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The war is raging on, and you are the hapless victim in the middle of this furious battle. You find it difficult to decide which of these two business models to pursue.
Proponents of dropshipping would insist that you are in control and that it is more profitable than affiliate marketing.
Those who support affiliate marketing would tell you that it is the true form of passive income where you earn money while you sleep.
So, how should you choose?
I will help you find the answer to that. Right off the bat, this blog post is not about putting one business model on top of the other. I will dissect the pros and cons of each and help you make that decision for yourself.
WARNING: This is a long post. I suggest that you download this in its eBook format so you can get back to it anytime. You can find it in my FREEBIES page, along with other free eBooks I am giving away!
Today, we will discuss:
- What is dropshipping?
- What is affiliate marketing?
- Pros of Dropshipping
- Pros of Affiliate Marketing
- Cons of Dropshipping
- Cons of Affiliate Marketing
- Dropshipping or Affiliate Marketing: A Table of Comparison
- Who is dropshipping for?
- Who is affiliate marketing for?
- Dropshipping vs Affiliate Marketing: Conclusion
Let us get started!
What is dropshipping?
Dropshipping is a business model where you sell physical goods. The thing is, you do not manufacture these goods, and you do not buy inventory. You do not have to spend money for your stock.
In this business model, you put up a web store, or post the products of a supplier online, and wait for a customer to make a purchase from you.
Once a purchase is made from you, you have to contact the supplier, pay for the item and the shipping, and the supplier will ship it to your customer.
In dropshipping, you can post the supplier’s products for sale on your website, on Amazon, or other online market places. You can even sell it via your Facebook or Instagram account.
The way you make a profit is simple. First, you have to know the buy price and the shipping price from the supplier.
Next, you post that product on your store or on Amazon, and sell it for a price higher than what the supplier is charging.
The difference is your gross profit.
Here is an example:
- Product name: FLO Men Sneakers
- Supplier: Vendor from AliExpress
- Price: $32.24
- Shipping cost to United States: $9.79
- Total Cost Outlay: $42.03
- Your selling price: $59.99
- Your profit: $17.96
Here is the process to make dropshipping work:
- You decide what niche you want to be in
- You look for a supplier
- You build your store
- You post the products and market them
- You receive payment from customer
- You buy the product from the supplier
- Supplier ships the product to your customer
- You keep the profit
The main benefit of dropshipping is that it requires no huge capital. Sure, you still have to spend money to build your store, but you do not have to use a huge amount of cash for an inventory.
Pretty much, your risks are minimal. If your store did not succeed, the only financial loss is the cost of putting up the website, and the cost of advertising during the days your business was active. However, paying for ads is completely optional.
There are those who do not even put up a website. They use social media platforms like Facebook and Instagram to put up their dropshipping stores, and only pay for the set-up of the payment platform, plus the cost of transaction fees.
Shopify has a complete blogpost about this, which you can read later on: What Is Dropshipping?
What is affiliate marketing?
Affiliate marketing is a business model where you promote someone else’s products and then earn a commission if a sale is made through your referral links.
In this approach, your buyers are your fans who trust you.
What you do is to essentially recommend a product through product reviews or live demos. If a customer buys that product, he knows that you are not the person selling that product.
In dropshipping, your customer thinks that it is you who manufactured and created the product that you are selling.
After the purchase is made and no refund was asked for, you get a commission.
There are two types of commissions in affiliate marketing. The first one is called single or one-time. And the second one is recurring.
A one-time commission means that you will receive a commission for the purchase only once, even if the customer buys it again and again.
In a recurring commission, you will receive monthly commissions for as long as the customer you referred is a paying customer to the company’s products or services.
Here is how affiliate marketing works:
- You decide what niche you want to be in
- You register to affiliate programs of companies
- You receive an affiliate link (a link that tracks a purchase, telling the company that the referral was from you)
- Customer clicks in your link, buys the product
- You receive a commission
Like dropshipping, you can do your marketing via your website, social media channels, or YouTube. The cost of putting up an affiliate marketing business can be completely free, especially so if you are going to use social media as your main channel for marketing.
The most attractive thing about affiliate marketing is that it is a passive income. Unlike dropshipping, you do not have to fulfill orders.
You do not have to talk to customers, as that is the responsibility of the company whose products you promoted.
In affiliate marketing, you can earn money while you sleep, with no worries about dealing with customer issues and breakdowns in the process.
It also requires little to small financial outlay. You do not have to buy anything. Should you decide to put up a blog, many blogging platforms are free. But if you want a professional website, you have to use WordPress.
If you want to learn everything you want about this business model, read my blog post: Affiliate Marketing 101: A Semi-Passive Income That Works
Pros of Dropshipping
Here are some of the most important positive aspects of dropshipping:
- Dropshipping has low startup costs
- Dropshipping is a low-risk business
- Dropshipping opens doors for high profit margins
- Dropshipping allows you to build an asset
- Dropshipping allows a wide range of product variety
1. Dropshipping has low startup costs
You can dropship without spending a lot of money for inventory or website. The people who do dropshipping use social media to set-up their stores or they sell on Amazon.
But if you want to dropship with your own store, you have to shell out at least $29 per month. That is the cost of subscription to Shopify, a platform that is built for e-commerce stores.
Shopify has earned its top spot as an e-commerce platform because it is easy to set-up. Also, there are many plug-ins—dropshipping tools—that you can use on this platform.
Examples of these are Oberlo, Spocket, and Salehoo.
I wrote a blog about the different price points of Shopify. If you are interested to know how much it costs, I recommend reading this: Shopify Pricing: What Are the Different Features Between the Plans?
If you set-up a dropshipping store, you need a dropship supplier tool. The most popular options are Oberlo, Spocket, Dropified, and SaleHoo.
All of these three companies source products from suppliers around the world, including AliExpress. These tools are what you use to import products from the supplier, and fulfil the orders, too.
Oberlo and Spocket have a free membership, which you can upgrade later on if you want to get more services. Oberlo is owned by Shopify.
On the other hand, SaleHoo is a paid app that costs $67 per year, or a lifetime access for $127. Dropified is also a dropshipping tool that costs money.
If you want, you can read my reviews for Salehoo, Dropified, and Spocket here:
Now, in case you do not want to use Shopify, your other course of action is to build your store from scratch.
You can do this by buying a web hosting plan, installing WordPress as your CMS, and then WooCommerce so you can build a store.
The steps are:
After that, you have to use a dropshipping tool plug-in for WooCommerce where you can look for products, import them to your store, and then fulfill the orders.
What I recommend as a web hosting provider are Siteground and Bluehost. WordPress and WooCommerce are both free.
To learn more about Bluehost, read my blog: BlueHost Review: Is this affordable host the best for you?
To learn more about WooCommerce, visit their home page: WooCommerce Home Page
Should you choose to go this route, you can build a dropshipping store with BlueHost and you will only pay $6.95 per month, paid for one year, which totals $83.84.
2. Dropshipping is a low-risk business
Because dropshipping does not involve putting up a brick-and-mortar store, your risk exposure is really low. At $29 a month with Shopify, you are not using your life savings to put up a business.
If you do not want to continue with the business, you can cancel your subscription ASAP, and not pay any more than what you have already.
The same thing goes with paid web hosting service. For services that are billed annually, there is only a window when you can ask for a refund. Most companies give you 30 days to ask for a refund.
With some companies, you can try their services for free for a certain period of time. An example of this is the 14-day free trial of Shopify. You can use those 14 days to build a store, and then see how easy it is to use.
If you do not like it, you can cancel, and you do not have to pay a dime.
In other business models, you have to pay a hefty sum to the web developer. Dropshipping does not work like this.
In a brick-and-mortar store, or if you would manufacture your own product, you need a lot of capital before you can launch your business.
3. Dropshipping opens doors for high profit margins
In dropshipping, nobody tells you how much money you want to put on top of the cost that you pay to the supplier.
Take a look at this product that I took from Spocket. The cost that I have to pay the supplier is $12.64. This price does not include the shipping fee. Shipment to the UK is $2.74, and the source of the product is from UK.
Overall, the price I have to pay is $15.38. The suggested retail price is $22.99, which leaves me a profit of $7.61. If I charge my customer the shipping fee, then my gross profit is $10.35.
Now, the selling price of $22.99 is merely a recommendation, but I am not limited to that. If I want, I can sell this for $39.99, and then charge for shipping, bumping up my gross profit to $27.35
As you can see, the sky is the limit. All it takes is for you to study your competitors, find out how much they are selling this product for, and find that sweet spot to price your products competitively.
If you want to know more about Spocket, you can visit their website here for their plans and pricing: Spocket home page.
By the way, Spocket is also compatible with WooCommerce so you if you do not like to use Shopify, you can find a Spocket App in the WordPress Universe.
4. Dropshipping allows you to build an asset
How does this happen?
If you build a dropshipping store, you have a business that works. You essentially built an asset that you can sell later on.
If you do dropshipping the free way, then you have no asset to sell. While you can transfer the admin role of a Facebook page, nobody really is going to buy that from you.
But with a Shopify store or a WooCommerce store, you can sell this asset to people who want to have their own dropshipping store.
If your dropshipping store is earning a lot of money, then you can sell the website for a premium price. If not, then you can simply ask for a price that pays for the effort you put in on building the store.
You can sell a Shopify store on the Shopify Exchange Marketplace. It is a place where people buy and sell stores made on the Shopify platform. Take a look at a sample below.
As you can see, the first store is being sold for $1,750, and it only has a revenue of $1.8k per month, with a gross profit of $1.5k.
The next one is a lot more expensive at $49,500, with a monthly revenue of $14.1k, and a gross profit margin of $7.1k.
5. Dropshipping allows a wide range of product variety
With dropshipping, you do not have to buy inventory. All you need to do is to post products from suppliers.
Since you are using a dropshipping tool like Spocket, the system knows if the stock is available or not, and this stock availability would show in your store, too.
Since you do not have to buy inventory, you can post as many products that you want and not spend a dime.
As you can see, you can build a general store or a niche store. If you choose to sell women’s clothing, you can sell blouses, shoes, pants, leggings, jeans, blazes, and so much more.
There is a difference between a niche store and a general store, and I recommend a niche store for beginners. I wrote a blog post that clearly explains the difference between the two.
You can read it here: Niche vs General e-Commerce Store: What Should You Choose?
Cons of Dropshipping
Now, let us take a look at the dark side of dropshipping, and how this can affect your decision.
1. Dropshipping is highly competitive
No one knows how many dropshippers are out there. But if you just take the time to type the keyword “dropshipping” on Google, you would see that there are 99 million page results.
This is how popular dropshipping is. Because of the low barrier to entry, a lot of people are starting their own dropshipping business.
If you think about it, how many people can afford to shell out $29 per month to build their Shopify store?
Because it is so easy to build, you are competing against thousands of dropshippers. There is no shortage of “me too” dropshippers out there, so unless you do this right, you are doomed to share the market with these competitors.
Solution: Look for a niche that is not too saturated, and make your store unique.
2. In dropshipping, you have no control over the supply-chain
If you choose dropshipping, you have to know that you are merely selling the ready-made products of a supplier.
In some cases, you can go the route of print-on-demand where you order customized printed products from POD companies.
SUGGESTED READING: 12 Best Print on Demand Shopify Apps for Dropshippers
Whatever it is, you do not call the shots. You are not in control of the quality of the products you sell.
You are not in control of how fast the products are taken from the warehouse and packed. You are also not in control how soon the supplier is going to ship the items.
If any of these processes breakdown, your customer is going to blame you. Because of this, your store can suffer. Customers can ask for a refund, a return, and give you negative feedback.
In short, you are at the mercy of the supplier you choose to work with.
Solution: Find reliable suppliers. You can use SaleHoo, Spocket, Oberlo, and Dropified to find suppliers who are reliable. These companies vet or validate the performance of the suppliers found in their directory.
Do not work with suppliers directly from AliExpress.
3. Dropshipping requires active work
Dropshipping, unlike affiliate marketing, is an active line of business. Once an order comes in, you have to process that within 24 hours.
Once you have ordered the product from your supplier, the shipping and handling will start to move.
If you have a dropshipping business, you have to watch over your store round the clock. If you cannot do this because you are employed, you have to at least spend extra time daily to tend to your store.
Here are some things that are expected of you:
- Answer customer inquiries
- Process orders
- Process refunds
- Contact the suppliers
- Add new products
- Remove old products
Solution: hire a virtual assistant who can do this for you two to four hours a day. This depends on how busy your store is.
You can find these virtual freelancers in service marketplaces like Fiverr. Here, you can hire freelancers that you can pay $5 per hour or lesser than that.
I myself offer writing services on the Fiverr platform, and have been a member since 2015. Visit Fiverr to learn more.
4. Dropshipping requires money to front the sales
Let us break down the order process in dropshipping:
- Customer sees your store or products
- Customer places an order
It is during this payment process where there is a breakdown. Usually, you will not get that money immediately. Many payment processors put the funds in pending status for three days.
Some would even hold it for two weeks before the money is transferred to your bank account.
Now, you cannot wait for two weeks before you can order the product from your supplier. Certainly, you cannot make the customer wait.
You have to front that payment to your supplier so the supplier can ship the items already. And this means you need money.
This is the reason I do not recommend high-ticket dropshipping. It is a dropshipping approach where you sell expensive products only.
In my blog post, 5 Reasons Why You Shouldn’t Dropship High-Ticket Products, I discuss in detail why high-ticket dropshipping is not a great business choice for beginners.
Solution: Do low-ticket dropshipping and have your personal money prepared to front customer purchases while waiting for the payment to clear.
Pros of Affiliate Marketing
Affiliate marketing, like dropshipping, is a great business model. Like dropshipping, you have to capitalize on your marketing skills because you are also selling someone else’s products.
Here are the pros of affiliate marketing:
1. Affiliate marketing has a low business risk
Like dropshipping, it is up to you to decide if you want to use social media to promote your links. It is also your choice to build a blog, and market your links from there.
If you go through the blog route, you can use WordPress to build your website. You can build a free WordPress website, but I generally would not recommend it. My problem with the free version is that it has too many limitations.
As a blogger and affiliate marketer, there will come a time when you want to make your website much more functional than just a space for words. In that case, a free blog cannot do that for you.
There are two options to start a blog as an affiliate marketer:
For COM, hosting is not something you have to worry about. You will build your blog in the WordPress hosting platform, but you have to pay a monthly subscription. Visit WordPress here to explore more.
With ORG, WordPress is free to use, but you have to pay a subscription to a web hosting company. As I mentioned earlier, my recommendations are either Bluehost or Siteground.
The other route to go, and the one that is really effective, is to put up videos on YouTube. This is by far the most popular method of promoting links today because it is easy to build a following if you have a VLOG or video blog.
On YouTube, you have to post helpful content, like tutorials and product reviews, to show your followers the value that you offer. From there, you can ask them to buy the product from your link, and then you earn a commission.
Doing YouTube requires that you have the right tools. What this means is that you may not have to spend money on a website, but you have to spend money for a decent microphone and a screen recording software or video editor.
What many vloggers use, and what I personally use for my video editing, is Camtasia. It is expensive, but this is the only video editor you will ever need. You can learn more about Camtasia by visiting the company’s homepage: Camtasia Homepage.
2. Affiliate marketing needs no customer interaction
Unlike dropshipping, you do not have to interact with your customers. As an affiliate marketer, people know that the products you are promoting are not yours.
As such, once they decide to buy these products, they know that they need to contact the seller should problems arise.
This simple thing can help you save a lot of time. Instead of you processing refunds or tending to customers’ needs, you can use that time to create more content.
3. Affiliate marketing is a passive income source
Once your content is out there, people can click your links and buy. Your commission is now going to be automatic, and there is nothing else you have to do to make it work.
Even after years of publishing your video or blog, the link is still going to be active. Anyone who clicks that link and makes a purchase can be traced back to you, and you can earn a commission.
In addition to that, most companies that offer affiliate programs have an aggressive marketing campaign. Once a customer signs up for their product or service, they will take care of sending follow-up emails to make more sales.
Cons of Affiliate Marketing
Now, affiliate marketing also has its share of cons. Let us explore them and show you what kind of challenges you will have to face.
1. Your cookies have expiration
What is a cookie?
A cookie is packet of data. Once you receive your affiliate link, the visitor’s browser will keep a cookie, or a temporary memory.
If the person who clicked this link did not buy today, but went back to the merchant’s site the following day, the browser still remembers that the link came from you originally.
As such, the company who is offering the affiliate program will still record that the sale came from you.
This length of time of recognition of your link is called cookie duration. Affiliate programs have different standards. Some cookies last for 24 hours, some 30 days, and some for several months.
Let us say that that I clicked your affiliate link today, which has a cookie duration of 30 days. I go to the merchant’s website, browse the services and the pricing page, and decide not to buy.
I close all my browsers. Then, 45 days later, I go back to the merchant’s website and make a purchase. Since the cookie duration has lapsed, you will not get a commission anymore.
You have no control over this, as the company that offers this service is the one that sets this standard.
2. You have no control on commission rates
It is not unusual for companies to reduce the commission for their affiliates. Some would offer a 50% commission, and then change it to 20% months down the road.
Some would also offer a recurring commission, and then change that to a one-off commission.
3. You have a lot of competition
Affiliate marketing, like dropshipping, has a low barrier to entry. It is affordable to start setting up a blog, and much less so if the affiliate marketer chooses to do video blogs on YouTube, or simply leave links on social media channels and forums.
4. You need to put in a lot of hard work
Affiliate marketing does not bear fruit right away. As you can see, you are selling products and services that are not exactly a much-needed one. The exception to this rule is if you are an affiliate of Amazon where you promote products sold on the site.
Typically, it would take you months to see your first commission. The reason behind this is that as an affiliate marketer, you need to have credibility. You need to be able to convince your readers to purchase the product that you are promoting.
Dropshipping or Affiliate Marketing: A Table of Comparison
Here is a summary of comparison between the two.
|Ease of Business||Medium||Medium|
|Cost to Get Started||At least $29||At least $47.4|
|Type of Business||Active||Passive|
|Can Sell Asset?||Yes||Yes|
|Ease of Set-Up||Medium||Easy|
|Level of Hardwork||Medium||Hard|
|Can use ads?||Yes||Yes|
Who is dropshipping for?
Dropshipping is best for people who:
- Have a passion for retail
- Prefer an active business over a passive one
- Knows how to deal with customers
- Love dealing with customers
- Want to be in control of profit margins
Who is affiliate marketing for?
Affiliate marketing is best for people who:
- Want a passive income
- Have a lot of knowledge to share
- Love to be a business model for the product and services they are promoting
- Do not mind the hard work required to make a sale
Dropshipping vs Affiliate Marketing: Conclusion
My take is that both of these business models are profitable. What will help you decide is simply a matter of preference.
Both business models require hard work. The difference is that in affiliate marketing, once the hard work is over, you can still earn profits for years to come even if you do not work on your YouTube or blog anymore.
This cannot happen in dropshipping. For dropshipping, you are in control of your prices and profits, but you have to work every day to get your business moving.
What is your choice?
WATCH: Dropshipping vs Affiliate Marketing
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