The making money online niche is vast as it is wide, and there are many different ways to bring home piles of cash.
Two of the most popular ones are affiliate marketing and drop shipping.
Both of these methods have been used by seasoned entrepreneurs to make a lot of money, so from a newbie point of view, which of these two is the best?
What is Drop Shipping?
Drop shipping is a method of selling real products without having to handle the manufacturing, storing or delivery of the products.
The way it works is that you first find yourself a drop shipping company (or wholesaler who will drop ship) to work with. You set up a store, people head over and buy things.
You then order the purchased product via your drop shipper. That company then picks it from storage, packs it and mails it to your customer.
What is Affiliate Marketing?
Affiliate marketing is slightly different in that your not handling the purchase of the product. Instead you handle the pre-sales of a product.
The general process is that you sign up to an affiliate program for a product. Then you promote the product on your website. Traffic comes in, sees your articles promoting said product and clicks your affiliate link.
From there, the product creator or seller (such as Amazon) will handle the actual selling, purchasing, and delivery of the product.
Which is Better?
The hard question you face is which one to choose: drop shipping or affiliate marketing?
Does one of the methods really outstrip the other in terms of making a successful business online? Let’s break down the pros and cons of each.
Affiliate Marketing Pros
The first thing that affiliate marketing does brilliantly is allowing you to take a hands off approach when it comes to the actual selling part.
Yes, you have to pre-sell or warm up the prospective buyer, but the final sale and the aftermath of the sale is all down to the company you affiliated with.
This means no messy customer service calls, no need to worry about securing customer data or anything like that.
This naturally leads to the second benefit: no stock or fulfilment requirements.
Thirdly, getting started in affiliate marketing takes little to no investment. You don’t even need your own website (though having one is a good idea).
Finally, affiliate marketing is passive. Once you have written up your review and ranked it, it requires little effort to maintain.
Affiliate Marketing Cons
Affiliate marketing does have it’s flaws though.
The first issue is that the commissions on products is usually quite low. Take Amazon for instance; the commission starts at a meager 4% of the sales price.
This means that you will need an awful lot of targeted traffic to make decent money.
Sure there are affiliate commissions out there that can rake in hundreds or even thousands of dollars from a single sale, but for newbies especially those are hard to be accepted for and hard to sell.
Another issue with affiliate marketing is the lack of repeat sales. You see once a visitor makes a purchase, they are most likely done with your site. Some authority sites can garner repeat visitors but most smaller affiliate sites will need to constantly bring in new traffic in order keep selling.
This leads on to the fact that an affiliate site doesn’t benefit from the after sales factors. An e-commerce site can gather up customer information that much easier and target those customers with more products, whereas affiliate sites are dependant upon gathering people via email lists which is more hit and miss.
Setting up an affiliate site is also easy, especially with Content Management Systems like WordPress. You can have a site set up in less than an hour which makes creating multiple affiliate sites an effective strategy to generating money.
Drop Shipping Pros
Drop shipping has numerous pros that make it a viable alternative to affiliate marketing.
The first one is close to any online entrepreneurs heart: money! Drop shipping allows you to make a higher margin on sales, even for relatively low priced items.
Take this example: a $10 item on Amazon at 4% commission will net you $0.40. Not exactly retirement amounts! A drop shipper can purchase the same product for $4 and sell it for $10, netting a $6 profit!
This means that even low priced items suddenly become worthwhile to promote, something an affiliate marketer would struggle to justify the work for.
Just like affiliates, drop shippers don’t need to hold onto goods before sale. No inventory means fewer risks and that’s an added bonus for drop shippers.
Another benefit of drop shipping is referrals. If someone buys a product via an affiliate link, they are very unlikely to tell others they got it from the affiliate site but will instead say the store they actually handing money over to.
As a drop shipper, you are the store! As such you’re more likely to build a brand and gain word of mouth marketing than an affiliate would.
Drop Shipping Cons
Of course, drop shipping isn’t the miracle online money maker some people make it our to be, and it has a number of issues.
The first might be a deal breaker for some people: customers! That’s right, because the drop shipping wholesalers are behind the scenes, your store is the face of the business. This means that you will need to handle general customer service, complaints and returns.
As well as that you need to set up the site, which while not overly difficult, is still harder than setting up an affiliate site. You’ll need the proper software to run the site, ecommerce accounts, payment processor accounts, security such as SSL and so on.
Securing customer data is also a risk for drop shippers, especially if your payment system actually stores card data on your server. This makes you liable for hacks and data loss.
With all the different factors like customer service and site management, it makes drop shipping a much more hands on method of making money, which may you may not want especially if you’re looking for a passive income stream.
Another slight con is that drop shipping does involve a higher investment than affiliate marketing. It doesn’t have to be a lot to start with but alongside your usual website costs, there will be costs for your ecommerce solution, potential costs to buy the products first to test quality, and advertising costs to drive traffic.
The initial costs can easily be under $1,000 and maybe as low as $100 but they still exist, and costs will continue even as you earn money mainly due to advertising.
Finally, drop shipping isn’t agile. By that I mean, if a new product comes out and affiliate marketer will likely find someone offering a commission to promote it, making it easy for them to add to their existing site or even build a separate one around it.
A drop shipper would need to either wait for the product or a similar one to come available via their suppliers, or even make direct deals with the manufacturers. As well as that, if the product doesn’t match the existing store, you’d have to create a whole new site, which is much more work than an affiliate would have to do.
The Bottom Line
Both affiliate marketing and drop shipping have a bunch of pros and cons, as evidenced above. The reality is that neither one is superior to the other in a general sense.
Really it comes down to what you want from your online business, and what you’re willing to put into it.
If you’re looking for a hand off approach to making money online, then I’d recommend you to look into affiliate marketing; Wealth Affiliate offer great training for this.
However, if you’re looking for a long term business investment, drop shipping is a real alternative to more traditional e-commerce.