When you’re starting a new business, you want a business model that keeps your risk to a minimum, while maximizing potential profit.
That’s why affiliate marketing and dropshipping are two of the most popular ways to make money online, because they let you grow without directly worrying about product inventory, fulfillment, and a host of other challenges that traditional business owners deal with.
But if you’re just starting out, you’re probably wondering which one is more profitable!
Obviously, both are accessible strategies to make an online income, and both have their upsides and downsides. So, in this affiliate marketing vs dropshipping guide, we’ll cover what affiliate marketing is, how it compares to dropshipping, and how to decide which one is right for you!
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What Is Affiliate Marketing?
Affiliate marketing is an online business model where you earn a commission by promoting another company’s products or services.
Essentially, an affiliate is sort of like an outsourced salesperson or marketer, doing online marketing on behalf of a product owner to drive traffic and conversions on the owner’s website.
The product owner pays affiliates for every click or conversion they generate. Affiliate marketing is an excellent option for beginners, because you just have to handle marketing to get your business going.
ClickBank provides an affiliate marketplace with high-converting top offers for affiliates of every skill level. This makes it easy to start making money from commissions, even if you’ve never sold online before!
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How Does Affiliate Marketing Work?
An affiliate marketer uses digital marketing channels to promote products on behalf of companies through videos, blogs, paid ads, emails, etc. They get paid on a predetermined basis, usually upon a successful sale after a customer clicks on the link and makes a purchase.
A report by KPMG states that 55% of people do research online for product reviews and recommendations before making a purchase. Those are all potential customers you can target as a successful affiliate!
In some affiliate agreements, the affiliate will get paid a percentage of any successful sale (known as revenue share, or RevShare). In other cases, the affiliate earns a predetermined flat amount for each successful sale (known as cost per action, or CPA).
Here are the 4 basic steps of affiliate marketing:
- Sign up for an affiliate marketing program with your preferred company or sign up for an affiliate marketplace like ClickBank.
- Choose the products you wish to market. You will receive a unique affiliate link or tracking link (known as a HopLink on ClickBank).
- Share your link to promote the seller’s product through your website, social media account, blog, YouTube channel, email list, and more.
- Earn commissions when new customers purchase through your link.
What Is Dropshipping?
Dropshipping is an ecommerce business model and retail fulfillment method where a merchant purchases products from third-party suppliers as customers place their orders.
The products are then shipped to the consumer without the merchant handling them directly. In other words, the merchant does not have to stock the products or fulfill the orders physically, since the supplier ships them on their behalf.
Dropshipping is a great option for entrepreneurs, since running an online store requires less operational capital compared to traditional retail. However, this method is best for more experienced online entrepreneurs who know how to establish a solid customer base online.
How Does Dropshipping Work?
The dropshipping process is straightforward. You can offer products from different suppliers without stocking them yourself. Like any other ecommerce retailer, you’ll have an online storefront, but the actual fulfillment is done through a third party.
Like with affiliate marketing, most of your job is finding customers and marketing to them. Here are the 4 basic steps for starting your dropshipping business:
- Select your preferred dropshipping marketplace and find the right products for your business.
- Import wholesale products into your online store and set prices.
- Make the products visible to online shoppers and accept orders.
- Submit the customers’ orders to your supplier for fulfillment.
Affiliate Marketing vs Dropshipping Comparison
Both affiliate marketing and dropshipping will allow you to make passive income by selling other people’s products. What makes both methods perfect for aspiring entrepreneurs is the ability to get started for cheap, from anywhere, without a ton of experience necessary.
With a decent laptop and an internet connection, you’re all set! Here is a comparison table for the two business models at a glance.
|Basics||Involves recommending other people’s products through blogs, videos, social media platforms, paid ads, etc.||Involves taking orders from your online store and sending them to a supplier for shipping.|
|Ease of getting started||Easy to start and requires no experience, no startup capital, and no inventory management.||Requires more startup capital to set up an online store; no inventory management is needed, but may require ecommerce experience.|
|Control||The product owner handles all customer service issues, no control over product quality.||You handle customer service independently and have little control over product customization.|
|How do you earn?||You earn commissions from the products you sell.||You earn profit after taking the wholesale price away from the sales price.|
|When do you earn?||When a customer clicks your affiliate link and purchases through it.||When customers place orders on your online store.|
|Money-making potential||High money-making potential, especially with ClickBank sellers who set high commission rates between 30% and 75% or more.||Higher profit margins, since you have control over the selling price and your customer acquisition strategy.|
|Growth prospects||Takes a shorter period to grow and establish a robust online presence.||Takes a longer time to establish a solid customer base, especially for beginners.|
|Future prospects||As an affiliate, you depend on the merchant or seller whose products you’re promoting.||With a quality online store and experience, you can establish a full-fledged business.|
Pros of Affiliate Marketing
The benefits of affiliate marketing are huge! It’s free to generate and place affiliate links online, and you have total control over when, where, how, and with whom you work.
Here are some of the pros of affiliate marketing in more detail.
1) No Barrier to Entry
Affiliate marketing has no barriers to entry. You can get started regardless of your physical location and experience. Additionally, setting up an affiliate link is free, and so is sharing it on your social media, website, and more.
2) No Customer Support Need
By choosing affiliate marketing, you exclude yourself from the customer service obligations. Your role is to promote the products and leave the rest to the vendors. Once they make purchases through your affiliate link, your work is done. This gives you a chance to focus your time and efforts on developing more robust promotion strategies.
3) An Excellent Way to Earn Passive Income
Affiliate marketing does not require full-time activity from the marketer, making it an excellent way to earn passive income. You can set up your campaigns, leave them and make money without doing anything. All you need is a reliable marketplace like ClickBank.
4) Real-Time Sales Tracking
Affiliate marketing provides massive data for all the sales that you generate. You can track the individual product performance, customer acquisition, and conversion rates. telling how many people clicked on your link and how many made a purchase also becomes easy.
5) Cost Effective
Affiliate marketing is a low-risk solution that is proven to work. While it requires an up-front investment, it scales well with the right strategies. This marketing option provides a higher return on investment than many other marketing strategies.
Cons of Affiliate Marketing
Here are some downsides associated with affiliate marketing:
1) Fixed Commissions
Unlike with dropshipping, you can’t directly control the average payout amount you get from an affiliate offer. You receive either a revenue share percentage or a flat commission from any sales you generate. And while you can contact a seller and negotiate, they have the final say on how much you can get paid.
With that said, some offers will reward you when you hit a set target, give you affiliate contest incentives, or pay out bonuses for extra motivation.
2) High Competition
The affiliate marketing landscape can be highly competitive, making it challenging to stand out from the crowd.
If you promote offers that aren’t proven, you can have serious headaches trying to find success. However, by embracing the best affiliate niches and offers on a marketplace like ClickBank, you can get great results in spite of the competition.
3) Longer Sales Cycles
Even when you’re doing well in affiliate marketing, you may need to wait a while to get paid. You cannot receive any payment until you reach the threshold for your chosen affiliate program or network (on ClickBank, it’s a $10 minimum, but many platforms may start at $100 or more).
In addition, a triggered payment may take between 30 and 120 days to receive.
Pros of Dropshipping
Dropshipping is an excellent marketing choice for more experienced entrepreneurs who don’t want to handle stock directly. Here are the upsides of this marketing model!
1) Low Entry Barrier and Risk
Dropshipping is a lower-risk business model with a low barrier to entry. If you want the potential to make sales with limited upfront costs and no direct inventory handling, this could serve you well.
2) Cost Effective to Start
You do not need your own inventory or a physical store to start dropshipping, making it a cost-effective solution for entrepreneurs wanting to make money online. A little starting capital goes a long way in starting to sell products through dropshipping.
3) You Do Not Incur Production, Storage, and Shipping Fees
In dropshipping, you only deal with the selling, and the supplier handles the rest. Once your customers complete a purchase, your work is done – unless there are issues such as returns or exchanges.
It’s easy to scale dropshipping, because you can sell as many products as customers will buy. With experience, entrepreneurs can build their ecommerce store quickly and start running traffic to it to generate sales.
Cons of Dropshipping
Like any other strategy, dropshipping has downsides that marketers should be aware of.
1) Price Competition
Due to high competition in the dropshipping landscape, sellers have to offer low prices to stay relevant. This could lead to low profits per sale and downward pressure on overall ROI.
2) Customer Service
Unlike in affiliate marketing, dropshippers have to handle customer support in-house. Any issues related to shipping, exchanges, or returns will require your attention, which can be time-consuming or expensive for beginners.
3) Limited Control Over Product
In dropshipping, you have little control over the product itself, since your primary responsibility is simply to send orders for fulfillment once they are purchased.
There are better ways besides dropshipping if you want greater control over the customer experience and product.
4) Requires Experience
If you have no prior experience in dropshipping or online marketing, it can take a few years to establish a successful business.
Which is Better: Dropshipping or Affiliate Marketing?
Obviously, deciding between dropshipping and affiliate marketing depends on a whole host of factors, including your level of experience, your budget, your industry, and your goals!
With that said, affiliate marketing is perfect for people starting out who don’t want to create a product, manage inventory, deal with customer support, etc. You can easily generate income by promoting other people’s products.
Dropshipping may be more profitable in the long term, but affiliate marketing is the perfect entry point for a beginner who wants to learn how to build an online business. And the best way to do that is with Spark by ClickBank, the official affiliate marketing education platform from ClickBank!
Do you want to start earning passive income through affiliate marketing? Be one of the people who succeed at it with Spark By ClickBank training and ClickBank’s global marketplace.
Click here to create a ClickBank account for free, and then sign up for Spark to start learning!