. | Revenue is based on earning commissions for each sale made through affiliate links. |
| Scalability | Scalability can be limited by supplier reliability and the capacity to handle customer service effectively. | Highly scalable as affiliates can promote multiple products across various niches without dealing with fulfillment. |
| Risk Factor | Higher risk due to potential issues with suppliers, shipping, and customer satisfaction. | Lower risk as the affiliate is not directly involved with product fulfillment or customer service. |
Now, let’s take a look at each marketing strategy in more detail.
Dropshipping is a business model that’s commonly used around the world. While it might not be as well-known as affiliate marketing, it still presents an excellent opportunity for entrepreneurs and manufacturers.
In dropshipping, the dropshipper is responsible for marketing and sales, and the manufacturer simply ships the product to the customer.
A dropshipper will use all the tools of the digital marketing trade (SEO, Facebook ads, Google ads, YouTube videos, content marketing, etc.) to grow their audience and develop an interest in their products.
Rather than working on a commission structure, dropshippers earn their money by setting their prices for each product:
Let’s say you sell hand-made wine racks.
As a dropshipper, I would build an amazing website with e-commerce capabilities, spruce up my landing page, and develop my brand to sell your wine racks.
Perhaps I might sell your best model for $200. When someone buys the wine rack on my site, I will then forward the order to you, along with $50 to buy the product at wholesale cost. You would then ship the wine rack to the customer, and just like that, I’ve made $150, and you’ve made $50.
The key thing here is that the dropshipper is responsible for sales conversions. Essentially, there’s no difference between a dropshipping website and an e-commerce store, other than dropshippers don’t need to hold stock.
As with anything (especially with two closely related ideas like dropshipping vs affiliate marketing), each has pros and cons.
Those pros and cons also vary depending on where you are in the chain (manufacturer, merchant, or entrepreneur). So, who does dropshipping work out for and what are some pros and cons?
One of the biggest pros of starting a dropshipping business is that it’s relatively easy to start, and there aren’t a lot of start-up costs. It’s an extremely efficient way to start an online store, as you don’t have to worry about one of the most costly aspects of e-commerce: stock.
You never have to hold stock, there are many types of products to choose from, and you don’t have to pay for them until you’ve received payment for the sale.
If you want to start a business without making a big investment, then this is perfect.
With a simple WordPress site and great plugins like SeedProd, OptinMonster, and Smash Balloon, you can create a high-performing store on a limited budget.
The rewards can also be big on the other side of the equation!
You’re in charge of pricing, so you can make as much or as little margin as you see fit. Of course, you’ve got to find the sweet spot between volume and profit margin, but at least this relies on your skill level.
You’ve also got a lot of control over your brand to aid you in this.
Yes, you’re selling someone else’s products, but you can make them feel like your own products (in some cases, you can even have them personalized to make them own-brand).
It’s your marketing, your landing page, and your checkout. If you get it wrong, there’s only you to blame, but when you get it right, you reap the benefits.
There may be a steep learning curve for beginners, but there are very few barriers to start-ups, and this makes dropshipping an attractive prospect.
The immediate thing you must be aware of with dropshipping (and the key issue in the dropshipping vs affiliate marketing debate), is the responsibility for the sale.
Making sales is difficult!
A lot of businesses attempt it, and a lot of businesses fail.
If you’re picturing dropshipping as a passive income, you might find it’s not what you expected. It’s constantly optimizing your strategies, improving your marketing, and seeking small gains in your conversion rates.
The chances are you’ll be one of many people selling your products, and you’ve got to invest in your brand.
Of course, if you’re willing to put the time and effort in and have the skill, then this isn’t really a con, so what else is there?
The one con you can’t get away from in dropshipping is that you’re responsible for customer support (although many dropshippers outsource this). If the customer has a problem, then it’s you they’ll come to, and yet, you have no control over product quality or shipping time (two of the most common complaints).
Getting this aspect right can have a big impact on your brand’s reputation, and unfortunately, it demands resources. This is an unfortunate drawback of dropshipping for people who are solely interested in marketing and sales.
Let’s look at the other side of the dropshipping vs affiliate marketing debate and dig deeper into an affiliate marketing program.
On the surface, an affiliate marketing business is very similar to a dropshipping store, however, the affiliate isn’t responsible for making the sale. Instead, affiliates are simply concerned with marketing.
Their goal is to send engaged traffic to a merchant’s website so that the merchant can then make the sale.
Affiliates still need to find the right products and effectively market them to their audience, but they don’t have to worry about product price and earning customer orders.
Let’s go back to our wine rack example because now it will look a little different.
Rather than focusing on selling your wine racks, my job as an affiliate is to use my marketing skills to drive engaged traffic to your website so you can sell the wineracks yourself. This time, you will sell your wineracks directly to the customer for $200, and as a reward for helping you, I will receive a 20% commission of $40.
As you can see, there’s a big difference in the numbers, and the reason for this is that making sales is difficult – it’s like the magic source in many ways.
For this reason, dropshipping might be seen as more of a passive income for manufacturers, and affiliate marketing more of a passive income for affiliates (this is a little bit of an oversimplification, but there is some truth in it).
Many of the pros of affiliate marketing are similar to those of dropshipping, but the cons are slightly different.
Starting an affiliate marketing business might be even easier than dropshipping. Again, you don’t need to invest in stock or warehousing, but this time, you don’t even need an e-commerce store.
You can start affiliate marketing using your social media profiles, a YouTube channel, or a marketing website.
Essentially, if you can build an audience, you have a good opportunity to monetize what you’re doing through affiliate marketing. It’s one of the most low-risk business models out there, and it’s something you can get started with immediately.
It’s also an extremely attractive proposition for existing e-commerce stores because it’s very low risk.
Your only investment is in affiliate marketing software like AffiliateWP, which shouldn’t cost you more than $300 a year. You can mobilize an army of affiliates and influencers to promote your products and expand your reach.
You don’t pay affiliate commissions until the sale has been approved, so there’s a lot of upside without making any big investments.
The downsides of affiliate marketing are probably what makes it so attractive for merchants.
Affiliates don’t have a great deal of control.
They rely on the merchant to maintain their brand image, make sales, and invest in their affiliate program. It will hurt an affiliate’s income if they stop doing any of these things.
What makes up for this is that there are an endless number of affiliate networks and programs, but sometimes, it does feel like there’s a lack of consistency.
Don’t think that affiliate programs begin and end with Amazon or Aliexpress; there’s an affiliate program for everyone. While there are big marketplaces for dropshipping products, there tends not to be the variety of offers you see in affiliate marketing.
For merchants, it can be difficult to find the right affiliates, but as always, this is where the hard work and skill come in. When you’re using innovative affiliate software, this becomes a little bit easier.
When it comes to earning potential, both affiliate marketing and dropshipping can be highly lucrative if you put in the effort. However, there are some key differences between the two models that impact overall profitability.
In affiliate marketing, you earn a commission that is set by the merchant or vendor.
Typically this ranges from 5-30% of the sale price. The more products you promote and sell as an affiliate, the higher your earnings. Affiliates don’t control pricing or profit margins.
With dropshipping, you get to set your own product prices as the retailer. This gives you flexibility in determining your profit margins on each sale. However, profits can be impacted by returns, shipping costs, and providing customer support. These additional costs can cut into margins.
An affiliate’s income keeps climbing steadily as sales increase, without additional overhead expenses. For dropshippers, profits are reliant on pricing strategies and keeping overhead costs low.
While skilled dropshippers can optimize pricing for healthy margins, affiliate marketing provides more predictability. With pre-set commission rates, affiliates can estimate their earnings based on sales volumes.
For those looking for a scalable income stream, affiliate marketing is often more profitable long term. The hands-off model and lack of overhead provide more consistency as an affiliate’s audience and referral traffic grow.
Now that we’ve talked about what affiliate marketing and dropshipping are looked at their good and not-so-good points, and seen their profitability, let’s figure out which one is the better choice.
For entrepreneurs just starting out, affiliate marketing provides the easiest entry point and path to profitability. The low overhead and ability to leverage others’ products make it very low risk.
By focusing on honing marketing skills as an affiliate, you can build an audience and generate significant income through commissions. Affiliate marketing lets you gain experience before taking on the demands of dropshipping.
Once established as an affiliate, adding dropshipping may be a natural next step. You’ll now have the audience, traffic, and revenue to invest in your own eCommerce store. Your affiliate website also provides a ready-made foundation on which to build a dropshipping business.
Crucially, you don’t have to abandon affiliate marketing if you expand into dropshipping. Many successful businesses leverage both models synergistically. The combined income streams are highly lucrative and diversify revenue sources.
For new entrepreneurs ready to start an online business, affiliate marketing provides the perfect risk-free foundation. The skills you gain in attracting an audience and generating affiliate sales will prove invaluable when expanding into dropshipping.
Starting with affiliate marketing reduces growing pains and sets you up for long-term success in eCommerce. The path from affiliate to dropshipper is well-trodden by some of the largest brands today.
For online merchants, implementing an affiliate marketing program is a no-brainer given the numerous benefits and minimal investment. However, many avoid getting started because they think it will be complex to setup and manage.
This is where AffiliateWP comes in – it makes launching a profitable affiliate program seamless. Designed specifically for WordPress sites, it can be installed and configured in just minutes.
AffiliateWP handles all the heavy lifting like tracking referrals, computing commissions, and paying affiliates. With automated affiliate management, store owners can focus on their core business.
Don’t leave potential revenue untapped. Join thousands of merchants leveraging AffiliateWP to build affiliate armies and drive sales.
Why wait? Get started with AffiliateWP today!
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