Affiliate Marketing vs Dropshipping: Which is the Better Business Model? We have a direct comparison.
Would you like to become self-employed and are you looking for the right business model? Is your own online business would be a dream that you would like to finally fulfil? But the brilliant idea hasn’t materialized yet? How good that you found this article.
Because here two of the most lucrative business models in the online sector are presented and compared. Our goal: is ultimately to help you decide on the right business model. So let’s get started.
Before we get to the question: “Affiliate Marketing vs Dropshipping – Which business model is more convincing?”, we first want to introduce the two business models and explain exactly how they work and how you can make money with them. We will answer the following questions in this article on “Dropshipping vs. Affiliate Marketing”:
- What is dropshipping?
- How does dropshipping work?
- What is affiliate marketing?
- How does affiliate marketing work?
- What are the pros and cons of dropshipping and affiliate marketing
- What comparison criteria can I use to decide on a business model?
To break it down briefly: You can call dropshipping a kind of e-commerce. This is because online retailers offer various products in their shops that they actually don’t have in stock. If customers like an item and want to buy it or order it, the wholesaler does not ship the item, but the shop owner. So are you shop?-Operator, you own have no physical contact with your offered products.
Dropshipping, therefore, offers you a decisive advantage over retail: With this business model, you no longer have the problem of stock and you don’t have to worry about its completeness. Much better even: You don’t even have to send your offered items and still collect the money for them.
Dropshipping: who does what?
Actually, there are three main parties in dropshipping:
- The sellers: As a seller, you manage your shop and try to generate as many potential customers as possible. When an order comes in, you contact the wholesalers and pass the order on. Your profit is the difference between the amount the wholesalers charge for the product and the amount the customers are charged.
- The end customers: They buy the product in your online shop and do not know whether they will receive a dropshipping delivery or not. Translated, this means: Nobody knows that you did not store the goods yourself.
- The dropshipping providers: They take the actual order and arrange for the shipment of the product. The great thing about it is: You don’t have to worry about formalities such as shipping, customs and distribution costs. This is all taken care of by the providers.
Definition: Affiliate Marketing
Affiliate marketing is both a relevant marketing strategy and a working and really lucrative business model. For those who have not yet come into contact with it, we would like to get to the point very briefly: As an affiliate, you sell products – but not your own.
In principle, it is about the cooperation of sales partners with the aim of selling products and earning money. The so-called affiliates advertise products from manufacturers or retailers and receive a commission in return. To put it simply: affiliates help to sell third-party products or services. And because affiliates recommend other products, so to speak, this business model is also called referral marketing.
Affiliate Marketing: Who Does What?
In affiliate marketing, too, there are different parties that take on different tasks:
- Affiliate: In everyday use, an affiliate is often used when it comes to someone who advertises a third-party product and earns commission-based money if the deal is successful. Some also call an affiliate a publisher. If you start your own affiliate business, you are the publisher.
- Advertiser: The affiliate is opposed to sales partners who want to sell their own product. These can be manufacturers, but also dealers. In affiliate marketing, these partners are also called advertisers. Many brands act as such advertisers by offering affiliate programs and paying commissions when you promote their products. With such programs for affiliate marketing, you can also save on taxes
- Affiliate network: Affiliate networks are platforms on which affiliates and advertisers can register and find one another. So, affiliate networks act as an intermediary between the two parties and handle all payment matters.
Affiliate Marketing vs Dropshipping: The Key Pros and Cons
Before the direct comparison comes, we also want to show you the main advantages and disadvantages of the two business models. Because as mentioned at the beginning: We want to take you a decisive step forward in your decision-making process.
PROS AND CONS OF DROPSHIPPING: IN A NUTSHELL
One of the biggest advantages of dropshipping is definitely the low risk. Because you don’t have too much to do with topics like inventory or deliveries. In addition, you can rack your brains over your product prices because they are your products. And that’s also why there is a relatively high margin here. But the lack of physical contact with your products can also be seen as a disadvantage. This way you have no influence whatsoever on the quality and packaging of the products.
ADVANTAGES AND DISADVANTAGES OF AFFILIATE MARKETING: A SHORT AND CONCISE SUMMARY
Hardly any other business model is as flexible as affiliate marketing. No matter where you are in the world, your online business can be easily managed from anywhere. In addition, the entry costs are really very low. Because for a successful online business in this area, you don’t need much more than your computer or laptop and a website, a blog or your social media channels. Because where exactly you use affiliate links is up to you. But sometimes, depending on the advertiser, the commissions can be very low, so you first have to attract many visitors to external sales sites in order to generate lucrative and regular income.
Affiliate Marketing vs Dropshipping: Comparison Criteria
As a prospective founder, how do you choose your business model? What are the evaluation criteria that you use to decide on one or the other business? That’s exactly what we asked ourselves and selected five criteria that intensively examine both business models.
- Technical know-how: This is where the amount of technical knowledge required is assessed. This refers, for example, to knowledge in the areas of web design, graphics, video production or programming.
- Weekly expenditure of time: How time-consuming is the individual business models in terms of development and maintenance? In which business models do you have to invest time regularly or weekly and which ones run “by themselves”?
- Yield: Here the amount of profit is set in relation to the risk and also the required start-up capital and evaluated as a whole as a return.
- Passive income: Are there, for example, products that you can create once and then sell again and again? Can you manage to get paid not by time spent, but by benefit achieved? Can you automate processes?
- Flexibility: How flexible can you work? How regulated and fixed are the corporate structures? Do you have to drive to the office every day or always sit at the laptop at the same time? How dependent are you on other partners and service providers?
Affiliate Marketing vs Dropshipping: The direct comparison
|evaluation criteria||Affiliate Marketing||Dropshipping|
1 = very low, 5 = very high
A lot of flexibility and a low weekly time commitment are what characterize the affiliate business in particular. Of course, in the beginning, you have to invest time and effort to fill your website or your social media account with basic information about your topic.
But once that’s done, you only have to provide your readers with a few new articles per week. At first glance, the return may only be moderate, but the actual amount is of course primarily up to you. If you invest a lot here, you can also get a lot out of it. If you are looking for a business model that runs perfectly on the side and requires little technical know-how and little attention, affiliate business is the right business model for you.
Do you find the idea of having your own online shop exciting, where you can flexibly add products of your choice and generate passive income? Without your own warehouse or shipping?
Then a drop shipping business is just right for you! Sure, of course, you have to deal with the technology and the interfaces for your shop and get in touch with customers, but this business model can be scaled profitably.
Conclusion: The choice depends on your startup personality
In this article, you have learned all the main differences and similarities between the two business models. The table also gave you a direct comparison and you can now assess what is important for the individual business models.
Affiliate Marketing vs Dropshipping: Which is Better? The question is not which model is better, but which of these business models suits you and your startup personality better?
After all, we all place different values on different factors. For some, online business should be as flexible as possible, for others the highest possible profit must be achieved.