Amazon FBA vs dropshipping vs affiliate marketing... What is the difference between these 3 popular online business models? Amazon FBA leverages Amazon to fulfill Ecommerce orders, dropshipping has the supplier fulfill Ecommerce orders, and affiliate marketing just promotes products to earn a commission while letting the product owner worry about fulfilling their own orders. Although these business models certainly have their differences, they also share many similarities as well, like the ability to profit while another business fulfills product orders. Amazon FBA and dropshipping in particular are quite similar, with a few key distinctions that make one an excellent choice for entrepreneurs getting started on a tight budget and the other the better choice if you want the potential to make a million dollars.
Before starting any business, it’s important to understand exactly what the business model entails and its pros and cons. You also need to know how these business models stack up against each other and other potential online business opportunities. This article will help you decide precisely which of these business models you should choose based on your goals and circumstances. That way, you are equipped with the right information to make your own decision instead of relying on the promotional content of online gurus who may convince you to engage in an opportunity that isn’t best for you.
For example, there are many influencers these days promoting dropshipping as a get rich quick scheme on social media platforms like TikTok. On YouTube, you’re likely to come across people like Travis Marziani promoting Amazon FBA or John Crestani promoting affiliate marketing. Usually, these gurus just want to convince you about their business model so you buy their course without painting you an accurate picture of what that business model really entails to be successful.
Cell | Amazon FBA | Dropshipping | Affiliate marketing |
Startup investment | $10,000 - $20,000 | $0 - $1,000 | $0 - $500 |
Profitability timeline | 1 - 2+ years | 0 - 6+ months | 1 - 2+ years |
Profit potential | $0 - $10K+/month | $0 - $5K+/month | $0 - $10K+/month |
Scalability | High | Low | High |
Sell business | Yes | No | Yes |
Competition | High | High | High |
Deal with customers | No | Yes | No |
Risk level | High | Low | Low |
What is Amazon FBA?
Amazon FBA is an Ecommerce order fulfillment service that leverages Amazon’s advanced logistics systems and capabilities to support the selling activities of third party sellers. FBA stands for Fulfillment by Amazon. Through the Amazon FBA program, an Amazon seller outsources a range of Ecommerce tasks, including:
- Inventory storage
- Picking and packing products
- Shipping
- Customer service
- Returns processing
Although Amazon handles a large portion of the work required to operate an Ecommerce business, an Amazon FBA seller still needs to perform many important tasks to successfully run their business. The most important task for an FBA seller is product sourcing. With Amazon FBA, you can employ a few different business models to source products to sell on Amazon, including:
- Private label - Sourcing products from a manufacturer in bulk and branding them as your own custom product.
- Wholesale - Sourcing the products of established brands like Nike from distributors in bulk.
- Retail arbitrage - Finding products in person from local stores that are selling at a discount to their selling price on Amazon.
- Online arbitrage - Finding products from other online marketplaces like Walmart Marketplace that are selling at a discount to their selling price on Amazon.
What are the pros and cons of Amazon FBA?
Pros
The Amazon marketplace provides a customer base of over 310 million people
Access to 2-day shipping and Amazon's high paying Amazon Prime members, which isn't the case if you use Amazon FBM
Amazons FBA program takes away the burden of Ecommerce fulfillment so you can focus on scaling
Amazon has a positive reputation globally
Cons
Amazon FBA takes over 50% of your revenue as its cut, according to Entrepreneur magazine
Amazon is extremely competitive. You'll have to sell alongside major brands like The Disney Store, Chinese manufacturers, and even Amazon's own private label product lines
Amazon can suspend or ban your seller account
You rely on Amazon to run your business and must abide by all their rules and policies
Your ability to brand your products and build your own customer base is limited
What is dropshipping?
Dropshipping is an Ecommerce business model where a seller just markets products through an online store and relies on a product supplier to actually ship the order to the customer. A dropshipping seller never touches the products they sell because it goes right from the supplier to their customer. When a customer orders a product from a dropshipping store, the dropshipper buys the product from their supplier and provides the customer's shipping details to the supplier. Therefore, a dropshipper doesn’t need to purchase products upfront like normal Ecommerce sellers. They only purchase products once the product has already been sold, so the business model is considered low risk.
A dropshipping business can either sell products through its own website, such as a Shopify dropshipping store, or through an Ecommerce marketplace with an established customer base, like Amazon or eBay.
What are the pros and cons of dropshipping?
Pros
Inexpensive to start
Low risk
Straightforward fulfillment process
Don't need to deal with the headache of inventory management
Freedom to test new products without significant financial risk and quickly jump on trends for quick profit
Cons
Slim profit margins of just 15% to 20%, according to Be Profit
You're responsible for customer support
You aren't able to quality control your products before they reach the customer, which could result in a negative customer experience if the product quality is poor
Your dropshipping supplier can discontinue products without notice
Dropshipping is usually associated with slow shipping times as products make their way from overseas
Lower barrier to entry means higher competition
What is Amazon dropshipping?
Amazon dropshipping is running a dropshipping business through the Amazon marketplace. It is possible to dropship on Amazon. However, there are some strict rules Amazon dropshippers need to follow if they want to dropship on Amazon without issues. According to Amazon’s dropshipping policy:
According to the 2023 State of the Amazon Seller report by Jungle Scout, approximately 17% of Amazon sellers use the dropshipping business model.
What is affiliate marketing?
Affiliate marketing is an online business model that entails using digital marketing tactics to promote products from brands in order to earn a commission. Affiliate marketing works by obtaining a custom URL, called an affiliate link, directly from a brand or through an affiliate network that hosts the brand’s affiliate program, such as ShareASale. This affiliate link tracks the performance of an affiliate marketer so that the brand can fairly compensate them. Affiliates then promote this link to generate clicks and beneficial customer actions for the brand, like sales or trial sign ups.
Affiliates can use a variety of strategies to promote their affiliate links. The main strategies that affiliate marketers use to generate internet traffic for their affiliate links include:
- Blogging
- YouTube
- Social media, like Instagram
- Email marketing
- Paid advertising, like Facebook Ads
High ticket affiliate marketing pays the most. High ticket affiliate marketing is promoting only high ticket products, usually that sell for $1,000 or higher, to earn a much higher profit margin than a typical affiliate sale. Affiliate marketing is not very risky. You can actually get started without any money if you elect to focus on generating an audience around YouTube or social media content creation. If you have around $100, you can create a niche blog to attract an audience to promote your affiliate links to. According to affiliate marketing platform Refersion, blogging generates around 64.48% of the affiliate marketing traffic on the web.
What are the pros and cons of affiliate marketing?
Pros
Low startup costs
Passive income potential as affiliate links can make money long after you publish the content
You don't need to create or sell your own products to make money
Cons
Brands can end their affiliate program and turn off your revenue stream
Typically requires a few years of creating consistent content before you start to make a solid income
Low barrier to entry means the market is highly saturated and competitive
What is Amazon affiliate marketing?
Amazon affiliate marketing is earning affiliate commission by promoting products from the Amazon Associate affiliate program. Amazon Associate is Amazon’s affiliate marketing platform where affiliates can earn between 1% to 20% commission for driving sales of Amazon products. Most Amazon affiliate products pay a commission of about 4%. Amazon affiliates do not make a lot of money. Most of Amazon’s products aren’t that expensive and the commission rates are some of the lowest in the affiliate marketing world.
Amazon FBA and Amazon affiliate are not the same. Amazon FBA is a completely different program than the Amazon associates program and each has separate requirements for those looking to join.
Amazon FBA vs dropshipping
Amazon FBA and dropshipping are both Ecommerce business models where you make money online by selling products to customers. However, there are some major differences between these two business models. Some people believe Amazon FBA is basically dropshipping because you don’t ever need to see or touch the products, just like dropshipping. Amazon FBA is not basically dropshipping, though. Unlike dropshipping, Amazon FBA enables an Ecommerce business owner to rapidly fulfill customer orders and know exactly how much of a product they have to sell. Dropshipping orders often take weeks to arrive to a customer, and you may accidentally sell a product that your supplier doesn’t even have in stock.
Although Amazon FBA offers a better overall business process than dropshipping, it’s much more costly to start. You need money to start Amazon FBA. If you want to create a sustainable business that can generate semi-passive income, you’ll want to choose either wholesale or private label for product sourcing. These require that you have at least $10,000 to $20,000 in startup capital to source products in bulk and run Amazon PPC advertisements to start generating sales so you can improve your organic ranking on Amazon and start generating organic sales. It can take a year or longer before Amazon FBA is profitable. On the other hand, dropshipping can be profitable right away. However, a dropshipper needs to continuously look for new product opportunities and advertise those products if they want to generate sales.
While it doesn’t come with low risk like dropshipping does, investing into an Amazon FBA business can make you a lot of money. You can become a millionaire from Amazon FBA. In fact, 20% of Amazon sellers have made over $1 million in lifetime profits, according to the 2023 State of the Amazon Seller report by Jungle Scout. Part of the reason for this is that Amazon FBA sellers earn more per sale than dropshippers do. Amazon FBA is more profitable than dropshipping. Dropshippers can expect a profit margin of no more than 20%, while Amazon FBA sellers can earn profit margins of up to 50%.
It’s not a bad idea to incorporate both of these business models into an Ecommerce business. You can do both dropshipping and Amazon FBA. Dropshipping can allow you a low risk method for testing products and then Amazon FBA can allow you to improve your profit margins and build a long-term business around winning products you found through dropshipping.
Which is better Amazon FBA or dropshipping?
Amazon FBA is better than dropshipping. Dropshipping can be useful, but it isn’t a great option for building a long-term business that generates stable cash flow. Amazon FBA can actually make you money. 55% of Amazon FBA sellers are able to generate above $5,000 in monthly sales, according to Jungle Scout.
Affiliate marketing vs dropshipping
The difference between dropshipping and affiliate marketing is that dropshipping makes money by selling other company’s products while affiliate marketing is just promoting other company’s products to earn a commission. A dropshipper needs to worry about actually getting products to customers, while an affiliate marketer does not.
The two business models are similar in that they rely heavily on promotion to generate income. A dropshipping business often needs to use paid advertising in order to attract customers to their products and generate sales. Although affiliate marketers can also use paid advertising, many use organic traffic strategies that can generate passive income. However, these organic strategies, like blogging or creating YouTube content, can take upwards of 2 years or more before they start generating enough traffic and clicks on affiliate links to generate stable income. Therefore, dropshippers often make money much faster than affiliate marketers.
Even so, affiliate marketing has much higher profit potential than dropshipping. Top earning professional dropshippers only make up to $48K/year, according to Zip Recruiter. On the other hand, the majority 80% of affiliate marketers make below $80K/year, but the top 20% earn between $80K and $1 million or more each year, according to affiliate platform Refersion. You can really make a lot of money with affiliate marketing. In fact, the popular affiliate marketing platform ClickBank has hundreds of Platinum affiliates that make over $250K/year on the platform.
You can do both affiliate marketing and dropshipping. However, you probably shouldn’t. The two business models require different skill sets and it's better to spend your time focusing on becoming highly proficient in one instead of doing both simultaneously. It’s usually more lucrative to master a skill and produce excellent results from one thing than to be average at a few different things.
Affiliate marketing vs dropshipping which is better?
Affiliate marketing is better than dropshipping. An affiliate marketing business has both more profit potential and passive income potential than a dropshipping business. Furthermore, you don’t run the risk of your business being penalized for slow shipping speeds and poor quality products like a dropshipping business does. Once someone clicks on your affiliate link and buys the product, it’s the business’s responsibility to fulfill the customer's order.
Amazon FBA vs affiliate marketing
The difference between affiliate marketing and Amazon FBA is that affiliate marketing makes money by promoting products through your own channels, while Amazon FBA makes money by selling products on the Amazon Marketplace. Affiliate marketing is a type of digital marketing and Amazon FBA is Ecommerce.
Amazon FBA and affiliate marketing have similar timelines for profitability. If you want to build a stable long-term business with either of these, it will take around 2 years or more before you’ll start seeing some solid profits from your business. That’s because it takes time to get products to accumulate reviews and rank well on Amazon, and it also takes time to use SEO to get a blog or YouTube channel to start generating enough traffic to generate good revenue from affiliate links. These business models also have similar profit potential, where most people can expect to make less than 6 figures per year while the upper 10% to 20% make 6 figures a year or more in profit.
Both of these business models also offer the potential to start making money faster, albeit in a way that’s not necessarily viable for the long term. With affiliate marketing you can use paid advertising channels like Google Ads and Facebooks Ads to drive traffic to affiliate links, and with Amazon FBA you can use a business model like retail arbitrage to profit quickly from a short-term opportunity.
Which is better Amazon FBA or affiliate marketing?
Affiliate marketing is best for beginners vs Amazon FBA. That’s because affiliate marketing doesn’t have to deal with sourcing products and all the fees of Amazon FBA, you just focus on using digital marketing to promote products. Affiliate marketing is easier and more straightforward than Amazon FBA with similar profit potential as well, so it’s a better option if you want to make money online without too much hassle.
Amazon FBA vs dropshipping vs affiliate marketing: Which should you choose?
How to start Amazon FBA?
- 1Sign up for an Amazon seller account on Amazon Seller Central
- 2Decide which Amazon FBA business model you will use to source products
- 3Do product research to find a profitable product opportunity
- 4Buy product inventory and ship it to the Amazon warehouse
- 5Set up a product listing if you’re creating your own private label product
- 6Run advertisements to your product listing if you have a private label product
- 7Monitor inventory levels and restock products in Amazons warehouse as needed
How to start dropshipping?
- 1Decide where you will sell your dropshipping products
- 2Do research to find new and trending product ideas (or get a course like Anton Kraly's Dropship Lifestyle)
- 3Find a drop shipping supplier to provide products and fulfill product orders
- 4Add your dropshipping products to your dropshipping store
- 5Use organic content creation on a social media platform like TikTok or run paid advertisements to get traffic to your products
- 6Forward your dropship supplier the customer shipping details as the orders come in
How to start affiliate marketing?
- 1Choose a niche to create content around
- 2Research affiliate programs with products related to the niche that you can promote
- 3Choose a primary traffic channel, such as a blog, and formulate a content creation strategy
- 4Publish consistent content to attract an audience
- 5Incorporate your affiliate links throughout your content to generate clicks and sales
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How do these business models compare to local lead generation?
Amazon FBA, dropshipping, and affiliate marketing are 3 of the most popular online business models out there. However, this has led to these opportunities becoming extremely saturated. Furthermore, each of these business models places reliance on a third party to be successful. For example, Amazon FBA requires approval from Amazon to sell on the platform, dropshipping requires the cooperation of your dropshipping suppliers, and affiliate marketing requires the brands you promote to maintain their affiliate programs so that you can make money online.
Another online business model without this issue is local lead generation. A local lead generation business builds and ranks websites to attract customers for local service businesses. Each local lead generation website can generate between $500 to $3,000 in profit per month, and it typically takes between 6 weeks and 6 months to rank a website and start generating income. You own these websites completely, so you have more control over your business and its operations than the 3 business models discussed above. Best of all, these websites are great for generating passive income because once you partner with a local service business to take the leads, they usually stick with you for the long run and the website requires very little maintenance once you get it set up and ranking on Google.
If you want to start making thousands of dollars in passive income online each month, check out this lead gen course that has taught over 7,000 students the exact steps I use to make over $52,000/month in recurring passive income.
