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 delivered directly from the common warehouse on behalf of the specific entrepreneur. At the same time, the dropshipper earns on the difference between the manufacturer's wholesale price and the price at which the product was sold to the buyer.

The 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 issues.

Dropshipping is an excellent option for a beginner in e-commerce. Often, such stores are opened by students and young people. To develop and scale such a business, it is necessary to constantly work on sales/marketing skills and collect 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 compensation for every customer, visitor, potential distributor brought to the supplier.

Affiliate programs work on a mechanism similar to dropshipping for selling products. An independent partner finds buyers and provides the manufacturer with the necessary data for sending the product. However, in this business system, the seller does not deal with pricing but receives a fixed commission for their work.

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

On Instagram, affiliate marketing is one of the most prominent forms of marketing. At first glance, regular people post a series of product recommendation posts for a certain company. It's common for fashion models to promote a specific clothing brand, dietitians to promote dietary supplements, and fitness trainers to promote protein shakes. In this case, the product can be purchased by clicking on a referral link to an external website.

In affiliate marketing, the entrepreneur often handles the marketing and distribution of referral links. However, some companies help their distributors create sales pages for redirecting traffic, provide consultation and training, and give access to template landing pages.

Similarities between affiliate marketing and dropshipping

Although there are quite a few differences between dropshipping and affiliate marketing, they share some common features:

minimal start-up costs;
high earning potential;
low risk of failure and loss of money;
no need to worry about logistics and product availability (products are delivered directly from the manufacturer to the consumer);
similar skills are required for development, such as creating advertising and directing traffic to the target page, etc.

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

Pros of dropshipping

Potentially higher profit from the business. The seller sets the price and the income depends directly on their efforts put into the work.

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

Brand equity is created. By working on the development of your store, you are developing its brand. Any investments made to scale up the site will pay off because, in the future, the ready-made business can be sold.

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

Disadvantages of dropshipping:

It is necessary to manage customer support. The main disadvantage of dropshipping is that the seller will need to take orders, advise and communicate with customers, resolve all disputed situations and monitor feedback about themselves.

Over time, when the business grows, customer support can be outsourced or a staff member can be hired to take on all such responsibilities. Even by delegating some of the work to others, the business owner will have to organize and administer the work: optimize workflows, search for new suppliers, and so on.

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

Dropshipping requires complex work that is difficult to manage alone. Be prepared to regularly hire freelancers of various profiles or hire assistants to your staff.

Advantages of affiliate programs:

Free training and business development assistance. You can start your business as an absolute beginner in entrepreneurship. The company trains partners and is motivated in their success. You will not be left to the mercy of fate, and a personal manager will help you achieve the first results, advise and fill in any missing knowledge.

Budget start. To launch your business, you do not need to create an online store and painstakingly work on its development. It is enough to redirect potential buyers or future distributors to the online store of the parent company through a referral link.

The ability to receive passive income. Yes, you will have to understand the principles of the business system, generate a large amount of content with referral links, and develop a partner structure from the referred distributors into your team. But, after productive work, you will be able to earn "in the background."

No need to worry about customer support. A partner does not need to become an absolute expert in the advertised product. Support, communication with customers, and the resolution of disputed situations are taken care of by the company to which the partner redirects traffic.

Different earning variations. In addition to commissions from product sales, a partner can receive other types of bonuses. For example, this is for the number of referred referrals, their activity, and so on. Typically, an affiliate company develops a full marketing plan that outlines all the opportunities for receiving bonuses/profits and explains the mechanisms of work in detail.

The audience's skeptical attitude towards referral links is one of the disadvantages of affiliate programs. To some extent, to do business, you need to be a psychologist. When someone sees a referral link, they may assume that you're selling a product at a markup, and that buying "through you" will be more expensive. Most of the leads you attract will manually search for the company's website and make purchases without being tied to your link.

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

Financial pyramids often disguise themselves as affiliate 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 for the consumer. Or simply promise to make money "out of thin air." Scam projects usually work according to a standard scheme with minor changes:

A large-scale advertising campaign is launched with promises of bringing a very high percentage of profits for a short period of time without making any effort;
Deposits are collected, and a partner structure of participants is formed;
While the influx of new people is stable, minimal payments are made to the first depositors in the projects;
When the influx of new people becomes smaller, and payments must continue to be made, the company closes, and its founders "wash their hands" and take the collected money for themselves.

To avoid falling into the scammers' trap, read the material on how to distinguish a real affiliate company from an investment pyramid.

Conclusions

Judging by the results of our mini-study, 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 (a list of the best projects in Russia, verified by time) or create a startup from scratch.