Affiliate marketing and dropshipping have low barriers to entry for those looking to make money online. Both come with low startup costs, and you don’t need to track inventory or rent warehouse space.
While both online business models can be sources of passive income, careful planning is necessary to build and grow affiliate marketing and dropshipping businesses. Read on to learn more about the pros and cons of each.
What is affiliate marketing?
Affiliate marketing is a program in which brands pay businesses and individuals—usually those with large followings—to mention their products on social media, blogs, or newsletters. Depending on the agreement, companies may pay partners based on the sales or web traffic the referrals generate.
To get started as an affiliate marketer, you can sign up for brands’ affiliate programs. You can find brands that are seeking affiliate partners by searching within affiliate networks. Once you’ve selected a brand or product to promote, you can earn a commission by driving traffic to an affiliate link, which is a URL with a unique ID that attributes sales or traffic to you.
For example, a blogger who creates a listicle of recommended lifestyle books could be an affiliate marketer. Using an affiliate link for each entry, the blogger directs readers to an online bookshop where they can purchase the books. The post will also include a disclaimer that lets visitors know that their activity might earn the blogger a commission.
What is dropshipping?
Dropshipping allows you to sell products online without the need to manage inventory or shipping. Instead, dropshippers build ecommerce stores and select products that will appeal to a particular audience. They then work with third-party manufacturers who ship the products directly to customers.
An influencer who sells workout clothing to fitness enthusiasts could be an example of a dropshipper. When a visitor makes a purchase through the influencer’s page or store, it’s the dropshipper’s partner who will take care of the logistics and make sure the product reaches its final destination.
Affiliate marketing vs. dropshipping
Affiliate marketing and dropshipping are both low-risk business models, but there are several key differences between the two:
- How they’re similar: It is fast and cheap to start both dropshipping and affiliate marketing. In some cases, there may not be any startup costs.
- How they’re different: To start an affiliate business, you can apply to affiliate programs. Once approved, you can recommend products on your existing social media pages or blogs. For dropshipping, you need to find a third-party manufacturer before you start and open a shop on an ecommerce platform like Shopify.
- How they’re similar: In both cases, increasing your audience on social media can yield higher sales. The more people interact with your affiliate content or ecommerce shop, the better chance you have to sell products to customers.
- How they’re different: Since affiliate marketers typically have an existing audience, they can use the trust their followers have in them to encourage purchases and earn them higher profits. For a dropshipping business, getting new customers may require a more active marketing approach, such as using search engine optimization (SEO) to generate store traffic.
- How they’re similar: With both models, you avoid tracking inventory or renting warehouse space. In that sense, both affiliate marketing and dropshipping are hands-off processes.
- How they’re different: Affiliate marketers aim to get their followers to click on affiliate links to external websites where they can purchase products. Therefore, they do not have a responsibility past recommending items that their audiences will like. Dropshippers, however, still need to manage customer support and customer service if their visitors have questions about products or unexpected issues arise.
Pros of affiliate marketing
The affiliate marketing model comes with advantages in how you can get started and the effort it takes to keep making money.
Hands-off way to earn money online
As an affiliate marketer, you don’t have logistical responsibilities after recommending a product or service, making this a more laid-back approach to earning money. Of course, you still need to produce content that gets people interested in the products you recommend.
Easy to get started
Once an affiliate program accepts you, you can recommend products on your blog, social media, or newsletter with your personalized links.
No need to invest money
There are no upfront costs to set up an affiliate business, and you don’t need to invest money at different stages to grow. Instead, you’ll invest your time in creating content and strengthening your relationship with your followers so they value your recommendations.
Cons of affiliate marketing
If you pursue affiliate marketing, beware of some downsides to the business model.
No control over inventory
There are limits to the products you can recommend. For example, if you are an affiliate of a beauty brand but it doesn’t carry the concealer you used to create a makeup look, then you might not be able to recommend the product you want, which means losing potential sales.
An affiliate marketer’s reputation is at stake
A content creator’s reputation makes affiliate marketing possible. However, there are some downsides to this. An affiliate marketer must know a product well to recommend it. For example, if a YouTuber suggests a cream they used a few years ago but the formula changed since then, it could harm their credibility.
It takes time to earn money
Affiliate marketing programs might not pay out until you meet a certain threshold of sales or web traffic. It can take time to get your affiliate sales to that point as you pursue audience growth and trust.
Pros of dropshipping
The dropshipping business model is easy to set up and you can make money as you grow your customer base.
You don’t need a big audience to start
Whereas affiliate marketers can use their audiences to make sales, you don’t need a big audience to start dropshipping, making it a more accessible route.
Minimal startup costs
You don’t have to spend money on products or renting warehouse space, but you likely have to invest in an ecommerce platform.
Finding third-party manufacturers is easy
Several resources can connect you to third-party suppliers. These supplier directories can help you search for and add dropshipping companies and help you come up with product ideas.
Cons of dropshipping
No quality control
Unlike a traditional ecommerce business, you do not have detailed input into the products you sell. You likely won’t even order them yourself before you add them to your shop, so you can’t properly gauge whether the products are of good quality.
Finding the right supplier is paramount
Third-party suppliers can make or break your dropshipping business. If they can’t deliver products in a timely manner or if the items are not what your customers expect, then it can harm your business. Shoppers can leave negative feedback and deter others from doing business with you.
It’s not a hands-off business
Although it is easy to start dropshipping, you have to carefully curate your shop to intrigue shoppers. If there are any problems with shipping or an item, you will also provide customer support.
Which is more profitable: affiliate marketing or dropshipping?
Both affiliate marketing and dropshipping have the potential to be profitable business models, but dropshipping tends to have better profit margins. With affiliate marketing, the brand that hosts the affiliate program controls how much money you earn based on sales or traffic generated. Commissions have a wide range. To increase your revenue, you can work to grow your audience to earn more profit.
Dropshipping, on the other hand, gives you the potential for higher profit, because you set the retail price that appears on your website. Dropshipping profit margins can also vary depending on factors including audience, niche, and costs. Assess the competition when pricing your product to evaluate how high you can go.
Affiliate marketing vs. dropshipping FAQ
Can you do both affiliate marketing and dropshipping?
Yes, you can try both affiliate marketing and dropshipping at the same time. Affiliate marketing can help you reach new audiences without having to invest any money, while dropshipping allows you to test new products without having to pay for inventory, warehouse space, or delivery infrastructure.
Is dropshipping easier than affiliate marketing?
This depends on your personal strengths and resources. Dropshipping can be easier if you already have an online store that you can seamlessly convert into a dropshipper. An affiliate marketing business might be easier if you already have a large following on social media, and you can find products that align with your audience’s likes and interests.
How do you know whether to do affiliate marketing or dropshipping?
The affiliate marketing route might suit you if you enjoy increasing your audience and building trust with them. Dropshipping is a great business model if you want to build your own brand and enjoy managing product strategy, marketing, and customer service for a small online business.