In the United States, around 30% of all business is conducted online according to IBISWorld. It’s not only the Land of Opportunity that has experienced an increasing trend towards online business, so has the global economy.
To get started in online business, you must first choose a business model. There are many online business models to choose from, like dropshipping or digital marketing.
However, in the following article, we compare two of the most popular: Amazon FBA vs affiliate marketing.
Business Model Overview
Before comparing these two popular online business models, let’s look at an overview of each.
What is Amazon FBA?
Amazon FBA, or Fulfillment by Amazon, is an online business model where you find and sell products on the Amazon marketplace.
Amazon handles fulfillment tasks for you. They support you in packing, shipping, and customer support of your products.
In the words of Amazon, “You sell it, we ship it.”
By selling through Amazon’s FBA program, you leverage the logistics network and reputation of one of the world’s most powerful companies.
Your products also have access to Amazon Prime two day shipping. This is a major benefit for FBA sellers over FBM (Fulfillment by Merchant) Amazon sellers.
As with any business model, there is a lot of work that goes into being successful on the platform and you should weigh the pros and cons of Amazon FBA before diving in.
Responsibilities for an Amazon FBA seller include things like product research, optimizing your listing, and management of Amazon PPC ads.
With over 9.5 million sellers on Amazon and 73% using FBA according to SellerApp, Amazon FBA is popular yet competitive.
What is Affiliate Marketing?
In affiliate marketing, you promote other peoples product to receive an affiliate commission on the sale.
There are essentially two routes you can go as an affiliate marketer. You can either create content to promote products or you can use paid advertising.
Many people view affiliate marketing as a hands-off business model because you aren’t actually responsible for physical products. However, that does not mean affiliate marketing is an easy avenue for making money.
It can require extensive hours and marketing expertise before you make a profit.
Even so, there is substantial money to be made as according to BloggingX, affiliate marketing is a $12 billion industry globally.
So which is better, Amazon FBA or affiliate marketing?
Well, the answer is complicated. It depends on your situation and your preference for business operations.
Let's break down each and determine which is right for you.
Startup Costs
A primary consideration for those delving into the world of online business are startup costs for the business.
When comparing Amazon FBA vs affiliate marketing, the two business models require very different startup capital.
Amazon FBA Startup Costs
With an Amazon FBA business, you source products to keep as inventory in the Amazon warehouse for easy shipment.
Getting products manufactured and shipped to Amazon’s warehouse for distribution are called your landed costs.
Aside from landed costs, you also need to consider the costs of an Amazon product research tool, Amazon PPC advertising, Amazon seller account, and GS1 product barcodes.
You also want to have around 30% of the cost of your original product order set aside for re-order down payment.
It takes time to receive revenue and payment on your first order of Amazon products. Therefore, having money set aside for re-order is important so you don’t go out of stock.
Without even considering Amazon listing assistance, business formation or administration costs like bookkeeping, Amazon guru Dan Rodgers breaks down typical costs for starting with 300 - 500 units selling at $30 - $60 per unit at $5,000 - $10,000+.
As you can see, Amazon FBA is not for the aspiring, bootstrapped entrepreneur.
Affiliate Marketing Startup Costs
With affiliate marketing, you bypass product expenses and just focus on the promotion and sale of products.
Technically speaking, you could start in affiliate marketing with $0. You just need to sign up for an affiliate program like Amazon Associate. Then, put your product links into free platforms like your YouTube channel or social media.
However, most affiliate marketers recommend having some startup capital to create a website or landing page. These help to increase conversions.
If you want to build a simple website yourself, you just need to pay for the domain and hosting fees. Together, these can cost as little as $3 per month on an annual plan, or $36.
Beyond a website, there is also a vast suite of tools that affiliate marketers use to expand their opportunities.
On the more expensive side, a tool like Ahrefs helps with SEO to improve your site ranking for $99/month.
Finally, unless you are a content creator with a large audience or have the time to establish one, you will probably need to use paid advertising if you want to make money.
Paid ads allow you to put your product link in front of a targeted audience. Google ads are a popular option, but this breakdown from Fit Smart Business shows why a Facebook ad may be your best option.
Affiliate marketing expert Robby Blanchard says it’s possible to start with an advertising budget of $10 - $20/day.
Therefore, most people who aren’t popular content creators should have around $500 to get started with affiliate marketing.
Profit Potential
When considering a business venture, profitability potential of the business is a primary consideration.
If you are going to put time and money into something, it's important to have an expectation of the benefit.
Amazon FBA Profit Potential
As Amazon FBA is a business model that requires high cash outflow, sellers are not always profitable.
However, a 2022 report from JungleScout notes that the majority 76% of sellers are profitable.
In fact, the report finds that 63% of Amazon FBA sellers become profitable within their first year.
With 3+ years of experience on the Amazon website, 60% of sellers make over $100,000 in revenue.
JungleScout also provides data that 45% of Amazon FBA sellers make between $1,000 - $25,000/month in sales. With 52% of sellers making 16 - 50% profit margin on their online store, it’s clear that results vary substantially.
When estimating by taking the extremes of this data, average Amazon FBA sellers can expect to make anywhere from $160 ($1,000 x 16%) to $12,500 ($25,000 x 50%) of profit/month.
Affiliate Marketing Profit Potential
Like an Amazon FBA business, affiliate marketing incomes can vary. According to Scaleo, 48% of affiliate marketers earn around $20,000/year.
It’s not uncommon to become interested in affiliate marketing through the success stories of top earners in the industry. Experts like Pat Flynn and Kristy McCubbin earn over $100,000/month!
However, only 3% of affiliates even make over $150,000/year. On average, middle class affiliates earn $1,000 to $10,000/month.
Working Hours
Those looking into online business are often trying to replace their current 9 - 5 with something less time-consuming.
Amazon FBA Expected Working Hours
Most Amazon FBA sellers spend considerably less than the typical 40 hours on their business. In a survey conducted by JungleScout, only 28% of sellers spend over 30 hours a week on their Amazon store.
If your goal is to be extremely successful on the platform, you will need to spend more time on your business. However, if average results are good enough for you or you have limited time for the business, Amazon FBA doesn’t require long hours.
Affiliate Marketing Expected Working Hours
Quantifying working hours in affiliate marketing is more complicated. For affiliate marketers relying on organic leads through content creation, hours can be on the longer side.
For example, affiliate marketers who use blog content to generate sales spend considerable time creating posts. According to First Site Guide, 38% of bloggers say they spend at least six hours on a blog post for best results.
On the other hand, there are many affiliate marketers that have more capital for advertising and outsourcing content creation.
Michael Rodgers, owner of a top ranking affiliate training website, gets realistic with affiliate working hours. Some gurus portray affiliate marketing as a minimal hour endeavor. However, Michael details his journey of working 5 to 80 hours per week on his business.
Like Amazon FBA, affiliate marketers can create a steady income with around 30 hours per week.
Passiveness
A major selling points online business gurus use for making money online is that you can create passive income.
Passive Income Amazon FBA
There is a lot of work that goes into setting up and maintaining an Amazon business.
You need to start by doing hours of product research to find an opportunity.
Then you have to set up your product listing and run ads for your product on the Amazon marketplace.
Aside from keeping track of your Amazon inventory and placing product re-orders, you also have to do regular market research so you can adjust your product listing and Amazon PPC ads to remain competitive.
Then, if you want to maintain or grow your business, you need to continue doing product research to find additional opportunities.
Just because you have a product selling well now and making you money does not mean it will continue forever.
Amazon FBA sellers need to diversify across several products to avoid volatility in profits.
It’s true, Amazons FBA program allows for some degree of passive income as they fulfill orders and handle the bulk of customer support. However, you won’t be able to ignore your business for too long and continue making money.
Passive Income Affiliate Marketing
Although affiliate marketers can certainly work long hours creating content and refining ad Campaigns, income often becomes passive.
If you have an affiliate link you include on your blog, social media or YouTube channel, that link can be used for years to make you money.
For example, if someone reads your blog post from three years ago and uses an affiliate link you placed there to make a purchase, you just made passive income.
It’s possible to ignore an affiliate marketing business for months. You can still make money with your content already on the internet.
While you need to update your content and adjust your ad campaigns occasionally if you want to achieve excellent results, the affiliate marketing business model can generate passive income.
Future Proof
With rapid advancements in technology and fluctuating regulation of the digital world, aspiring online business owners need to consider the lifespan of a potential venture.
Future of Amazon FBA
Global Ecommerce has experienced explosive growth, especially stimulated by the pandemic.
Even though Ecommerce sales are expected to slow over the coming years, growth is still high and it will be awhile before the market matures.
As the world’s largest Ecommerce company, you can expect Amazon and its FBA sellers to benefit from this continued growth in the industry.
That said, Amazon is making it more difficult for FBA sellers to be profitable on the platform.
Aside from increasing fees on an almost yearly basis, Amazon is also competing directly with third-party sellers through its AmazonBasics program.
In fact, the company has leveraged data from its FBA sellers to create the private label products in the program.
As an Amazon FBA seller, you will always be at the mercy of Amazon to not only continue the program but also to play fair.
Although it’s unlikely Amazons FBA program is going anywhere soon, it will continue to become more difficult for third-party sellers on Amazon.
Future of Affiliate Marketing
In the last five years, Google Trends shows that search interest in affiliate marketing has exploded a whopping 300%.
Global spend in affiliate marketing is increasing at a 27% compound growth rate according to Mediakix.
With Mediakix also noting that 80% of brands already embrace this form of marketing and the fact that the internet is becoming a more friendly place for content creators, affiliate marketing should maintain a sound position.
Affiliate marketing is an efficient form of marketing for businesses given that it is based on performance, so brands only pay when they make money.
The biggest risk for the future of an affiliate marketing business is not the industry itself, but that affiliate marketers often specialize in a specific niche.
If your chosen niche loses popularity and dies out, such as beanie babies at the end of the 1990s, you lose your valuable audience and revenue stream. So, the Amazon FBA dropshipping model isn't easier than affiliate marketing. But if you know how to stay ahead of market trends and find things people want to buy, you can make more money because you own an asset.
Conclusion
If you have sufficient startup capital and like the idea of building a business that sells physical products, you could build a solid income stream with Amazons FBA program.
The opportunity isn’t what it used to be, but there is still time and growth potential in the industry to create a profitable store.
However, there is likely even more opportunity in affiliate marketing, especially for those who enjoy content creation.
Barriers to entry are quite low. Aspiring small businesses can start making money by simply signing up for an affiliate marketing program and putting their product link in front of their social media following.
If you want to start affiliate marketing, skills like social media marketing and knowledge of running ads will enhance your results tremendously.
For those who like the idea of working with Amazon but want the benefits of affiliate marketing, the Amazon associates program is a great option.
As an Amazon affiliate, you promote products listed on Amazon. In fact, Amazon affiliate marketing is one of the most common ways to get started as an affiliate marketer.
Whatever business model you choose, the important thing is to give consistent effort and learn from others who have succeeded already.
Local Lead Generation
There is one other business model called local lead generation. It's similar to affiliate marketing, but it's a lot easier to generate traffic.
You build & rank websites in local cities that generate leads for small businesses. A lot of people may find that it's a much more rewarding business, because you own and control every aspect of the business. And you don't have to deal with the hassle of highly competitive world of e-commerce.
This local lead generation course has over 7400 students and tons of results. Some of you might find this business model to be a better fit than Amazon FBA or affiliate marketing.
Amazon has the buyers. People who are ready to buy if you have the right goods that they are looking for. But affiliate marketing has the large commissions. If your marketing is good, you stand a chance to make a sale for hundreds or even thousands of dollars. I think that plus the idea that affiliate marketing is hands off makes it very attractive.