Dropshipping and affiliate marketing. Which one is more effective?

Many entrepreneurs build their businesses based on selling other people's products. In this case, they consider dropshipping and affiliate marketing as models for organizing their business. These business systems have common features and fundamental differences that we will uncover in this article.

What is Dropshipping

Dropshipping is a sales model where the seller acts as an intermediary between the buyer and the manufacturer. The entrepreneur collects orders from buyers and provides the supplier (manufacturer, dealer, distributor) with the necessary data for delivery.

During the sale, the product is directly shipped from a common warehouse on behalf of a specific entrepreneur. In this case, the dropshipper earns the difference between the manufacturer's wholesale price and the price at which the product was sold to the buyer.

Dropshipper is fully responsible for the marketing development of their store and communication with customers. At the same time, they do not deal with logistics, packaging, and shipping of products.

Dropshipping is an excellent option for beginners in e-commerce. Often, such stores are opened by students and young people. To develop and scale such a business, one needs to constantly work on sales/marketing skills, build a base of suppliers with quality and in-demand products.

What is Affiliate Marketing

Affiliate marketing is a business system in which the seller receives a reward for each customer, visitor, or potential distributor referred to the supplier.

A similar mechanism to dropshipping operates in affiliate marketing. An independent partner finds buyers and provides the manufacturer with the necessary data to send the product. However, in this business system, the seller does not deal with pricing but receives a fixed commission for the work.

At the same time, the seller sells products not in their own name. They become a distributor of the parent company, where they can earn not only from selling the product but also from other activities, such as attracting and training other distributors to work on the project.

Affiliate marketing work is most visible on Instagram. At first glance, ordinary people post series of product recommendations for a specific company. It is common to see a fashion model promoting a clothing brand, a nutritionist endorsing dietary supplements, and a fitness trainer recommending protein shakes. The product can be purchased by following a referral link to an external website.

In partnerships, entrepreneurs often handle marketing and distribution of the referral link themselves. However, some companies assist their distributors in creating sales pages for redirecting traffic, provide consultation, training, and access to template landing pages.

Similarities between affiliate marketing and dropshipping

Although dropshipping and affiliate programs have quite a few differences, they share common traits:

- minimal startup costs;

- high earning potential;

- low risk of failure and money loss;

- no need to worry about logistics and inventory (products are delivered directly to the consumer from the manufacturer);

- similar skills are needed for development: ability to create advertisements, direct traffic to a landing page, etc.

Let's analyze the pros and cons of each business system separately.

Dropshipping Pros

Potentially higher business profits. The seller sets the price themselves, and the income depends directly on the efforts put into the work.

For example, the cost of a product from the manufacturer may be $1, and you sell it for $20, keeping the difference for yourself. In affiliate programs, the seller receives a fixed income for the sale.

Creating an asset in the form of a brand. By working on developing your store, you are building its brand. Any investments in scaling the site will pay off, as a ready-made business can potentially be sold.

Greater control over the business. The more control you have over the business, the more chances you have to convert leads into customers. However, all responsibility for the viability of the business will rest on your shoulders.

Cons of dropshipping

It is necessary to manage customer support. The main drawback of dropshipping is that the seller will need to take orders, provide consultations and communicate with customers, resolve all disputes, and monitor feedback about themselves.

Over time, as the business grows, customer support can be outsourced or an employee can be hired to take on all such responsibilities. Even by delegating some of the work to others, the business creator will have to organize and administer the work: optimize work processes, find new suppliers, etc.

High development costs. You will need to invest in creating an online store, regular checks of its functionality, optimizing the customer experience on the site, and attracting an audience to it. Also, a separate layer of work is marketing promotion and brand development.

Dropshipping business involves comprehensive work that is difficult to handle alone. Be prepared to regularly engage freelancers of different profiles or hire assistants on staff.

Advantages of affiliate programs

Free training and business development assistance. You can start your business as an absolute beginner in entrepreneurship. The company educates partners and is motivated by their success. You won't be left to the whims of fate, and a personal manager will help you achieve initial results, advise, and fill in the missing knowledge.

Budget-friendly start. To launch your business, you won't need to create an online store and meticulously work on its development. It will be enough to redirect potential buyers or future distributors to the parent company's online store via a referral link.

Opportunity to earn passive income. Yes, you will need to understand the principles of the business system, generate a large amount of content with referral links, develop a partner structure from the distributors brought into your team. However, by working productively, you will be able to earn "in the background."

No need to worry about customer support. The partner does not need to become an absolute expert in the promoted products. The company, to which the partner redirects traffic, takes care of support, communication with customers, and resolution of disputes.

Various earning opportunities. In addition to commissions from product sales, a partner can receive other types of bonuses. For example, this includes bonuses for the number of referrals brought in, their activity, etc. Usually, the partner company develops a comprehensive marketing plan that outlines all the possibilities for receiving bonuses/profits and explains the working mechanisms in detail.

In our blog, if a separate rubric with articles on marketing in partnerships. There, you can delve into the smallest nuances of compensation plans. In particular, we recommend reading comparison of different types of marketing

Disadvantages of partnerships

Skeptical attitude of the audience towards referral links. To run your business, to some extent, you need to be a psychologist. Seeing a referral link, a person may assume that you are selling a product with your markup, and buying "through you" will be more expensive. Most of the leads you attract will manually search for the company's website in search and make purchases without linking to your link.

Not understanding how affiliate programs work, people think they are being deceived. Statistically, many do not trust affiliates/networkers and generally have a very skeptical attitude towards the affiliate marketing industry. To reduce the number of such "runaways," work on your personal brand and increase people's trust in you. Earlier, we already discussed in the blog the issue of how to build a business around your name.

Financial pyramids are often disguised as partner companies. Realizing the potential of this business development system, scammers have become more active. In most cases, they try to disguise themselves as investment funds or businesses with products that have no real value to the consumer. Or simply promise to make money "out of thin air." Scam projects usually operate according to a standard scheme with minor variations:

1. A large-scale advertising campaign is launched with a promise to bring a very high percentage of profit in a short period without making any effort;

2. Deposits are collected and a partnership structure of participants is formed;

3. While the influx of new people is stable, minimal payments are made to the initial depositors in the projects;

4. When the influx of new people decreases and payments need to continue - the company closes, and its founders "wash their hands" and take the collected money for themselves.

To avoid falling into the trap of scammers, read the material about how to distinguish a real partnership company from an investment pyramid

Conclusions

Based on the results of our mini-research, it seems that it is easier to start, scale your business, and achieve passive income in affiliate marketing.

Affiliate programs are introduced by both large international suppliers (such as Amazon or Aliexpress) and local companies. If you are attracted to this business system, you can become a partner of an existing company (list of the best projects in Russia, proven over time) or create a startup from scratch.

Team FlawlessMLM helps develop existing network marketing companies and launch brand new projects. Our experts can quickly and efficiently launch a project and develop a marketing plan of any complexity. Contact our manager in the website chat (flawlessmlm.com) and get a free consultation on solutions for your business.