Affiliate marketing and drop shipping are online business models that market and sell merchandise. Affiliate marketing promotes products and services sold by other companies. Dropshipping is retail fulfillment where you don't hold inventory. Instead, you rely on third-party suppliers to handle order fulfillment and ship the item directly to the consumer.
As an affiliate marketer, your only job is to drive traffic to your affiliate links, and you get paid a commission for every sale. As a dropshipper, you control how you price your inventory. But you need to be the better marketer and differentiate your store from the competition. Both business models require expert marketing skills and the ability to find a unique angle. (You need to find a reason why your target audience should purchase the product you're either selling or promoting).
It takes time and research to find the best niches-ones with winning products that people actually want to buy. Or the criteria for a good affiliate program and how to find the best contracts. But there are other pros and cons to consider. So you need to decide which best fits your skills and long-term goals.
For example, do you enjoy customer service or consider yourself more of a content creator? Or would you prefer to own an online business like local lead generation that gives you complete control over your digital assets? Affiliate marketing and dropshipping offer a way to make money online. But is one business model better than the other? Let's find out:
What’s The Difference Between Affiliate Marketing Vs Dropshipping?
Affiliate marketing is easy to set up and doesn't require a substantial initial investment. Plan on a budget of $1000-$2000 to cover the cost of resources like:
- Website Build & Hosting
- Software & Tools (TrackingDesk & SpyFu)
- Paid Ads
You can test multiple affiliates' offers at once and scale quickly. You don't have to worry about customer service or rely on suppliers to fulfill orders. But you have no control over retargeting or pricing items. And you're bound by rules around advertising—this lack of flexibility can impede your marketing and sales strategies.
You can do affiliate marketing around anything, from physical products to services and lead generation. The key is to promote products and services you're passionate about or believe will add value to a person's life. But you need to make sure that they have a decent profit margin. So you need to use data analysis tools like Scaleo or Google Analytics to assess your numbers.
But you're always on the hunt for a new audience, and the customers belong to the parent company. So you're doing all the heavy sales work but have nothing tangible you can sell in the future. There's also the risk of the affiliate marketing program being shut down or links being removed.
The learning curve is less steep than dropshipping. But if you're willing to invest the time, you can design a blog or robust social media following if you don’t want to spend money on paid ads.
Dropshipping deals with customer service issues and securing reliable suppliers to handle fulfillment. But you're in complete control over how you price your products. You can leverage retargeting tactics and have the advantage of recurring sales.
But if you want to succeed in dropshipping, you have to become great at finding trending physical products (like fidget spinners or hoverboards). In addition, you need to create compelling ads and have a professional-looking Shopify store that looks like a real online business.
"Global social media advertising spending will account for 33% of all digital ad spending in 2022". Hootsuite
You control your ads, content, and creatives. So you can tap into secrets to create drop shipping ad videos. Dive into people's pain points and show the benefits of your product (how it solves a problem). But drop shipping is all about paid ads, and with Facebook costs rising, you need to pivot fast when things aren't working to minimize loss on already razor-thin profit margins.
Drop shipping is flexible and scalable because they're so many products you can sell. Plus, physical products can make a lot of money if they're hot sellers. You also have the option to brand them and can sell your business in the future.
But as a dropshipper, you lack control over a lot of aspects of your business, including quality control and logistics. So you need to know what common dropshipping mistakes to avoid. And how to circumvent issues to stay one step ahead of the competition.
Dropshipping and affiliate marketing are low barriers to entry business models and ways to make money online. But there are significant differences to consider like:
Comparison Of Affiliate Marketing Vs Dropshipping
Category
Dropshipping
Affiliate Marketing
Business Model
Dropshipping sells inventory via a third-party supplier. So you don't hold stock or need to invest cash on products, but you take care of customer service issues and rely on wholesalers for order fulfillment.
Affiliate marketing promotes another company's products or services. You don't hold products or worry about order fulfillment and customer support issues. But affiliate marketers are dependent on sales and the rules outlined by affiliate network providers.
How To Be Successful: Main Differences
In dropshipping, you need to find trending products before the market becomes saturated. It's about running the best-paid ads with a hook that captivates your viewers and invokes impulse buys. You need a unique angle and high-quality creatives that are better than the competition. And you need to spend money on paid ads if you want to make sales.
In affiliate marketing, because commissions are much lower since you can't control your price, it's challenging to run paid traffic unless you do 'scuzzy ads'. Organic affiliate marketing is about building a personal brand using social media, YouTube, or a blog that requires consistent effort. You need to build trust with your target audience and engage your viewers with valuable content and have an irresistible offer.
Profit Margin
Dropshippers see average profit margins of around 30%. But they have complete control over their pricing and the inventory they choose to sell, including quantity breaks, upsells, and subscription options. They're also not tied to regulations except those imposed by platforms they use to advertise their product(s).
Affiliate marketers typically run at around 50% profit margins and are paid via commission for every click their link(s) garner. However, affiliate marketers have zero control over retargeting. And the customer belongs to the parent company, so there isn't much opportunity for recurring sales.
Scalability
Scaling with drop shipping takes time and typically requires a drop shipping store to create a brand around their winning product(s) or shift to the ecommerce business model. But you’re selling a physical product, so you can make a lot of money if you sell your drop shipping business. Once you find that winning product and a high converting ad, you can scale quickly for a few weeks (up to a few months). Or until you exhaust your audience, then you have to start over again. But you can scale quickly with dropshipping because you're using paid ads.
Scaling with affiliate marketing depends on your delivery. You cannot scale quickly if you're doing organic affiliate marketing. Because you have to build your audience over time by consistently putting out good content, that takes time and consistent effort. You can run paid ads with affiliate marketing to expedite the process. But they require a lot of trial and error (and most are full of hype and aggressive marketing that some people are uncomfortable with). Still, if you can find a winning version of an ad and the right offer, you can scale quickly for a few weeks or months and connect with as many affiliate networks and links as you want to generate more sales.
But you don't own any tangible business and don't have an entity you can sell in the future.
Both are highly competitive and focus on trending products in profitable niches. You need to authentically connect with your target audience and treat both online models like a real business. Starting a local lead generation business is another way to make money online. But instead of physical products, you generate leads for local business owners. Then you sell those leads for profit. (So you don't need to worry about trends or the next winning product).
What Is Affiliate Marketing?
The global affiliate marketing platform market is estimated to hit $13130 million in 2022. Affiliate marketing is a popular business model because you don't own the products or need to create them. Instead, you send traffic to someone else and earn a commission for every click on your link. When learning how to start affiliate marketing, you need to choose a niche and products you're passionate about.
Don't try to build your business around commission deals. Instead, find something you enjoy (you'll be more motivated to develop your process). By promoting products you think people should buy or that are beneficial to others, you come from a place of belief in what you're sharing. And because you're being authentic, you build trust with your target audience. But you need to research the niche and the product you want to promote (the less broad-the better) and determine things like:
Affiliate Marketing Research Criteria Check List
Use tools like Google Trends and Facebook Audience Insights to gauge the level of competition and access:
- What are other affiliates doing to promote this product?
- Is there a lot of competition?
Find affiliate networks on platforms with multiple options in specific niches. A few popular options include sites like:
- ShareASale
- FanFuel (niche-specific for fitness)
- ClickBank
- CJ Affiliate
- GiddyUp
Pro Tip: Be particular with your affiliate program selections. Look for good high-ticket front offers with a backend offer that compliments the front-end offer but still aligns with your values and the needs of your target audience.
Affiliate marketing is categorized into three types:
Unattached-the affiliate has no connection to the product or service they're promoting (not an authority).
Related-the affiliate is connected to the product or service being promoted (has the expertise and a level of authority that makes them a trusted source).
Involved-the affiliate has used or is using the promoted item, and their experience is like an advertisement (recommending based on personal use but at the risk of their reputation should things go awry).
And there are five ways affiliate marketers get paid:
How Do You Make More Money As An Affiliate Marketer?
To make more money as an affiliate marketer, you need to be laser-focused and have an irresistible offer. So create one traffic funnel based on a highly commissionable product you believe in. (You dilute your process when you try to promote too many products or affiliate programs). Narrow your focus and generate authentic content that connects with your audience.
Focus on selling an affiliate product that has value and can solve a problem or enhance a person's life. You need to think long-term. Stand behind products to maximize the value you provide to your audience, and stop focusing solely on commissions. (It's not only unethical, but it's a fast way to lose the trust of your audience). Then, once you've seen success with one product stream, find another product and rinse and repeat.
If you're really into affiliate marketing and really want to invest in a course, AMBSDR is an option.
Generating Traffic Consistently Is The Hardest Part
Your only job as an affiliate marketer is to drive traffic to your offers. But because you're not selling your own product or service, you make less profit. You also don't build a consumer base to generate recurring sales. And if your traffic doesn't act on your affiliate link, you don't make any money. So you need to drive even more traffic than other online business models like ecommerce or lead generation if you want to make a decent income.
And the market is becoming increasingly competitive with new players vying for the same customers. So you need to stand out from the competition. You need to be skilled at content marketing and have a clear strategy. Check out TikTok, Amazon's best sellers list, or Google to research things like:
- What are the problems in this niche?
- How can your offer improve a person's life?
- What's your angle?
You need to publish high-quality and engaging content. And share valuable information or educate your audience.
Pick a niche you're passionate about with an active online audience. One in an area that interests you so you'll stay motivated to build an audience or fan base over a long time.
Use software like SEMRush or Google Trends to get real-time data on search volume and keyword difficulty. You're up against a ton of content creators. So what you publish needs to be on-point to get organic traffic. You can generate organic traffic through blogs, landing pages or social media platforms like Facebook, YouTube, and TikTok. Organic traffic is free, but it takes time. You also need to consider the competition.
There are around 600 million blogs on Google. And the top spots belong to established brands that have spent years developing trust and securing an engaged consumer audience. So you need to publish consistent, high-quality, engaging content to build an audience.
Consider Things Like:
- How can you add value?
- What keywords can you target to gain traction in a crowded online space?
- How can your blog stand out from the competition?
- What offers will you target?
- How will you drive online traffic to your site?
Your content needs to captivate your reader. But you also need to establish trust with your audience. (So don't push your offers out of the gate). It takes compelling and informative content that corresponds with what your target market is searching for online. So you need to know your audience. And you need to be passionate about the niche and products you promote.
"Facebook accounts for over a quarter of all digital ad spending, right behind Google (28.9%) and surpassing Amazon (10.3%)" eMarketer
However, you can get quick wins with paid traffic using things like:
- Facebook Ads
- Instagram & YouTube Ads
- Google Ads
- Podcasts
But when running paid traffic, you need to focus on offers that are converting right now. So you need to target hot-ticket sellers. Find trending products on sites like ClickBank to see the top-performing offers. Check out platforms like TikTok and Instagram.
- What are people talking about?
- Can you find an affiliate offer based on a current fad?
With paid traffic, you can get quick wins. But they're often short-lived, so you'll need to find another trending product when there's no longer interest or demand from your consumer base.
Plus, advertising costs are rising, and Facebook ads are expected to increase by 15% in 2022. So if you want to win with paid ads, you need to leverage video marketing and design creatives with a scroll-stopping hook. One that gets people to take action and click on your offer. Your paid ads should complement your other affiliate marketing efforts. But you still need to build rapport with your audience using marketing strategies like:
Other ways to make more money with affiliate marketing:
You can use plugins like WordPress Thirsty Affiliates and Pretty Links (or Genius Link for Amazon links) to access the health of your affiliate links. Of course, how well you can sell your offer will determine how much money you actually make. But if you give people choices and provide them with the best experience, you'll sell more and make more.
The Darker Side Of Affiliate Marketing
You need to become an authority on the niche you want to sell and consistently demonstrate your expertise to your audience. Affiliate marketers need to be passionate about what they're promoting.
But there's some 'cloak and dagger' stuff with affiliate marketing that no one talks about. Because the barrier to entry is so low, there's a ton of competition. So to get your product to sell, you need to create outlandish claims—ads with cut-throat urgency that make people stop and buy (invoke impulsive purchases or a FOMO).
As the competition escalates, the ethical line gets moved but is justified by the increased CTR. So now you need to spend money on Facebook ads. But because your ads are aggressive, you risk getting shut down or have to constantly up the ante to achieve sales.
Furthermore, you don't have brand loyalty because your face and name aren't behind the product. This can result in many affiliate marketers deploying the worst side of internet marketing tactics (just to stay one step ahead of the competition).
But even with questionable sales tactics, you still have no control or own any assets with this business. And results are inconsistent and nearly impossible to sustain long-term. Unlike the lead generation business model, where you build valuable virtual real estate. Digital assets you own that generate leads, you then sell to local business owners. So not only does lead generation offer longevity, but it's also a way to secure a semi-passive income.
What Is Dropshipping?
Dropshipping is a popular online business model worth an estimated $196.78 billion in 2022. A retail fulfillment-style business where you don't require a ton of startup capital or need to house any inventory. As a dropshipper, you're the intermediary between a customer and a wholesaler or US dropshipping suppliers. But the golden age of dropshipping is long gone, and old ways of generating sales for your dropshipping store don't cut it in 2023.
Now you need to be a better marketer than the competition. Focus on the benefits of your products and tap into consumer pain points. Show how your product can solve a problem or save them time. You want to invoke impulse buys. So you need to find trending products that sell well before the market becomes saturated:
Dropshipping Checklist
It's not too late to start dropshipping, but you need to know how to play the game. Learn how to find unique products that fill a void in the market and the best ways to increase your dropshipping success rate. Like how to maximize your ROAS. Or how to launch high-converting ad campaigns.
Why 90% Of Dropshippers Fail
The biggest issue with dropshipping is the lack of control. Because you don't own or store inventory, you rely on third-party suppliers to fulfill orders, so you have no control over shipping times, quality issues, or damaged items.
The concept of the business model is simple, but the success rate is only about 10%. So why do so many people fail with dropshipping? A lot of dropshippers don't understand the business model or think it's a get-rich-quick scheme.
Some fail to understand the disadvantages and risks of dropshipping. As a result, they choose the wrong niche or don't take the time to research and find hot-sellers, or treat their online store like a real business. Dropshipping is about testing lots of products. So you need to be prepared to try and fail (maybe more than once) before you find a winning product.
"The main reason that 90% of dropshipping businesses fail is that they don’t focus on adding as much value as possible for the customer". Max Robinson-Fish Tank
You don't need to reinvent the wheel. Instead, use software like PowerAdSpy or Social Ad Scout to find hot-ticket items already selling well. Find a store dominating the niche and use real-time data tools like Niche Scaper or ShopInspect to find high-performing competitor ads.
Then see where the competition is lacking and do better. It's about controlling the narrative through your marketing and advertising strategies and finding a way to increase the perceived value of your products.
You need to leverage customer psychology and create an angle that convinces people to buy what you're selling. So if you don't have the skills, you need to outsource until you're confident in your own abilities. Connect with a dropshipping video ad service or hire a copywriter to help with product descriptions and ad copy. Because if you're not the best in the business, you won't get results.
Dropshipping Vs Affiliate Marketing-Which One Is Better?
Both business models are a way to make money online. But your choice will depend on your skill set and long-term goals. Affiliate marketing doesn't require significant funds because you pay with your time.
But you need to have a large and engaged audience for your affiliate website or a substantial social media following, which takes time and effort. But you're a content creator, so you don't have to worry about an ecommerce website or customer support issues.
Dropshipping is low-cost, but that doesn't mean any cost. So you should plan on an initial budget of $2000-$5000+ if you want to set yourself up for success. Drop shipping is about jumping on trends before the market becomes saturated, but you need to be willing to hustle hard.
It takes a daily grind and the ability to stay one step ahead of the curve. In addition, you need to be an ace marketer with the skills to design high-converting ad content. And be ready to spend money on paid ads and test products (budget for $200-$300/product).
Could You Do Both?
Yes, you can combine the business models. But you need to determine what makes sense. You need to look at the profit margins. If you can find a product for pennies, you can dropship for dollars; it's business savvy to use the drop shipping business model. On the other hand, an affiliate marketing business would be the better option for a trending product that sells well but has low-profit margins. So, do the research and consider things like:
Dropshipping + Affiliate Marketing
If you're genuine, connect with profitable affiliate programs, or create a marketing angle that sells trending products better than other drop shippers, you can succeed with both business models.
Conclusion
Both drop shipping and affiliate marketing have pros and cons. They both employ minimal risk and low start-up costs by being the middleman. But they don't allow you to have control over fundamental aspects of your business.
Dropshipping includes products and customer service; affiliate marketing is about creating content and driving traffic. So there's no correct answer to whether one is better or more profitable. Only you can decide what best fits your skill set and long-term vision. I've tried my hand at both business models, and in my opinion, neither is the best online business to start in 2023.
An Alternate Option That I'm Doing Now...
The issue with dropshipping is that you have minimal control over fundamental aspects of your business. You need to spend crazy amounts of money on paid ads-primarily Facebook-to see any real payouts. (These ad costs dip into your already thin profit margins. Plus, as the industry becomes more competitive, they will only get higher).
With affiliate marketing, you have zero control of your product. In addition, if the affiliate program changes the commission structure, you can't do anything about it. But you don't have to create a product. And if you're willing to invest the time to develop organic traffic, you don't rely solely on paid ads.
Both business models offer a way to make money online. But they each take a lot of work and effort for minimal control and even less profits. Plus, the barrier to entry is so low the competition is cutthroat. On the other hand, the lead generation business model is a skill set, so the barrier to entry is higher (less competition).
Like affiliate marketing, you get paid for generating leads for local business owners. The difference is that you fully control every aspect of your business. For example, you're not selling physical products like dropshipping, so you don't worry about shipping or supply chain issues. Plus, you don't need to deal with high levels of competition. Or run the risk of market saturation.
