So, you want to make money online and earn passive income? Maybe you’ve even set a financial goal already, and you’re excited to sit back and watch the dollars roll in!
It’s a nice idea, but until you decide which type of online business to pursue, you may just be chasing the next shiny object.
The so-called “gurus” and experts always make it sound easy to make money online, but unless you’ve studied the different business models closely, you may find yourself stuck at square one with no idea how to proceed.
That’s why we wanted to break down two of the most popular approaches to making money online: affiliate marketing and dropshipping.
By learning about the pros and cons of the two biggest internet moneymaking options – affiliate marketing vs dropshipping – you’ll be able to make an informed choice. Then, you’ll have a proven blueprint for building your successful online business.
Ready to get started? Let’s do it!
What is Affiliate Marketing?
The first option you have for your online business is affiliate marketing. With the affiliate marketing business model, what you’ll be doing is building a digital resource that recommends helpful products to a specific audience – typically, this takes place on a website or other channel where you can convert traffic into revenue.
So, how do you make money with affiliate marketing?
Any time someone clicks your special affiliate link and buys a product you pointed them to, the merchant they bought from will give you a commission. On your side of this affiliate marketing relationship, you’re sometimes referred to as the “publisher,” because you’re literally publishing content to draw people in and go make purchases.
How Affiliate Marketing Works
There are all kinds of ways you can sell in affiliate marketing, but the most common approach is with a content website. Think of it sort of like an “automated salesperson” – you build a resource where people can go to learn about a specific topic, get buying recommendations from you, and then go purchase the solution they need.
In practice, your site will answer questions and provide value to people in the decision stage of the buyer’s journey. You’re generally targeting people who have their credit card in hand – they just don’t know which product or service will work for them yet.
For example, there may be a website in the yard niche that teaches you how to grow flowers, maintain your lawn, lay sod, and more. A reader may enter informational queries like “when should I plant heirloom tomatoes?”, or a more transactional query like, “best potting soil for tomatoes.”
While you’re providing readers with valuable information, you can also recommend products to help them, such as the best trowels, fertilizers, or soil. When readers buy products from your chosen merchants based on your suggestions, you make money!
Pros of Affiliate Marketing
- It’s cheap to get started.
A huge advantage of affiliate marketing is that there’s little startup capital needed. Realistically, you could get by with about $100-500 for things like a domain name, web hosting, premium WordPress themes and plugins, and marketing services like logo design. (See “how much does it cost to start a blog?” to learn more.)
Ongoing expenses are low as well, if you’re prepared to do the work yourself.
- It can bring in revenue all day every day, even while you sleep.
With affiliate marketing, your readers can find you at any time, from any place. It’s like you have a 24/7 digital storefront. Any marketing channel where you share affiliate links – including your content site, emails, and social media – can keep working for you while you’re sleeping!
- You’re building an income-generating asset that can be sold someday for a lump sum.
By some definitions, a business is only a business if it’s something you can exit someday with a sale. By building a freelance business that depends on you, it may be impossible to turn around and sell it to anyone later. But affiliate marketing sites are proven assets with potential multiples of 2.5-3X annual revenues.
And well before you sell your site for a big payday, you’ve successfully created a business that can bring in income month after month, year after year. That gives you options: reinvest the income in your current venture, use the income to fund your next venture, or take it out as dividend income.
- Pure affiliate marketing can be passive, because you’re not responsible for customer service.
Any site that you’re not actively working on can eventually fall off in the Google results, but in less competitive niches, you may find yourself ranking an entire content site that maintains profitability without very little input from you. Because it requires so little ongoing work, affiliate marketing can be one of the most passive income streams there is.
Even in cases where you’re actively growing an affiliate site, you have the flexibility to outsource some or all of the work. It’s a special opportunity to build an asset that brings in money at a rate that isn’t tied to your labor.
Cons of Affiliate Marketing
- You lack full control.
When it comes to business, control is everything. Unfortunately for affiliate marketing, your business depends on external factors like Google search traffic and third-party affiliate programs like Amazon Associates. If they change their terms or commission rates, you may just have to go along with it.
While you do get to pick the affiliate programs you join and the products you promote, you don’t have any direct control over other factors like product quality, customer service, and marketing. Payment is also dependent on the reliability of the merchants you work with.
- It requires a lot of different skill sets to do effectively.
If you have all the money in the world, you can always get plenty of help for your business. But a lot of people who go into affiliate marketing do everything themselves. Let’s be honest: It’s not easy to get proficient at so many different skills. From content creation to business analytics to digital marketing, you’ll either need to become a jack of all trades or hire plenty of help to fill in your skill gaps. And the more you have to hire others to do the work, the longer it’ll be before you hit profitability.
- You should expect to invest a substantial amount of time and/or money before seeing a return.
It may take six to twelve months of consistent effort on your affiliate website before you start to see any real, consistent income. Many people give up long before they see any revenue at all. That’s actually a positive, if you can stick it out, because it means less competition – but be prepared to give a LOT before you get!
What is Dropshipping?
The second business model we want to touch on in this post is dropshipping – a specific approach to ecommerce for physical products.
Now, the term “dropshipping” may sound intimidating, but it doesn’t have to be! Just think of it is a “shortcut” for running your own store online, without having to buy and house all of the inventory you sell.
What do I mean? Well, anyone who’s selling physical products has to fulfill (ie ship) orders. In the past, it used to be that you needed to buy all that inventory upfront and then store it somewhere until it was all sold. This represented a massive risk – if you couldn’t sell all of the product you bought wholesale, then you would likely take a revenue loss or even go out of business.
With dropshipping, you take an order and then let someone else fulfill it, reducing your risk and allowing you to get started with a lot less capital!
How Dropshipping Works
To get started with dropshipping, you’ll need to have some place online where you can sell products. This step isn’t as hard as you might think – it’s possible to start your own dropshipping store on WordPress with plugins like WooCommerce, or to go with an all-in-one ecommerce platform like Shopify or BigCommerce.
Once you’ve done the technical work of setting up your store, it’s simply a matter of finding some suppliers you can work with. For example, AliExpress is an international marketplace with plenty of suppliers whose products you can import directly onto your store.
Honestly, the hard part with dropshipping isn’t necessarily getting everything set up, but figuring out how to stand out in a crowded field. Your brand will play a huge role in your success as a dropshipper. We’ll get into some different specific methods for dropshipping later, but just know that there are plenty of tactics you can employ to get more attention and succeed with it!
Pros of Dropshipping
- It’s cheap to get started.
As long as you can set up an ecommerce store and get some traffic, you’re in business. This doesn’t have to be any more expensive than launching an inexpensive WordPress website with the free WooCommerce plugin to build your store – or opt for an all-in-one storefront like Shopify for a low monthly cost of $29/mo.
With that said, it can get expensive quickly if you start looking into strategies for generating traffic, hiring help, and more. It’s important to be realistic about how much money you need to spend to get your dropshipping business off the ground.
- It’s cheap to operate.
You don’t have to pay for inventory or ongoing labor costs for order fulfillment. Dropshipping is especially attractive for business owners who want to start selling physical products without all the overhead they would traditionally have to worry about.
Now, that doesn’t mean you won’t invest anything into your business. You’ll likely depend on Facebook Ads or other PPC ad platforms to get traction for your dropshipping marketing, and those marketing costs can add up fast. But in terms of the nuts and bolts of having your storefront online and having products to sell, operational costs can be kept to a minimum.
- It has high earning potential.
A great thing about dropshipping is that, once you figure out a formula that works, you can scale it quickly and see huge profits. The margins in dropshipping can be massive – for every sale you make, you’re essentially buying the product at a discount, then turning around and selling it at whatever price the market will bear.
Imagine carrying an umbrella in your store that costs $2 to make, but you can sell it for $20. In fact, the best thing about dropshipping compared to affiliate marketing is that you decide the prices!
- It allows you learn your audience and find the most profitable products.
Dropshipping is a market researcher’s dream! You can put all sorts of products out there for sale and see which ones people buy. You also have a wealth of data at your fingertips about who is making these purchases, including demographic and user data – and how they’re doing it, thanks to tools like heat maps.
Plus, you can take advantage of conversion rate optimization (CRO) strategies to make it more likely for someone who lands on a product page to hit the “buy” button. With dropshipping, you have all kinds of information at your disposal to create a more successful business.
Cons of Dropshipping
- You lack full control.
Dropshipping gives you quite a bit of control over factors like pricing, product selection, and branding. However, your business reputation depends on the reliability of third parties to fulfill and ship on time, as well on the quality of a manufacturer’s products.
Unless you take over the jobs of manufacturing and fulfillment for your own products (which isn’t really in the spirit of dropshipping), then your company’s success depends on picking reliable partners. This lack of control is something you need to account for.
- Your profit margins will be lower.
I mentioned that you can enjoy higher profit margins with dropshipping vs affiliate marketing, because you’re selling your own products instead of promoting other people’s. With that said, when you sell your own products with dropshipping, you’re only fulfilling orders as they come in, so compared to carrying your own inventory, you’re still leaving money on the table.
This is because you’re not getting the benefit of “bulk” pricing on the inventory you sell. Exact margins will be depend on which dropshipping platform and supplier you choose, but you’ll miss out on better pricing when you buy bulk wholesale.
- Your income is anything but passive.
By selling physical products instead of being an affiliate, you’re sacrificing the ability to make “passive” income. How? Because you’ve taken responsibility for customer service and support. This is a function that you need to handle from the moment you make your first sale!
And if you choose to outsource customer support? Well, you still have to manage whoever you’ve hired! So while it’s possible to have a business that runs largely on its own, the dropshipping business model isn’t as conducive to passive income.
Marketing Your Online Business
Attracting the right eyeballs for your affiliate marketing business or dropshipping business is key to your success. The are countless ways to get traffic and sales, but here are four of the most important ways:
- Paid ads
- Email marketing
The combination of these four tactics will help you build something that can grow over time. Let’s break down each approach and how they can work together.
We’ve talked all about blogging for affiliate marketing before, because it’s a great way to build consistent traffic for your business over time and find opportunities to point readers to your affiliate links. But it’s just as helpful for dropshipping!
Here’s the secret: you’re looking to rank for search terms that represent strong “buyer intent.”
Here are a few examples:
- Best cowboy boots for men
- Bass headphones under 200 dollars
- Cuisinart blender review
- Product X vs Product Y
Can you see how whoever uses these terms has the potential to make a purchase if they find what they’re looking for? Whether you’re doing affiliate marketing or dropshipping, you can draw readers to you who are ready to buy – and either point them to another merchant or to your own ecommerce store to make their purchase!
The same idea applies to making videos for a platform like YouTube. Creating product reviews, comparisons, or countdowns in a product category will help you get viewers who you can promote your products or somebody else’s to.
Marketers today have an opportunity that would make past marketers green with envy: digital ads.
The magic of ads online is that they can get incredibly specific. Whether you’re going the route of paid search with Google Ads or paid social with Facebook Ads, you have plenty of ways to tailor your campaign to a narrow audience and test, test, test!
Typically, the way you make paid ads profitable is by honing in on prospects who are most receptive to your message and pointing them to a landing page on your online store with a custom offer. Paid ads tend to make the most sense for dropshipping, because you can immediately sell something on the other end and make your money back right away.
For affiliate marketing, paid ads are only worth it if you have a great understanding of your audience and are selling high-ticket items as an affiliate – or you’ve started selling your own product. Otherwise, the margins aren’t likely to be there.
Think of email marketing as a way to build your most loyal audience. A lot of potential customers will visit your website and never come back – but some small percentage of site visitors will be interested enough to sign up for your email list, as long as you make it worth their while.
Your approach will be different with dropshipping vs affiliate marketing. A dropshipper may offer a discount or on a product or bonus in exchange for signing up, while an affiliate marketer is more likely to offer a free informational resource like an ebook, cheat sheet, white paper, or video course in their niche.
It all starts with an effective opt-in on the website that attracts attention and gets people to part with their precious email address.
Similar to campaign like Facebook Ads, there are other outbound tactics you can employ to reach your audience where they are online. This can be as simple as posting in a forum related to your niche.
For example, if you’re in the outdoor niche, you can join forums like Reddit, participate in Facebook groups, or post on Q&A sites like Quora. When you engage with others and demonstrate your expertise, you can link to your content or your online store – as long as you’re not spamming anyone!
Another key outreach technique is guest posting on other blogs. By publishing your content on other people’s sites in a similar niche, you can build links to increase your site’s domain rating, and also expose your site to a brand new audience.
Other options for outreach include publishing your content on sites like LinkedIn and Medium, where you can connect with new audiences. It’s also possible to go the traditional route and try to get press through public relations – but this only works if you have something newsworthy to share!
Dropshipping vs Affiliate Marketing Verdict
So, now that you’ve learned a little about dropshipping vs affiliate marketing, which one is right for you?
A dropshipping business is a great way to get started in ecommerce without investing heavily in inventory. Because it’s easy to jump in, you can test ideas with a store and see what works. Just keep in mind that you also give over a lot of control to someone else to manage customer experience. If your supplier is slow to ship or items arrive damaged, you’re still on the hook! You’ll also have less profit potential – but if you’re still working at a job, a dropshipping side business is a great starting point before you’re ready to go all-in.
An affiliate marketing business is an even lower commitment for people new to making money online. If you master the art of getting traffic and visitors to your website, you can build an income without worrying about much else that comes with business, such as product development, marketing/sales, or customer service. On the other hand, lower risk means lower reward too – you may have to put in a lot more time, effort, and money to get a strong income this way.
Why Not Both Affiliate Marketing AND Dropshipping?
As we’ve been discussing the merits of affiliate marketing vs dropshipping throughout this post, you’ve probably noticed that they are more similar than they are different. These two business models are surprisingly complementary to each other – and that’s a good thing!
Don’t feel like you have to stick with just one business model – or income stream – for your online business. As the business matures, you should be diversifying. A lot of entrepreneurs stay focused on what they did when they first got into business, but in the end, it’s not really about the business model you choose – it’s about the audience you’re serving.
If you can understand your audience better than anyone else and can deliver more value through additional quality products, services, and customer support, you’ve got yourself a win-win!
There are many ways to succeed as BOTH an affiliate marketer and a dropshipper at the same time. Let’s outline a few different scenarios where you could expand from one business model into the other!
Affiliate Marketing First, Dropshipping Second
So, you want to start with an affiliate marketing business and expand into dropshipping?
Great! Let’s go back to the outdoor niche. Say you start out doing affiliate marketing and promoting different kinds of outdoor grill accessories – for example, barbecue tongs.
As you produce helpful content around this product category, such as reviews and buying guides, you discover that there’s a specific brand and type of barbecue tong that seems to sell really well because of a certain feature. Maybe it’s slightly easier to handle, has a more comfortable grip, or is sturdy enough to handle big steaks without bending.
Whatever helps this product stand out, you’re excited to see consistent commissions for it – and that’s when you get a great idea! You already know these tongs are a hit, so why not skip the middleman and sell your own barbecue tongs under your established brand? This will help you capture greater profit for every unit you manage to sell!
So that’s what you do! You find a supplier, rebrand and list the product in your online store, and just like that, you’re in the dropshipping biz! Plus, you’ve skipped the uncertainty of wondering which products the people in your niche would value.
All of that time spent researching and reviewing products for your affiliate marketing site made you perfectly positioned to dive right into dropshipping with your own product in the same niche.
Best of all, you can do this again and again for other affiliate marketing products and capture greater margins on your most profitable offerings as a dropshipper!
Dropshipping First, Affiliate Marketing Second
So, you’re interested in starting out in dropshipping before you expand into the affiliate marketing business?
Nice! Well, here’s the situation: say you have a great store selling outdoor products under your very own brand. It’s doing pretty well – you get consistent sales because you’re a Facebook Ads whiz and manage to identify the ideal customer profile for these products.
But behind the scenes, you have a problem. You realize that once a customer buys from you, they disappear. They simply have no incentive to come back to your store ever again, because you haven’t given them a good reason to. You also are fully dependent on paid traffic, which leaves you vulnerable to fluctuations in the costs for digital ads.
That’s when the idea hits you: you can create a blog and an email newsletter that gives the customer a reason to visit your website besides just browsing your ecommerce store. And you can join affiliate programs to monetize these new marketing channels.
Best of all, you realize that with affiliate marketing, you can fill in the gaps in your product offerings. Maybe you haven’t found a supplier for a certain product category who you trust, or you know of a video course or service you could recommend for a commission.
Your focus is still on your store, but affiliate marketing serves as a fantastic new revenue stream and a way to cover the bills as you invest in long-term marketing tactics like email marketing and blogging.
Overall, the addition of affiliate marketing makes you a more well-rounded business.
Affiliate Marketing vs Dropshipping Wrap-up
If you’re at all serious about building an online business, chances are good that you’ll try your hand at both the affiliate marketing and dropshipping business models at some point.
And that’s not a bad thing! As we’ve seen in our affiliate marketing vs drop shipping comparison, both approaches have their pros and cons, though they’re more similar to each other than they are different.
In the end, these two business models BOTH allow you to leverage the power of the internet to sell products sourced by third parties to a specific audience. As long as you can generate the traffic and connect eager buyers to sellers for a profit, you can be wildly successful!
My only advice is to pick one first and give it a real try before you diversify too soon – a minimum of six months. It takes time for a business to take off, and you’ll probably have to power through some missteps before you hit on what works the best.
As you succeed at affiliate marketing or dropshipping, you can start to build you a second business unit doing the other one and monetize your business further.
What do you think? Have you decided which type of online business is the right first step for you? Get started today – your future self will thank you!