Digital marketing is a fast-changing space. New marketing trends and business models keep emerging every day in it. Affiliate marketing and dropshipping are also two such trends.
Both allow anyone to earn a passive income without making significant investments in inventory or anything else. You only need a website, relevant content, and a marketing budget, and you’re good to go!
That’s why in this article, we’ll try to understand everything related to these business models in detail. There’s much to cover, so let’s jump straight into it!
- Affiliate Marketing vs. Dropshipping: Overview
- What is Affiliate Marketing?
- What is Dropshipping?
- Difference Between Dropshipping and Affiliate Marketing
- Which Is Better Between Affiliate Marketing And Dropshipping?
- Why Not Use Both Dropshipping And Affiliate Marketing Instead?
- Takeaway: Which Is Best To Use?
- Frequently Asked Questions
- Wrapping Up
Affiliate Marketing vs. Dropshipping: Overview
Both affiliate marketing and dropshipping are quite similar to each other in the following ways:
- They enable you to sell the products of another company, thus eliminating the need for product development.
- They also don’t require you to maintain any inventory.
- Finally, both of them also offer excellent earning opportunities without significant investment.
But there are some differences too. Affiliate marketing promotes other companies’ products through your blog or YouTube channel. You never sell the product yourself; you just redirect the buyers to the seller’s website through your affiliate link.
Dropshipping, however, requires you to sell the products yourself through an e-commerce store. So, you must set up the online store to start.
The only relief is that you do not manage the inventory and shipping parts of your business. But you still need to deal with the returns and refunds.
With this basic overview in mind, let’s understand both of them in detail.
What is Affiliate Marketing?
As explained above, affiliate marketing is about promoting someone else’s products or services to drive sales. You get a commission for every sale that you drive through your marketing efforts.
To make it possible, all traffic you send through your marketing activities is tracked with unique tracking cookies.
This starts with putting your affiliate product links between your articles, videos, and other content. The users click on your link, buy the product, and you get a commission.
While affiliate marketers are not responsible for product exchange and refunds, their commission is released only after the trial or return period of the product has passed.
If a customer asks for a refund within the trial period, their commission is withheld.
Pros and Cons of Affiliate Marketing
|Frugal business idea to generate profits with little-to-no investment||No control over affiliate programs and increasing competition|
|No specific expertise required except for creating good content and marketing it||Customer base doesn’t belong to you even after referrals and marketing efforts|
|Flexibility to promote as many products as you wish at a time||Performance-oriented income, which does not guarantee higher or stable recurring income|
|No stress of inventory or returns|
|Well-established and optimized business model with a decade long existence|
|Ability to work at your own convenience.|
What is Dropshipping?
As we said in the overview, despite sounding similar, Dropshipping is cut out of a different cloth. It involves selling a company’s product or service on your e-commerce website.
As the users buy products from your website, your dropshipping partner can pack and ship them on your behalf. If there’s no return, everything is done after the delivery of the order to customers.
If there are returns in some cases, then those need to be approved by you before the dropshipping partner ships a replacement of the product.
In case of a refund, you need to make the payment yourself to your customer.
The profit can be excellent in dropshipping, as many dropshipping partners allow you to add your own markup over the actual product cost.
Pros and Cons of Dropshipping
|Low-risk business model||Shortage of stock may lead to supply issues|
|No need to manage the inventory||Competition may have an edge because of lower prices|
|Higher profit margins||Replacements and refunds might be complicated with a distant dropshipping partner|
|Customer base is with you, so you can retarget or upsell to them to boost your revenue||Customer service issues may crop up|
Now let’s understand the differences between affiliate marketing and dropshipping in detail.
Difference Between Dropshipping and Affiliate Marketing
The difference between affiliate marketing and dropshipping is based on 4 major criteria: Business model, working concept, scalability, and profitability.
In addition to that, there are a couple of minor differences too. Let’s explore them in detail!
#1. Business Model
The affiliate marketing business model is based completely on commission. As an affiliate marketer, you need to drive traffic to a company’s product pages.
You get paid a fixed commission for each sale that comes from the traffic you drive. The commission is fixed by the company and cannot be changed by you.
On the other hand, dropshipping operates on the business model of an e-commerce store. In this model, you do not earn a commission but a profit markup of your choice.
You sell a company’s products on your website after adding your profit to the product price.
#2. Working Concept
Affiliate marketing requires you to find products similar to the topic of your blog or YouTube channel. The content is then monetized by including affiliate links in it.
Also, you get paid by the company after the money-back guarantee expires. If the referral customers do not stay, the affiliate will not be earning.
On the other hand, dropshipping works by direct promotion of products for their sale. It does not require creating too much content for the product to promote.
Also, you get paid immediately after the product is sold through your platform. The amount is not withheld by anyone, as happens in affiliate marketing.
But you might have to return the money if the buyer returns the products.
Affiliate marketing is a highly scalable business model as it doesn’t require any assets or inventory. It also doesn’t require a lot of hiring or technicalities, so you can scale it pretty quickly.
It’s also scalable because of its low-cost operations, which do not require much capex for scaling.
The only scalability challenge you can face is related to your server’s bandwidth, but that too can be fixed easily by upgrading your server. In fact, if you’re doing YouTube affiliate marketing, then you won’t face that challenge even.
The methods of deriving profits are also different for both of these business models. While affiliate marketing derives your profit from commissions, dropshipping derives them by margins or markups.
#5. Other Differences
There are a couple of other things too that make affiliate marketing and dropshipping different from each other. They include the following:
- Heavy Use of Content: Affiliate marketing requires a lot of content creation because your affiliate links go into the content. On the contrary, dropshipping does not require that much content as you directly promote the products you’re selling.
- Nature of Products: Affiliate marketing allows selling both physically deliverable products and digital products like e-books, online courses, etc. On the other hand, dropshipping is only for physically deliverable products.
Which Is Better Between Affiliate Marketing And Dropshipping?
Both dropshipping and affiliate marketing are profitable business models. These are passive income-generation methods for anyone looking to increase their income.
But if we have to choose one among them, then we’d say that either of them can be better or worse depending on the products you choose.
Generally speaking, dropshipping has the upper hand over affiliate marketing because of the following two reasons:
- Higher profit margin: In dropshipping, your profit often depends on you as you can decide your markup. In affiliate marketing, the commission is almost always fixed by the company whose products you’re selling.
- Less content requirement: Dropshipping requires less content creation in comparison to affiliate marketing. This is because you directly promote the products you want to sell like a normal e-commerce website. You don’t need to create long articles and videos to promote and sell your products as it’s done in affiliate marketing.
The only challenge you may face with dropshipping will be in the case of returns and replacements. In those cases, you’ll have to check and approve them manually.
But it’s still not as much of a big deal and can be managed by selling products with a low return rate.
Affiliate marketing, on the other hand, can be a better option than dropshipping if you’re selling high-value digital products like courses, hosting, etc.
The higher the product price, the more money you can make per sale.
Even if your commission is lower than dropshipping, when you’re promoting high-value products, you can make more money in a few sales.
Why Not Use Both Dropshipping And Affiliate Marketing Instead?
By now, you might have realized that both dropshipping and affiliate marketing have some pros and cons.
If you want to maximize your profits and get the best of both, you should use affiliate marketing and dropshipping together.
However, using them together is not as easy as it sounds. You need to keep certain factors in mind while deciding whether to do that or not (especially if you’re already doing either of them).
Here’s what you should consider:
#1. Rate of return
Affiliate marketing is devoid of any problems related to returning products or doing refunds.
Dropshipping, however, requires you to refund the money or arrange a product replacement if buyers return them.
So if you’re running a successful affiliate business and you also start dropshipping, the business complexity may increase sometimes.
It may increase if the products you sell through dropshipping have a high rate of return.
#2. Profit margin
Adding dropshipping to your existing affiliate business can help you increase your profit margins.
But if the product you’re going to sell through dropshipping doesn’t allow markup and doesn’t offer excellent margins either, then you won’t really be making any significant extra income.
In such a scenario, sticking to your affiliate business would be a better decision. So, better to focus on affiliate marketing in such a condition.
#3. Time requirement
Dropshipping business does not require much time to sell the products. Conversely, affiliate marketing requires considerable time to create content for promoting the products.
If you are getting an excellent income with dropshipping, integrating affiliate marketing could turn out to be too time-consuming for you.
This can reduce your ability to focus on and expand the dropshipping business.
If you find that using both together is not giving the expected results and ROI, you should stick to one of them, which is already doing good for you.
Takeaway: Which Is Best To Use?
Based on whatever we’ve explored above, it can be concluded that, on average, dropshipping is a better choice than affiliate marketing because of higher margins.
However, with the right product selection, affiliate marketing can also turn out to be better and more profitable than dropshipping. Here’s the detailed takeaway:
When To Use Affiliate Marketing?
Affiliate marketing can be the best choice for passive income generation when you have enough time to create the needed content.
Without enough high-quality content, you may be unable to drive enough sales to your affiliate partner, leading to fewer commissions and income for you too.
However, if you’re selling high-value digital products, then you can definitely make more income with affiliate marketing too. It all comes down to product selection.
When To Use Dropshipping?
Dropshipping can be a good passive income generation method when you have a bit of money to run ads and promote the products that need to be sold.
The amount you need to spend on ads would vary depending on your product and industry, but usually, you need to spend more than affiliate marketing.
This can be compensated by the higher profit margin, though. You can also build your customer base to resell and upsell other products at a later stage to increase your revenue.
When To Use Both?
Sometimes, you can benefit the most by doing both affiliate marketing and dropshipping.
You can try doing both when affiliate marketing or dropshipping alone is not yielding enough profits for you.
But you should consider the return rate of the product and profit margins in case you’re going to start dropshipping after building a successful affiliate marketing business.
On the other hand, if you are having a successful dropshipping business, then you should consider the time required to start an affiliate business, as affiliate marketing requires a lot of content.
Frequently Asked Questions
Which Is Better — Ecommerce Or Affiliate Marketing?
Depending on your requirements, either of them can work well for you. If money is not a constraint, an e-commerce business would be your best bet.
Affiliate marketing is great for people who have less budget to invest in their business but want to generate a passive income.
How Can I Start Dropshipping Without Any Money?
Dropshipping without any money is not possible, as you need to set up an e-commerce website for it.
This website is just like any other e-commerce website. It doesn’t require a lot of investment, but you need to purchase your domain and hosting space to set it up.
Is Affiliate Marketing Really Legal?
Yes, affiliate marketing is totally legal. As long as you provide clearly visible disclosures regarding your affiliation with products being promoted or used in your content, you won’t face any problems.
In this article, we discussed the effectiveness of affiliate marketing and dropshipping.
Besides this, we also explored their differences, working concept, scalability, and profitability. And finally, we tried to understand which model makes sense in which scenario.
We hope you have understood everything explained above and are ready to start your affiliate business now.
But if you still have any doubts, please share them in the comments, and we’ll try to answer them.
Also, if you think the information shared here is valuable, share it with others on your social media.