Affiliate Marketing vs Dropshipping: Profitability, Key Differences, and Similarities

What Is Affiliate Marketing

In lay terms, affiliate marketing refers to when you attract a buyer who pays and receives a product or service directly from a supplier and the supplier shares a commission with you. For example, you can recommend:

• Flight tickets on WayAway: Your audience goes to the supplier’s website, buys a ticket, and WayAway shares 50% of its income with you.
• Various products on Amazon: Your audience goes to the supplier’s website, and buys, for example, a carpet or headphones, and Amazon shares a certain percentage of the price with you (the exact commission depends on the category).
• eSIM from Airalo: Your audience goes to the supplier’s website and buys a travel SIM card, and Airalo shares 16% of the cost of that SIM card with you.

We are not casually emphasizing the fact that your audience goes to the supplier’s website. This is one of the most important differences between affiliate marketing and dropshipping. In dropshipping, your audience does not know the real supplier of the goods and buys all products from your online store.

All the examples above are united by the fact that they have affiliate programs, which you can join to earn money by recommending services and products from a particular brand. These are only a small part of the examples. Thousands of brands work this way, but all of them are united by one thing: you attract a client and everything else is done by the supplier of the product or service. You don’t deal with payments, returns, or anything other than customer acquisition.

A person who does affiliate marketing is most commonly referred to as an affiliate partner or publisher. All sales are accounted for by the publisher thanks to cookies and other technologies that allow you to assign a client to the person who attracted him/her. You can learn more about how affiliate marketing works here.

For example, in the Travelpayouts Partnership Platform, each affiliate tool contains a unique affiliate identifier (marker) that allows the platform to attribute a sale to an affiliate. For example:

Each sale is reflected in the personal account, where various tools for work (links, banners, widgets, and others) are also available to partners. Platforms like Travelpayouts are available not just in the travel niche, but in most niches, such as eCommerce, education, health, etc.

What Is Dropshipping

In lay terms, dropshipping is when you sell a product to a client for one price, then pay a lower price to the real supplier, who sends the goods directly to the client. This business model allows you to focus on customer acquisition by delegating logistics and most other tasks to the supplier.

The underlying concept of dropshipping is to find a product at a bargain price that you can sell at a higher price to the final buyer. According to the dropshipping model, you can sell and earn almost everything that can be sent by mail or a transport company. At the same time, dropshipping can even be done between continents, for example, by ordering goods cheaply in China and selling them more expensively in the USA.

Unlike classical trade, in the case of dropshipping, you do not need your own warehouse or stock reserves. All goods are held and handled by the supplier. You redeem the goods as needed (when you get an actual sale) and then the supplier sends them to the client. One of the main disadvantages of the dropshipping model is that, sometimes, the supplier may stop selling goods after you have already accepted a payment from the buyer.

A person involved in dropshipping is most commonly referred to as a dropshipper. The main role of a dropshipper is to find a customer and sell the product. Some dropshippers also accept payments on their own, while others pass payments through specialized platforms, such as Shopify.

Unlike in affiliate marketing, where the service itself or the sale of the product is carried out by the supplier, in the case of dropshipping, the dropshipper is responsible for the entire process. For example, in the case of a return of goods, the client turns to the dropshipper, who then resolves the issue with the supplier.

Affiliate Marketing vs Dropshipping: What’s the Difference

There are many similarities between affiliate marketing and dropshipping:

• You make money by selling someone else’s services or products
• Sales are generated online
• Similar skills are required to start earning with each model
• Both are low risk earning models

Affiliate marketing and dropshipping are often confused with one another since these business models have a lot of things in common. The most obvious thing they have in common is, of course, that you are selling other people’s goods or services. However, the essence of these business models differs significantly, so it is important to consider affiliate marketing and dropshipping as separate business models.

Which One Is Easier to Start?

It is relatively easy to get started with both affiliate marketing and dropshipping, but affiliate marketing still wins. You can start earning on affiliate programs right now. All you need is to:

• Join an affiliate program that resonates with your audience
• Place affiliate links (or other affiliate tools) in your content
• Get paid every time your audience makes a purchase through your tools

Even if you don’t have a blog or personal website yet, you can still get started with affiliate marketing. For example, by posting a link on your personal social media page or by creating useful content on third-party sites, such as Reddit or Quora.

For dropshipping, as a rule, you need to create an e-shop or online marketplace. It can be as a completely standalone dropshipping store or a website build, for example, on WooCommerce.

You can certainly simplify the process by using off-the-shelf platforms like Shopify or even Amazon for dropshipping, but all this will require you to do more than affiliate marketing, namely:

• Conduct market analysis
• Find a supplier
• Create an online platform for the sale of goods
• Process incoming requests and receive payments
• Pay for goods to the supplier
• Resolve returns and other issues for your customers

Dropshipping is a more complex process, not only at the time of launch, but also while doing the business, since you have to actually work as a seller of goods and not just attract buyers.

While affiliate marketing is easier than dropshipping, don’t be fooled into thinking that it’s an easy method that will allow you to earn money effortlessly. You still need to invest your time, find the right products, and reach the right audience. However, in terms of time and effort, affiliate marketing is often easier than dropshipping both at the start and throughout the process.

Which Approach Is the Most Profitable?

Your affiliate commission is capped by the brand commission. You have no influence on the final amount that the client pays the brand. Even if, in theory, you could sell a product or service for more, the client will pay exactly what is indicated on the brand’s website, and you will receive a fixed commission.

In the case of dropshipping, the final price is entirely up to you. It also depends on the purchase price you are able to get from the supplier. However, here lies one of the main problems for beginners:

• Suppliers are indeed willing to sell goods at more attractive prices, which means you can earn more by reselling them, but only if you generate high volumes of sales.
• If you, like a regular buyer, buy one to two items per month, it can be difficult to get wholesale prices.

The solution is to buy more from the supplier, but this requires a steady flow of orders, which is easier to meet only with low prices. At this point, many beginners experience problems, so for a successful start, it will take luck to find a product at a really attractive price.

Ultimately, both affiliate marketing and dropshipping models are profitable, but cannot be compared in isolation from your traffic. Literally everything affects your final income, from the choice of the niche in which you work to the initial conditions, how much traffic costs you, etc.

If you calculate the profitability of each model for yourself, be sure to take the cost of attracting each sale into account. For example, if you plan to buy traffic in contextual advertising networks, then double check how much it costs to click on the queries you need. In dropshipping, you have to compete for customers with other dropshipping stores and direct suppliers, which can make the cost of customer acquisition prohibitive and your final profits very small.

Pros and Cons of Affiliate Marketing

Affiliate marketing allows you to earn money by recommending quality and relevant services and products to other people. Affiliate marketers are responsible for attracting customers. The rest is done by the service or product provider. The main pros and cons of affiliate marketing are outlined below:

Pros

• Quick Start: You can start affiliate marketing today. It does not require complex technical development, payment acceptance settings, etc. to get started.
• Large Selection of Products: Affiliate marketing works effectively for both products and services. That being said, you can find an affiliate program in almost any niche. For example, in the travel niche, you can use Travelpayouts. Meanwhile, you can find similar platforms and affiliate programs in the niches for eCommerce, education, law, and other industries.
• Simplicity: Attracting customers isn’t easy, but that’s your primary responsibility in affiliate marketing. However, compared to dropshipping, affiliate marketing can be considered a more simple way to make money online, since you do not have other main duties. For example, you do not need to take care of the return of goods or services, deal with the receipt of payments, or resolve other issues.
• Not Only Products: Dropshipping is used primarily for products, while in the case of affiliate marketing, you can earn on both products and services. For example, by selling legal services and earning a commission on them.

Cons

• No Impact on the Price: Even if the client is willing to pay more, the price and size of the commission are set by the supplier. There are affiliate programs with the feature of dynamic commissions and prices, but just a few such programs.
• Returning Customers: Since you are sending the client to the official website of the service or product provider, the client can make their next purchases directly, bypassing you. This can be partially solved by building a loyal community around your personal brand, as well as providing additional value to your audience beyond the links to providers.

Pros and Cons of Dropshipping

Dropshipping is a modern model that can be compared not only with affiliate marketing, but also with classic stores. Compared to these other approaches, dropshipping has additional advantages. To determine whether affiliate marketing is better than dropshipping, you need to consider the pros and cons of dropshipping:

Pros

• Control Over the Price: You directly choose the final price, which impacts your own income. You can increase sales by lowering the price, increase the price to earn more revenue, or change the supplier to take advantage of a lower purchasing price. This flexibility gives you more space for your marketing strategy.
• Low Start-Up Costs: Unlike a classic store, you do not need to have your own warehouse stock, which means that you do not need to rent a place or purchase the items.
• Returning Customers: Because customers buy from you and don’t know the real supplier, you can generate more repeat sales. In particular, if you build a marketing strategy on returning customers, for example, by using an email newsletter, you can build a nearly passive income stream.

Cons

• Long Start: Even with dropshipping platforms, such as Shopify, it takes more time to launch your online shop than it would to earn money through affiliate marketing.
• High Competition: This niche is overly competitive. However, you may be able to find the right product with little competition.
• Greater Involvement in the Process: If, in the case of affiliate marketing, your actions are limited to creating content and attracting the right audience, with dropshipping, in addition to attracting a client, you also have to deal with other issues, such as payment processing, returning defective goods, and more.
• Lack of Control Over the Products: All you can do is choose a supplier, but you have no control over the quality and characteristics of the products. At the same time, you are responsible to your buyers. Lack of control over the products sometimes leads to big problems with dissatisfied customers, which in the case of the dropshipping model, cannot always be solved.

Affiliate Marketing vs Dropshipping: Which Is the Best?

It is impossible to define unequivocally whether affiliate marketing is better than dropshipping, since everything depends on your input data. These are two independent models, each with their own advantages and disadvantages.

Anyone who starts their online money-making journey in 2023 should pay attention to affiliate marketing. With a quick start and large selection of products and services, affiliate marketing can be a lucrative choice. In addition, you can earn not only by selling goods, but also by recommending services.

You can start your affiliate marketing journey in the travel industry, which is an attractive niche that has a lot of earning potential. Here, you can earn on the sale of flight tickets, hotels, car rentals, and other services for tourists. In the Travelpayouts Partnership platform, you will find over 100 brands and earn up to 40% of the cost of travel services.