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Are you looking to take the world by storm by launching your very own online business? If yes, then you may be wondering which, between affiliate marketing and dropshipping, will do the trick for you. Hi, my name is Francisco, and I am the owner of Planet Marketing, a digital marketing agency. My company specializes in Google Ads, Facebook Ads and Affiliate Marketing. I have been doing digital marketing for over 2 decades and in all that time, I have pointed countless clients in the right direction as far as launching profitable online businesses is concerned. Through my blog, planetmarketing.com, I am an affiliate for brands in various fields. Not only that, but I also run my own affiliate marketing program. So, you can be sure that I know what I am talking about here! In this article, I am going to;
- Use an example to define dropshipping
- Give you the definition of affiliate marketing
- Compare dropshipping and affiliate marketing
- Help you decide which is best for your business
What is dropshipping?
Dropshipping is a business model under which a retailer does not stock the goods that are being sold. Instead, the goods remain with a third party, who can either be the manufacturer, a wholesaler or another retailer. When sales are made, the third party does the shipping. In many ways, dropshipping is just like standard retail businesses. The only difference lies in the fact that a business that engages in dropshipping does not maintain stocks of the goods that it is selling.
An example of dropshipping
Let’s assume that Joe the Blogger has had a revelation. This year is going to be his year. He is going to make it into the elite group of millionaires. Now, that’s just a little bit too ambitious of someone who has been doing time at the local retail store; cleaning isles and manning the till points. But it’s still not unheard of. I mean, the world is full of such rags to riches stories, right?
Anyway, Joe the Blogger has heard that online is where the money is being made in this day and age. And he decides to join the bandwagon. After all, he is tech savvy. He knows how to navigate his way around the internet. I mean, anyone who spends entire days poking at a till counter keyboard HAS to be tech savvy. Joe even has a Facebook account!
After inquiring around, Joe the Blogger realizes that one of the options when it comes to starting his own online business is dropshipping. Now, this model of doing business sounds really great. Joe, unlike the retail outlet that he has been working for for the past 5 years, isn’t exactly rolling in money. He cannot afford to buy and keep large stocks of goods. All that he want’s to do is set up a business online and start getting quick returns.
What is he going to sell?
Joe is passionate about Sports. In fact, at work, he is known as Joe the Sports guy. That’s despite the fact that he is himself rather pudgy. And his idea of exercising is to sit in front of the television while watching other people running around on the sports field. His philosophy is that watching people sweat so profusely is bound to burn a few of his own calories.
Anyway, Joe the Blogger decides that the best way for him to make money is by following his passion. This is a very wise decision. Joe is much more likely to succeed by doing what he likes best. Any content that he produces will also reflect the fact that he knows what he is talking about, which is good for building a loyal audience. So, in his infinite wisdom, Joe decides to launch an eCommerce business that sells sports merchandise.
Where to source the merchandise
But wait, Joe doesn’t manufacture anything himself! In fact, he still lives in his mother’s basement with his girlfriend. So, how is he going to sell anything? Where is he going to keep the stock? The answer to this is dropshipping. Joe does some research, and he finds a wholesaler that stocks merchandise that he feels would be great for his eCommerce site. The great thing about this manufacturer is that all that Joe needs to do is find the customers. The manufacturer will handle all the shipping and other details. This is a good arrangement. It means that Joe will get all the time that he needs to concentrate on finding customers.
Creating the Channel
Joe the Blogger already has a Facebook page. However, he realizes that this is not going to do when it comes to finding customers for his business. He is not exactly an influencer. The only people that he can hope to influence to buy from him are his mother, his sister and his girlfriend. And even they would only buy under duress; though they would never admit it to his face. So, how is Joe going to reach out to customers for his sports regalia?
Launching his site
Creating and launching an eCommerce site isn’t that difficult, as Joe finds out. Soon, enough, he has his store up and running. It’s well stocked with the sports merchandise that he is selling. Hmmmm, now, where to find customers?
Joe realizes after a little while of staring at his site while selling nothing, that he needs to do content marketing to get people to get to his store. Joe the Blogger decides wisely that the best way of reaching out to his customers is by adding a blog section to his site. So, he starts reviewing the products that he is stocking. He also starts blogging about other related issues. Soon, people start visiting his store via Google, Baidu and other search engines.
Joe Blogger’s first sale
After a while, Joe the Blogger makes his first sale. He is, to say the least, quite ecstatic. In fact, he cannot wait to get home to tell his mother and his girlfriend. Wait… he is already home. The business is being run from his mother’s basement. Oh well….!
The great thing about the dropshipping business that Joe the Blogger has ventured into is that he doesn’t have to keep any of the goods that he is selling in stock. In fact, all that he needs to do is find customers for the products. As soon as that first sale is made, the wholesaler starts handling shipping to Joe’s customer. And Joe is well on his way to becoming a millionaire! Well… it’s a start anyway!
That, in a rather large nutshell, is dropshipping. However, let’s assume here that before Joe the Blogger goes down that direction, he hears about another option for his fledgling online business; affiliate marketing. Now, affiliate marketing is a subject that I talk about a lot on this site. I have mentioned that I am an affiliate for other brands. The following are some of the goods that I sell through this website;
My own Affiliate Marketing Program
I have already mentioned that I run my own affiliate marketing program. Under this program, people from around the world can sign up to sell any of the following products;
- The DIY Facebook Ads Marketing Course
- The Facebook Ads Setup Course
- The Google Ads Marketing Plan
- The Google Ads Setup Plan
- The Google Analytics Setup Plan
What is Affiliate Marketing?
Now, Joe the Blogger has heard that affiliate marketing is another way for him to make money online. But what, he wonders, is affiliate marketing?
Well, Affiliate Marketing is a business model under which brands/vendors/merchants engage the services of affiliates/publishers to sell goods and services. The affiliates get paid a commission per sale.
What’s involved in affiliate marketing?
Let’s assume that our friend, Joe the Blogger has decided to engage in affiliate marketing as a way of making money online. How is he going to go about doing it? How does affiliate marketing work? And who are the major players in affiliate marketing?
Who are the major players in affiliate marketing?
To better understand affiliate marketing and how it can be used to generate income online, you first need to have a full understanding of the major players in the process;
1. The brand
For affiliate marketing to work, there is, first of all, the brand. The brand is important since it is the one that comes up with the product or service that it wants to put onto the market. The brand can be anyone. I have already mentioned that I do selling for a number of companies via this website. Not only that, but I also have my own program. So, as long as you have something to sell, you can do so using affiliate marketing.
2. The Affiliate
Our friend, Joe the Blogger, is the second entity involved in affiliate marketing. The affiliate is another important player as far as the affiliate marketing process is concerned. He is the one who is involved in finding the customers for the product or service that the brand has come up with. But how does he do this? The affiliate is, in today’s world, a tech savvy individual. He uses various channels to find customers and to convince them to buy the product or service. We shall look at these channels later.
3. The affiliate network
So, how do the brand and the affiliate find each other? Well, there are basically three ways in which this can happen. First, the brand can go out there and look for affiliates on its own. This is entirely possible and it’s what various brands do. In my experience, web hosting companies usually use this mode of operation. They have people who are employed to go around looking for affiliates. I often get emails from people from various web hosting companies asking me to join their programs.
Another way through which the brand and the affiliate can find each other is through the use of affiliate networks. To be frank, it would be difficult for brands to find the right kind of affiliate on their own. In the same way, it would be difficult for affiliates to find the right kind of brands directly. Not impossible, but difficult. This is where affiliate networks come into play.
It’s also possible for brands to use a hybrid approach, where they go out to look for affiliates on their own while also using affiliate networks. This is what most of the major brands that are out there do.
What are affiliate networks?
Affiliate networks are companies that serve as the middle ground for the affiliate and the brand. They usually have thousands of brands and affiliates under their wings. This means that affiliates can easily find appropriate brands to market through their channels. In return, the affiliate network gets a percentage of the commission as a reward for their service.
To be frank, affiliate networks are something that both affiliates and brands could do without. However, that is hardly advisable. If you try to do it yourself, you are likely to miss out on finding the best, both in terms of affiliates and in terms of brands (if you are an affiliate).
4. The customer
The customer is often the unheralded superstar in affiliate marketing. Let’s get back to our friend, Joe the Blogger. Let’s assume that he has decided that he is going to become a millionaire through affiliate marketing. But, one of the things that he is going to realize almost immediately is that it’s difficult to be original in this day and age. That idea that he thought was so cutting edge turns out to be not so original, after all. Joe discovers that there are thousands of people who are already peddling the same idea in one form or the other. So, what does he do?
Well, being the go getter that he is, Joe the Blogger decides that the best way in which he is going to achieve his breakthrough is by directly approaching the company whose products he wishes to sell. After making his approach, Joe manages to convince this company to provide him with a discount. He then goes back to his channel and makes his pitch to his customers, using the discount as the selling point.
Let’s say that Joe has negotiated a 10% discount on behalf of his customers. So, the customer becomes the beneficiary of a 10% discount. Point is, affiliate marketing is so fierce that affiliates are always on the hunt for discounts for their customers. So, the customer benefits in terms of a reduced price. It’s what I do at Planet Marketing. One of the companies whose products I sell is Shopper Approved.
The company specializes in online reviews and getting Product and Seller Ratings in Google. I have since negotiated a discount from this company. As a results my readers get a great Shopper Approved discount when they sign up using my link.
How does affiliate marketing work?
Okay, now that we have identified the major players in affiliate marketing, it’s time for use to determine how all these players come together to make the system work. The following is how affiliate marketing works;
- First, the brand comes up with the product. It’s easy to forget about the product in the rush to find customers, but really, the product is at the very core of affiliate marketing. I mean, you can sell people a dud only a couple of times. And with the way online reviews have become a large part of our purchasing habits, you are probably only going to get away with it once or twice. Anyway, the product needs to be good for you to be able to sell it to your customers.
- After coming up with the product, the brand then either joins an affiliate network or finds affiliates on its own. The idea is to get as many ambassadors for the product as is possible.
- The affiliate joins the brand’s affiliate marketing program. Again, this is done either directly or through an affiliate network. After joining, the affiliate gets a unique link that is used for tracking sales.
- The affiliate then uses this link in marketing the brand’s products and services. He does this through any of the channels that are open to him.
- The brand rewards the affiliate each time a sale is made. There are two ways in which affiliates can be said, as you shall see below.
How are affiliate payments made?
Affiliate marketing has two main modes of payment;
Once off payments
This system of payment for affiliates is self explanatory. The affiliate makes a sale, and he is rewarded through a once off payment. This is the model that is used by most web hosting companies. If you sale a package for Hostgator or InterServer, as an example, you will get a payment that averages $100. And they will not pay you anything else after that.
Now if you are an affiliate, this is the model that you should be on the hunt for. Recurring payments mean you continue to get paid for as long as your referral remains active. This is the model that I get from rank tracking companies for which I am an affiliate. I have signed over 300 people for Shopper Approved, as an example. I am still getting monthly payments from these people, years later. Recurring payments, in any case, are how you, as an affiliate, can really build a passive source of income.
Affiliate marketing channels
So, what channels are open to affiliates as far as affiliate marketing is concerned? How do affiliates reach out to their customers? Well, the following are some of the affiliate marketing channels that are most used by affiliates;
Joe the Blogger is in his element here. As a blogger, he has a huge head start as far as reaching out to people on behalf of brands is concerned. Blogging is the largest affiliate marketing channel that you are going to be able to find out there. To be frank, you are probably going to have difficulty in finding customers for the goods and services that you are selling without creating your own site. But how does it work?
Bloggers create content
The way blogging works, as far as affiliate marketing is concerned, is through content creation. The trick lies in coming up with content that people want to consume. In the case of blogging, you are going to need to come up with articles that people want to read. So, you are providing a free service and in there, you make your subtle pitch to people and hope that they get hooked.
You may, as an example, write an article with the title; “dropshipping vs affiliate marketing.” Now, when people make a search for these keywords on Google, they get your article. In there, you throw in one affiliate marketing link or the other and if people sign up using your link, you get your reward. Truth be told, it’s not really easy to convince people to buy a product or to sign up for a service. What you need to do is make sure that you know what you are talking about. Most affiliates make the mistake of trying to sell products and services that they have no real understanding of. As a result, they sound shallow and they cannot convince anyone to buy.
YouTube is another channel that is used by affiliates to reach out to people. In most YouTube videos, the presenter asks people to click on a link that’s placed somewhere below the video. So, if you have a large enough following on YouTube, you can turn this into capital by selling goods and services on behalf of brands.
3. Social Media
Social media has turned us into zombies, which is just great from the point of view of affiliate marketing. There are people out there who have thousands upon thousands of followers on platforms such as Facebook and Twitter. If you are one of these people, then you can turn this following into cash through affiliate marketing. The most popular social media platforms, in any case, are Facebook, Twitter and Instagram. Instagram, in particular, has proven to be the major driver behind influencer marketing. Now, you may not be that much of an influencer, but you can still turn your following into money through affiliate marketing.
4. Email marketing
If you have an extensive enough mailing list, you can also use it to sell goods and services on behalf of brands across the world. However, you need to make sure that you do not annoy people into unsubscribing from your mailing list.
Dropshipping vs Affiliate Marketing: Similarities and Differences
Okay, now we get back to the question behind this article. What’s the difference between affiliate marketing and dropshipping and which option is the best as far as generating money online is concerned?
Dropshipping vs Affiliate Marketing: Similarities
If you look at the definitions that I gave in the rather long section above, you will realize that affiliate marketing and dropshipping have a number of similarities;
- They are both means of making money online.
- Under both models, the seller does not own the products. He or she is doing selling on behalf of other people.
- The seller also does not stock the product in both instances. The product remains with a third party.
- Risks are rather low in both instances. You have no fear, as an example, that the product is going to go bad.
- There are also no overheads in terms of storage costs in both affiliate marketing and dropshipping.
- Shipping is also handled by the manufacturer in both instances, as is all after sales services. All that the seller is responsible for is making the referral.
- Startup costs are low in both affiliate marketing and dropshipping.
Differences between affiliate marketing and dropshipping
Based on the above, affiliate marketing and dropshipping sound like one and the same thing. So, what’s the difference between them?
- The main difference between affiliate marketing and dropshipping lies in the issue of pricing. Under affiliate marketing, the affiliate does not get to determine a product’s price. The price is set by the brand.
- Under dropshipping, on the other hand, the seller has the leeway to charge any prices that he or she wishes. So, you have much more freedom in this regards.
Dropshipping tends to be more profitable
Dropshipping, as a business model, tends to be more profitable than affiliate marketing. That’s because of the reason that I have just given above; affiliate marketing does not allow the affiliate to set the price for goods and services. Dropshipping, on the other hand, allows the seller to set any price that he wishes. Of course, he is going to have to content with other market forces, including the competition when doing this. But the fact remains that he has much more room to maneuver when it comes to pricing for the goods and services that he is selling.
Which one should you choose? Dropshipping is the winner
In reality, there is nothing stopping you from starting a business that uses both dropshipping and affiliate marketing. However, in my view, dropshipping is the better business model. Of course, this is entirely subjective. Millions have been made through affiliate marketing. However, the fact that you do not control most of the elements, including pricing, leaves you at the mercy of other players. But why is dropshipping the winner in this affiliate marketing vs dropshipping debate?
- Dropshipping allows you to set your own prices. These tend to be more than what you would get if you are a mere affiliate.
- You can create your own viable store through dropshipping.
- You can still use affiliates to get sells.
- You have no overheads.
- Price can be used as a selling point, thus allowing you to build up your reputation among your customers.
- It’s possible for you to actually build up a brand around dropshipping, something that’s almost impossible as an affiliate.