It’s a question often asked by marketers; which is the best: affiliate marketing or drop-shipping? I’ve done both for a number of years and each has it’s strengths and weaknesses. But, personally, I’m inclined to go with drop-shipping now as being more profitable.
I’ve been an Amazon affiliate for 20 year. I had my first commission payment from amazon back in February 2000. I’ve made quite a lot of money out of Amazon over the years. Then a few years ago they moved their commission structure from a tiered system whereby you could earn up to 12% depending on how much you sold to a commission level based on store categories. Earnings collapsed as my typical commission level dropped from 9% to 3%. A lot of super-affiliates left Amazon. I stopped working on marketing of most of my Amazon affiliate stores because the returns where not there. I then moved on to drop-shipping as a mare stable and sustainable business model.
Choosing between affiliate and drop-shipping
There are still opportunities to earn good money with Amazon and other affiliate programmes. But you have to be very selective as to what you promote. Last year I had some good returns on targeting the sales of high-end luggage. Amazon still pay 10% commission on the luggage category and if you pick a good quality brand you can earn £30 or £40 on a £300+ luggage set. There’s room in that commission to spend time or money on marketing. Of course, with lock-down, nobody is buying luggage this year and we’re into the peak season for buying luggage.
Thinking of affiliate marketing
One of the things I like about affiliate marketing is that after you do the marketing there is no on-going work. you get the customer to click through and make the purchase. The company then does everything, take payment, does the delivery, provide after-sales services, deal with complaints and all the rest. You just take your commission. It’s relatively risk free, it’s really the only major benefit to affiliate marketing. Thee’s are lots of cons to it. Especially once you become more established as a marketer.
There’s plenty going against affiliate marketing once you get beyond the novice stage on internet marketing. Let’s take a look at some of the major ones;
- Constantly looking for new customers – this is the biggest issue for me with affiliate marketing. You are always constantly looking for new customers. There’s no repeat business as an affiliate. Once someone has clicked through to the product link the customer-store relationship is established and you are out of the circle. Now when the customer re-orders or renews the product they go directly to the store and miss you out completely. Same with recommendations, you are not recommended but the end site is.
There are a few affiliate programmes that pay recurring fees but these a few and far between.
- No marketing budget – Even if you get quite a generous 10% commission it’s not a big income to pay for ads and still return a profit. A lot of big brands will set aside 15% – 20% of turnover for marketing and advertising. If you’re only getting 5% or 7% commission you can not compete effectively.
- Long payment delays – most affiliate programmes pay 2 or 3 months in arrears. This allows the customer time to return the item if needed and the commission being clawed back from your account. Affiliate programmes are not good for people who need to bring in quick income.
- Marketing restrictions – you need to read the terms of the affiliate programme fully to stay within the terms. A lot of affiliate programmes will ban you from running paid ads against certain keywords. Some even bar you from making social media posts. If you are not to lose your account and it’s balance you need to stay on top of what can and can not be done in your marketing.
There are pros to affiliate marketing and these are; you need no money or stock to start, there’s is no customer or after-sales service to provide and you don’t have to worry about returns and refunds.
I would say that affiliate marketing probably hit i’s peak for ease of earning money online about 10 years ago. Commission levels have progressively gotten lower and sales growth has also become progressively harder.
Thinking about drop-shipping
The thing I most like about drop-shipping (and I include print on demand for this article) is that you can build a sustainable long-term business with drop-shipping. Customers buy from you and you keep your customer loyalty. There are some negatives but the pros far out-weight the cons for me.
Before I get carried away with all the pros of drop-shipping let’s take a quick look at some of the main cons;
- more work – you have to work at a drop-shipping store, you are responsible for the web site, sales marketing, customer service, after care, complaints and refunds. It is much more like running your own business.
- high advertising costs – you will need to spend money on marketing. Your prices will be quite high so you need to grab the attention of the impulse buyer. This can cost money with Facebook ads, social influencer fees etc.
- you need a website – it is possible to sell drop-shipped items on places like eBay and Amazon, but it is likely that your supplier is already selling there and you’ll never beat them on price. That said, I do sell drop-shipped items on eBay and get sales. But the majority of your profitable sales will come from your web site.
- no control over packaging and delivery times – it’s possible that your supplier will put in advertising material to try and get your customer. Fortunately most suppliers understand the value of drop-shippers and so send it ‘white-labelled’ and without their own invoices etc. But you also have no control over processing and shipping times. You need to check the ratings of your drop-shipping supplier to see how quickly they ship items. Most good Ali-express suppliers will process and ship out orders within 7 working days. That’s shipping out times and not actual delivery times.
- research needed on suppliers – you need to spend time researching who you work with on drop-shipping. Suppliers come and go quite quickly. I tend to use Ali-express for my drop-shipping suppliers. They are a little more expensive than other Chinese marketplaces but you get a lot more information about the supplier. I check that my suppliers have been operating for at least 2 years and have good ratings. But there is risk involved.
- complaints and refunds – you are responsible for dealing with any complaints and refunds. It’s your business and as you are the one that has been paid, you are the one that is responsible. You can not tell your customer to go deal with your Chinese supplier. This is especially true in the UK and EU where you are legally responsible under law. This means you need to keep a certain amount of reserves to provide refunds to customers.
There are other minor issues to be dealt with depending on what you plan on selling. It’s always worth staying clear of risky items such as electrical equipment. If something happens and it’s found your are selling goods that no not meet legal requirements you can have major problems, not least if you are forced to do a recall and refund everyone you’ve sold to.
So, lets take a look at some of the pros for drop-shipping;
- you set your own prices – you can decide on how much you charge and what your profit margin is going to be. How you decide on your prices will very much depend on how you plan on selling your products and in what marketplace.
- quick cashflow – customers pay you in advance for their products and then you go and buy from your supplier. The only time you may need to upfront some money is with advertising and marketing. It always pays to keep some in reserve for the inevitable refund. Don’t take refunds personally, it’s just part of doing business in the retail sector.
- no stock to carry – you don’t need to buy stock and store it in advance. That said, if you find a really popular product you may decide to buy bulk in advance. It will help get a discount and also be able to speed up shipment and delivery. But don’t put money up front in buying a fad or trendy item in advance. Fads disappear as quickly as they come and if you have 10,000 finger spinners in stock and no-one buying it’ not a good place to be.
- sustainable and growing business – it’s your business and people are buying from you. If you provide great customer service then they are likely to come back to you and recommend you to a friend. Make sure you have an email newsletter facility for people to sign up to as well as the socials. Mailings always provides much better sales and returns than social accounts. Your Facebook post can reach as little as 6% of your followers. A mailing can get a 40% opening rate from people who subscribe.
- third party services make drop-shipping easy – there are companies out there to help you make drop-shipping easy. I have an account with Shopmaster. It’s free for the first 150 products that you have listed and then there is a monthly fee. Its well worth the fee. I use the Shopmaster chrome extension to select what products I want to sell from Ali-express. I than go to my account to write up the product descriptions, set my pricing formulas, choose my images etc. Shopmaster then sends those products to my woo-commerce store and also my eBay store. When a sale is made I get notified and a purchase order is raised and I get sent to Ali-express to buy all the items. The best thing about Shopmaster is that it will track prices and stock levels at the supplier and automatically adjust both on my web site and eBay. It only updates every 24 hours but it’s a lot better than having to manually check prices. Just make sure you have price monitor switched on and a pricing formula applied.
Overview of affiliate marketing against drop-shipping
That’s my over view of what I think is best between affiliate marketing and drop-shipping. I think there is still money to be made in affiliate marketing but the boom days are over. There’s also limited opportunity to grow through repeat business and recommendations in affiliate marketing. Drop-shipping requires more work and has greater risks but the rewards are larger and much more sustainable.
If you have any views drop them in the comments below.