If you are interested in making money online, dropshipping and affiliate marketing are the two ways you can make money without engaging in active remote work. Both of these are scalable to an extent and have minimal starting risk. But which one makes more money?
Affiliate marketers can make more money in the long run because affiliate marketing is infinitely scalable. In contrast, dropshippers can make money more quickly because they can access the inherent traffic of other platforms.
Here are the main differences between dropshipping and affiliate marketing:
Stock risk: Absent
Upfront investment: Advertising
Greatest Advantage: Can start earning in the short-term
Greatest Drawback: Not infinitely scalable
Your value: Finding undervalued products and bringing them to those who value them more
Stock risk: Absent
Upfront investment: Effort (building an audience)
Greatest Advantage: Is 100% automated
Greatest Drawback: Takes a long time to make substantial income
Your value: Generating traffic for a relevant product
In this article, you will learn more about these income-generating methods and their respective pros and cons. By the end of this post, you'll know which one is right for you.
Let's get started.
Dropshipping: A Brief Overview
Dropshipping is a business model where you don't store the inventory but take orders for it. After you receive an order, you purchase the product at a lower cost and then forward it to your customer's address.
Dropshipping is like playing an online middleman who gets paid for finding amazing products at lower prices and shipping them at higher prices.
No upfront risk. You don't need to buy or store any product. This results in zero stock risk, which can be a great position to start your first business from.
No need to build your own audience. Where affiliate marketers need to generate traffic, dropshippers can leverage traffic on platforms like Amazon and the Facebook Marketplace. The effectiveness of platforms can vary, and some dropshippers run ads, which creates a financial risk.
Work from anywhere in the world. Dropshippers need to fulfill orders actively. But they can be in a variety of places physically. This benefit is why the dropshipping lifestyle is attractive to young people who want to have a digital nomad lifestyle and work from anywhere in the world.
Thin profit margins. The first problem with dropshipping is that you can have a tough time generating sales if the products have a high base price. And because prices keep rising, your profit margin can keep thinning.
High competition. You have to deal with hundreds or even thousands of dropshippers now that the cat is out of the bag, and people know they can make money engaging in this form of arbitrage.
Not infinitely scalable. Dropshipping has a hard limit to its overall scalability because you must actively fulfill orders. Even if you hire people to manage shipping and handling on your behalf, you need to pay them, which stresses your profit margins.
Affiliate Marketing: A Brief Overview
Affiliate marketing is a discipline where you monetize your traffic or audience by funneling it to a landing page that sells a third-party product. You get a percentage of the total sales volume, and the manufacturer gets the rest.
For this, you need to affiliate with a business that has a product that is relevant to your audience and a bonafide affiliate program. Without a program that tracks conversion and traffic sources, you cannot get an honest return on your efforts as an affiliate marketer.
Pros of affiliate marketing:
Low set-up cost and quick profits. Most affiliate marketers start out as affiliates because they want to avoid investing in different products, which can be risky and costly. Take blog owners as an example. They invest enough effort for free writing their blog posts. If they choose to sell their own products, they take on the additional commitment of manufacturing, shipping, and handling. It is much easier for blog owners to signup as affiliates because it takes 5 minutes to sign up as an affiliate and 24 hours to get confirmed in most programs. The “low cost” and “quick” aspects aren't always valid. Some affiliates choose to send paid traffic (by running ads), but this strategy has a serious cost burden. Other affiliates signup as marketers before they have an audience and may spend months building a following that they can monetize. So the benefit of quick and cost-free profit applies only to those who already have an audience.
Zero shipping and handling burden. If you prefer to be on a flexible schedule, there are better ideas than having a business where you have to ship orders. Shipping and handling can be quite stressful for people who like to have an open schedule. Affiliate marketers can generally have a relatively burden-free schedule as long as they can commit to their content and marketing responsibilities. Once you create a blog post or your social media content, you don't have to answer anyone. This lack of customer service expectations allows you to be stress-free.
Seriously scalable. Scalability refers to a business model's ability to grow. The least scalable model is freelancing as a physical artist. You cannot produce beyond your maximum output limit. The most scalable business model is delivering an infinitely replicable digital service. These include digital downloads, software, and subscriptions. None of these scalable products and services are dropshipped. But almost all of them are marketed via affiliates. The affiliate marketing model is far more scalable because you do not have to participate in any order actively. This allows you to generate as many sales as your traffic volume produces.
Automated income. While there are tasks you need to execute as a competitive affiliate marketer, you can skip participating in fulfilling orders. This can make room for automated income. Each blog post can be an income stream. You can own multiple websites that push different types of products and services and have each one generate a portion of your income. Doing the same as a dropshipper is pretty hard.
Cons of affiliate marketing:
You make a part of the revenue. This con alone makes many people feel conned. You might have to put in a lot of effort to get traffic, and when your audience buys something, you get a small portion of the final sale.
You rely on a third party to close the sale. Sometimes, you might like a product and may want to really sell it well, but the affiliate program is restrictive and demands that the traffic be sent to its landing page. When you cannot
use your own copywriting to sell a product, you lose control of the sale and may make no money because the seller needs to be more persuasive.
You don't (usually) get repeat income from returning customers. Finally, the greatest disadvantage of an affiliate business is that the affiliate doesn't make money from repeat transactions. Let's suppose you get a customer introduced to Fiverr. He will probably purchase services on the platform for 5+ years. You will get most of your commission on the first sale and some portion of it during the first year. Many affiliate programs don't reward you past the first sale, which can make your overall income unpredictable. (Pro tip: Look for affiliate programs that offer recurring commissions.)
Affiliate Marketing vs. Dropshipping: Which One Should You Choose?
You should pick dropshipping if you want to make money in the short term. On the other hand, if you want a full-time income online, you should build an audience and start affiliate marketing. It will take some time, but with the right partners, you'll be able to make more money.
Not ready to be done learning about sales funnels? Check out these 8 Steps to Build a Sales Funnel for Affiliate Marketing.
