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In affiliate marketing, a third-party website promotes affiliate offers and gets paid for each visitor that clicks on it. On the other hand, dropshipping is a method of direct sales where the retailers do not have to purchase any products upfront as they can drop-ship the product directly from another company's warehouse to their customers.
Affiliate marketers resell affiliate ads on their websites and get paid when someone buys something through affiliate links or clicks on affiliate ad banners while dropshipper tends to own his store and sell products supplied by vendors or manufacturers. The revenue model in affiliate marketing is different from dropshipping in which affiliate marketers get paid for affiliate conversion while dropshippers will not have to pay affiliate fees or any affiliate commission.
Affiliate Marketing vs Dropshipping
This differentiation can help determine which strategy is best for your business and how you can make the most of it as both strategies require huge investment and time commitment to gain a profit. To further understand affiliate marketing vs. dropshipping, let us look at some of the major differences between them:
Business Models
Affiliate Marketing is an internet marketing technique wherein a third-party website promotes affiliate offers from other companies on their platform and gets paid when someone buys something through affiliate links or clicks on affiliate advertisement banners. The affiliate marketer is not expected to purchase any product upfront as affiliate fees are being paid directly to affiliate networks and affiliate marketers will get their commission post affiliate conversion.
A dropshipper, on the other hand, will have to buy a particular product or items in bulk from manufacturers or wholesalers and sell them at retail prices directly to customers. Also known as the “retail-based model", a dropshipper can either drop-ship products from his warehouse or can outsource his order processing work to third party companies in which case he only has to pay for fulfillment services rather than purchasing the inventory upfront.
Unlike affiliate marketing where affiliate marketers have to pay affiliate fees for each affiliate conversion, dropshippers do not need to pay any affiliate fee and there is no affiliate marketing involved.
Commission
Affiliate marketers get paid every time someone buys through affiliate links or clicks on affiliate ad banners while dropshippers will only receive money when they make a sale and their profit margin depends solely on the difference between their supplier's price and retail price to customers.
For example, if you are a retailer who ships products from different suppliers with each product having its own wholesale and retail prices, your profit margin would be the difference between the wholesale price and retail price which means your business will only earn a profit after reaching 100% of sales volume.
Also, note that all dropship purchases have to be fulfilled by drop shippers before any kind of payment is made to them so dropshippers need to choose businesses that have high customer satisfaction and are reliable.
Cost-effectiveness
Affiliate marketing is a more feasible option when you compare affiliate marketer's out-of-pocket costs against higher investment to start a business dropshipping. While affiliate marketers only need initial capital to develop their website, affiliate ads, banner designs, or other tools to promote affiliate offers, a wholesaler has to spend big money required for the entire starting inventory needed as there is no way to sell products without having any stock at all.
Also, note that nowadays affiliate advertising networks provide affiliate banners and ad creative that can be customized so you do not have any additional cost for affiliate advertisement. As affiliate marketing is a more cost-effective option for beginners, it can be the right affiliate model to consider if you are looking to start affiliate marketing on a small budget or are new to affiliate business and have no experience in affiliate conversion rate optimization.
Scalability
Affiliate marketing is an option that has the potential to grow even further with additional funds for investment. Affiliate networks take care of managing affiliate ad campaigns while affiliates get paid via direct deposit or PayPal so there is no margin lost at all during the whole process and any failed campaign does not affect affiliate marketers' paychecks unless they choose not to advertise through such a network anymore.
Dropshippers, however, are only paid when they make a sale which means that every affiliate conversion or sale is a direct contribution to their profit margin. With affiliate marketing, affiliate marketers earn the higher market conversion rate of new customers via affiliate ads and affiliate links while affiliate payments come from affiliate networks' commission or advertisers' fees for every affiliate-driven purchase.
Simplicity
A dropshipping business is a simpler way to get started since all it takes is just buying products in bulk at wholesale prices from suppliers. Contrarily, affiliate marketing requires setting up an eCommerce website, building sales funnels, developing SEO campaigns, or creating content to fuel targeted traffic; writing appealing descriptions and pricing; finding the right affiliates that offer products matching your niche and niche keywords.
Usually, affiliate marketing takes a lot of work to establish affiliate sites, affiliate offers, or affiliate ads while dropshipping business can be started immediately without any effort if you can find reliable suppliers. Review Shopify dropshipping vs affiliate marketing if you really want to see the sturk difference in simplicity.
Security
Affiliate marketing is an option that has proven itself over time when compared against their multiple existing alternatives. Affiliate programs pay affiliates via direct deposit for each affiliate sale they make which means affiliates will never run into chargeback issues since they have been paid already by advertisers directly.
On the other hand, dropshippers can run into payment or chargeback issues with their suppliers because there is no way to leave suppliers' side if they fail to deliver goods bought from them and those goods are not affiliate products. If the dropshipper makes a sale and suppliers fail to deliver goods, they will lose money too because there is no affiliate link or affiliate ad on their sales page that would track the affiliate conversion rate of such traffic to affiliate links.
Final Words
While affiliate marketing has clear advantages over other business models, it can run into some issues in affiliate conversion optimization and customer service if you cannot find high paying affiliate offers from affiliate networks with good conversion rates or do not have good affiliates promoting your products through affiliate ads or links as this could result in conversion rates lower than expected for your targeted keyword groups which mean lower paychecks for every sale you make via affiliate links.
Affiliate marketing vs dropshipping is two options worth considering when starting your affiliate marketing journey. Each method has its advantages and affiliate marketers should review affiliate marketing vs dropshipping before deciding whether affiliate marketing or dropshipping is the better option for them to approach affiliate business in their niche.
Don't forget, you can get a fully automated USA based dropship website, built for you, in whatever niche you want, in 72 hours or less. Go to https://learn.dropshipusa.io/webclass to register for our free webinar that will teach you our secret dropship model, and how you can get it built for you in only 3 days!
