Dropshipping and Affiliate Marketing
Here’s what I cover in this post:
- What is dropshipping?
- What is affiliate marketing?
- The similarities between dropshipping and affiliate marketing
- Combining dropshipping and affiliate marketing
I was searching online this week for the differences between dropshipping and affiliate marketing, really just to see how other people were defining them.
But 90% of the articles I found turned into a comparison of the two that favoured dropshipping as a better, more profitable business model.
So I decided to take a look, but with a different approach: rather than favour one over the other I’ve looked at doing both.
After all, as far as your work online goes, the skills you need are the same. And they both enable you to set up an online business, even if you don’t have your own product to sell.
So first, let’s quickly take a high level look at the different business models.
What is Dropshipping?
Dropshipping is where you set up a website with an online shop, choose the products you want to sell and then source them from a dropshipper.
You usually have to buy the products up front (there are exceptions), as if you were opening a bricks and mortar store, but you don’t store or deliver them.
They are stored by the dropshipper. When someone buys a product from your website, you raise a back-to-back shipping order to the dropshipper, and they arrange delivery.
With dropshipping you get to set your own prices for the items you’re selling and so your headline margins may well be higher than they are with affiliate marketing.
As a dropshipping business owner, you are selling the products from your online store and the customer contracts with you, not the product maker.
So you own the customer, which means you can build up a customer base to which you can market and re-market.
Because you own the customer, you also own the customer support and after sales service.
So where a delivery fails, or the product doesn’t meet expectations, you are the one who has to manage those situations.
This can mean that you end up getting caught between your customer and either your dropshipper or the product manufacturer, and you may have to carry some losses as a result.
So, clearly, as well as choosing the products you want to sell, you also need to carefully choose the dropshipper with whom you work – they need to be professional and reliable.
In fact all the dropshippers whose experience I’ve read have said that the success of a dropshipping business depends entirely on having reliable suppliers.
Dropshipping is a well-established business model from which many businesses have been established and grown very profitably.
What is affiliate marketing?
Affiliate marketing is where you are promoting someone else’s products but, unlike with dropshipping, you are not making the final sale. The product owner is.
With affiliate marketing you are pre-selling.
Once again you set up a website but this time, instead of having a shop on your site, you write reviews and other articles (e.g. ‘how to’s’) around the products you are promoting.
You place your affiliate link within these posts and, if your reader clicks one of those links, goes to the product site and buys, you get a commission.
Effective product reviews, and other articles on or around the products you’re promoting, pre-sell your site visitors, so that when they arrive on the product website they are ready to buy – and (hopefully!) do so.
An affiliate marketing business is cheaper to set up than a dropshipping business because you don’t have to buy the stock up front.
You will still have the costs of setting up a website, and all the other business set up costs, just as you do with dropshipping – but you will save because:
- You’re not buying stock up front
- Your website set up will be simpler and, therefore, cheaper, because you don’t need to set up a shop
As with dropshipping, you can build a customer base, but you do it differently.
With affiliate marketing you build a mailing list by offering an inducement to your site visitors, to entice them to sign up for your regular newsletter. When they opt in you are able to email them with new products or special offers, just as you can with dropshipping.
A key difference, though, is that your dropshipping customer base comprises people who have already bought from you. Your affiliate marketing email list comprises people who may have bought, or may buy in the future.
So your dropshipping customer base is probably a more valuable asset.
I referred to your headline margins in the section on dropshipping: with dropshipping you get to decide your margins because you pay a wholesale price for the products and set your own selling prices.
With affiliate marketing the prices are defined by the product owner and you get a fixed commission.
In many cases this means that your headline margin will be higher with dropshipping but, of course, you have the additional up-front costs (buying the stock and setting up your webshop), and the costs of providing the after sales service, that you don’t have with affiliate marketing.
Also, it depends on the commission percentage and the terms offered by the affiliate programs you’re assessing.
It’s perfectly possible, in the affiliate marketing world, to market a product that offers 50% recurring commission – meaning you get 50% of each and every subscription payment on subscription products or services, for as long as the customer remains a subscriber. These are clearly very profitable affiliate programs!
So, as with dropshipping, where you need to choose your products and a reliable dropshipper, with affiliate marketing you need to choose the products you promote and a profitable affiliate program.
Getting either or both bits wrong in either dropshipping or affiliate marketing will lead to losses – just as it would in a bricks and mortar business.
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The similarities between dropshipping and affiliate marketing
Having considered the differences, let’s look at the similarities between dropshipping and affiliate marketing.
In both cases you need to be able to set up a good quality website and attract as many targeted visitors as possible to it, in order to grow your business.
This means that, in both cases, you will need:
- A stable, reliable, fast-loading website
- Solid, secure and reliable hosting
- To be able to market effectively online, using both paid and unpaid channels
- The ability to build up a customer mailing list
- The ability to write persuasive content
For dropshipping you will also need an eCommerce platform and a payment gateway to enable your customers to pay you, which you don’t need for affiliate marketing.
This means that your website will need to be PCI (Payment Card Industry) compliant and you will need to have a strong focus on security and hacking protection.
But basically, the online part of your business, whether it’s dropshipping or affiliate marketing, is very similar.
So that begs the question: why not do both?
Combining Affiliate Marketing and Dropshipping
The idea of doing both affiliate marketing and dropshipping makes a lot of sense although, clearly, you would not start both at the same time.
My recommendation would be to start with affiliate marketing because it has the lower start-up costs. This would be the most cost-effective way to experiment, learn, and get to grips with the art of marketing online.
Also, your website set up would be slightly easier since you wouldn’t need an eCommerce platform or payment gateway (although those are both simple enough to implement).
In fact, affiliate marketing has one of the lowest start-up costs of any business.
For more info on that, you may want to read my detailed post: How to get started with affiliate marketing.
Getting an affiliate marketing business up and running would be the simplest way to:
- Get your online presence properly set up (e.g. website, social media accounts, email list, etc.)
- Test the market for products that work well for you
- Build up your online marketing skills (SEO, blogging, Pay Per Click advertising, etc)
- Establish and grow a customer list
- Establish and grow your brand
Which are exactly the same skills you will need to be successful in a dropshipping business.
So once your affiliate marketing business is established, then would be the time to expand by bringing dropshipping into the mix.
By the time you’re ready to expand into dropshipping you would probably have a good feel for products that would work well.
They may or may not be complementary to the products you’re promoting as an affiliate, but the more you become immersed in the world of affiliate marketing the more likely it is that you will spot dropshipping opportunities.
My position now and plan for the future
I’m currently an affiliate marketer, and I’ve written some in-depth articles on it – this one goes into detail on how to get started with affiliate marketing.
However, once my affiliate marketing business has gained momentum and is ticking along nicely, I will absolutely look to expand into dropshipping.
Adding dropshipping to an established affiliate marketing business can lead to a seriously profitable enterprise.
And, of course, if you already have a dropshipping business that’s matured and working well, you may want to consider adding affiliate marketing into the mix.
I see the two business models as being highly complementary, despite the many articles you will find online that tell you how different they are!
I’d love to read your thoughts – let me know what you think in a comment below.