When you’re researching how to make money online, you likely run across a lot of information about dropshipping stores, affiliate marketing, and other business models. There are a lot of options to choose from when it comes to starting your income-generating business, but let’s look at the pros, cons, similarities, and differences of two:
- Starting a dropshipping store
- Running affiliate marketing campaigns
What are the benefits of these online business models?
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The Benefits of Dropshipping and Affiliate Marketing
When we say dropshipping or affiliate marketing, what we’re talking about is an online business where you’re selling products (physical and/or digital) and information for a profit or commission. They are both considered passive income streams, and can take up as much or as little time as you want to invest.
Those who do dropshipping and/or affiliate marketing (many business owners start with one and grow to the other) don’t have to create a product of their own. You can choose from existing digital and physical products to sell or promote. This means you can start a business quickly and even if you feel like you don’t have any unique product to offer.
Both dropshipping and affiliate marketing can be done from anywhere—with just a laptop and an internet connection. Both use digital marketing, technical, and sales skills to build a hands-off business.
To recap, both dropshipping and affiliate marketing offer:
- Work from anywhere
- Passive income
- No product of your own required
Let’s look at each business model and review the pros and cons of each.
What is Dropshipping?
Dropshipping is a little bit like starting up an online store, but instead of working with wholesalers on bulk discounts, branding the product, storing the product, and investing a lot up front, you use suppliers that ship directly to the end customer on your behalf.
When you start a dropshipping store, you don’t have to buy thousands of products for your inventory. You find a dropshipping supplier (or suppliers), choose which of their products to offer, and launch your store. Your dropshipping supplier is any third party supplier that works behind the scenes with e-commerce to fulfill the customer orders.
You pay for things like:
- Website
- Marketing
- Products (only after customers pay you)
- Returns (dropshipping suppliers will work with you on these)
You can launch a dropshipping store with a few hundred dollars. Get our budget template here.
Benefits of Dropshipping
By using dropshipping suppliers, instead of creating your own line of products, you can focus on the website, sales, marketing, and customer service. You can test new products to your audience quickly and without a large upfront investment. If you want to run an online store but don’t want to create (or even touch) the products, dropshipping is a great option.
With dropshipping, you can leverage the performance of your supplier to ramp up customer service, be certain of delivery, improve your customer acquisition, and nail down your pricing strategy in a logical and secure way.
Think about the lifecycle of creating a new product. Research and development, prototypes, manufacturing, testing, quality assurance, packaging, retailing, fulfillment, shipping, and more. That can take months or years—all with no guarantee that the product will sell. With a dropshipping store, you just have to work with your supplier(s) and focus on selling. As opposed to a standard ecommerce business where you have to have manufacturers, warehousing, order fulfillment, shipping, and more.
The dropshipping model offers smaller margins than buying inventory in bulk, but it’s SO much less risky. Yet it also retains the potential for great scalability. Your store can offer 5 niche products (learn about choosing a dropshipping niche) or it can offer 100s of related products. Both approaches offer similar startup costs when you use the dropshipping business model.
To summarize, we like dropshipping because:
- You don’t have to create your own product
- It’s a scalable business model
- Startup costs are low
- You can ramp up quickly
- It’s very low risk
Downsides to Dropshipping
The main downside to dropshipping is that you’re likely offering products that many others are offering as well. You have to find a way to differentiate beyond just the product, whether that be through branding, marketing, customer service, combining products into packages, etc.
Dropshipping also offers lower margins than traditional wholesale ecommerce. Since you’re ordering single products (after a customer purchases), you’re paying a slightly higher per-product price.
While dropshipping is often touted as a “passive income” opportunity, it does take a lot of work to get set up and drive revenue. It can take time to see success, and like any business, comes with financial risks and rewards.
What is Affiliate Marketing?
While affiliate marketing is similar to dropshipping, in that you’re selling someone else’s product, it’s done through different means. With dropshipping, you’re setting up a store, taking orders, and simply fulfilling through an outside supplier.
On the other hand, with affiliate marketing, you’re more so promoting and marketing someone else’s product without our own ecommerce infrastructure. You’re sending traffic to someone else’s site for the sale to take place and earning a commission on that sale.
Affiliate Marketing has taken off in the last decade as businesses and marketers realize the benefits. Businesses selling products (both digital and physical) benefit from having affiliates promote their products because they only have to pay a commission on sales (or leads or clicks or whatever the affiliate program stipulates). They pay for performance.
Affiliates, on the other side, love being able to make a commission without having to create a product. Commissions can range from 1% of the sale price all the way up to (and above) 100% of the initial sale.
Benefits of Affiliate Marketing
The benefits of affiliate marketing are quite similar to those of dropshipping. You’re able to start a business without building a product of your own. And with affiliate marketing, you don’t need an ecommerce platform of your own either, like you do with dropshipping.
You can get started in affiliate marketing with a simple website, an advertising account, sweat equity, or a combination of these.
Like dropshipping, affiliate marketing can be done from anywhere with a device and connectivity. It’s also touted as passive income, but does require significant work to see success.
However, the sky’s the limit in affiliate marketing. You can make a few bucks a month, or you can scale to have many websites and communities to bring in large sums of money. Some big businesses, like Wirecutter and The Skimm, are built mostly on affiliate marketing. They have large audiences, big content creation teams, and have built a trusted brand.
Affiliate marketing is a low-barrier-to-entry, low-risk, fairly easy-to-learn way to start a business and generate additional income. But, as with any business model, it comes with downsides.
Downsides of Affiliate Marketing
Affiliate marketing success doesn’t happen overnight. It takes time to build momentum, both time spent building the business and time building trust, getting traffic, waiting for commission payouts, and more.
It’s very difficult to find quality affiliate programs that aren’t being promoted by high-profile affiliates already. You can find affiliate marketing programs that pay well, aren’t too saturated, and fit your niche with some targeted research.
Affiliate marketers are reliant on other people’s products for their livelihood (or side hustle). If the product you’re promoting cuts commission percentages or goes out of business, you lose your income stream. By selling someone else’s product, you’re giving up a lot of control.
How to Choose Between Dropshipping and Affiliate Marketing
As you can see, dropshipping and affiliate marketing have similar pros and cons. They’re both digital business models that are quick and low-risk to start.
The big difference between the two models is whether you have your own sales engine that customers are using to buy a product. With dropshipping, you have an ecommerce platform where customers buy products (which are then fulfilled by your dropshipping suppliers). On the other hand, with affiliate marketing, you just have to have a simple website that links to the products you’re promoting.
In both business models, you can get more advanced and add integrations, automations, additional sites, new products, community management, and more.
If you have ecommerce or website experience, dropshipping is a great way to start a business of your own. You can use your technical and marketing skills to earn income.
If you don’t have a background in ecommerce and are not comfortable building a website and integrating with dropshipping suppliers, affiliate marketing may be the place to start.
Ultimately, the decision is yours. However, you should pick one, focus, master it, and only then expand.
How to Get Started
Once you decide which route you want to take, you’ll want to learn as much as you can from the people who have experience in your chosen business model.
If dropshipping is the route you want to take, learn how to start your dropshipping business.
If you want to learn affiliate marketing, we recommend signing up for John Crestani’s free webinar.
Regardless of what online business you start, you should treat it as a business. You’re investing your time and, yes, some money. Know your goals, ask for help, invest to the level you’re comfortable with.