Most people make a lot of money online through dropshipping and affiliate marketing. These are also the cheapest and easiest to put into place.
How should you decide if you want to be an online business owner? Should you do dropshipping or affiliate marketing?
We’ll show you how to find out. Today, you’ll find out what’s good about each and how each works as a business model. By the end of this article, you should know a lot about the pros and cons of each business model and how much work it takes to build each one.
How does dropshipping work?
Dropshipping is a way to run a business in which you sell products that belong to someone else. These items are real things that need to be sent. You don’t ship these items yourself, though. Instead, the supplier will send the items on your behalf.
Dropshipping means that you build your own website and put someone else’s products on it. A supplier is the person who makes the product, and you are the dropshipper.
In dropshipping, a customer orders a product from your website, but they don’t know that you didn’t make it.
If you’ve ever watched one of those shopping channels on TV, dropshipping is a lot like that. If you call the hotline, someone will take your order, but the manufacturer, not the TV company, will ship it.
Dropshipping: How to handle orders
As a dropshipper, you have a system called a dashboard that connects to the system of the supplier. When a customer buys something from your online store, the order will show up in your dashboard. The supplier will ship once the order has been processed.
In short, this is how the process works:
- The customer pays for it.
- This money goes to your payment processor.
- Your dropshipping dashboard is where you order the item from your supplier.
- You pay with your own money.
- The item will be sent to your customer by the supplier.
You take the money from your payment processor and put it in your bank account.
As you can see, you have to do something to get orders done. When a customer places an order and pays for it, you have 24 hours to fill that order. After you’ve paid your supplier, the supplier will only pack and ship the item.
How to get dropshipping service customers
In dropshipping, a customer thinks that you make the things you sell. The supplier won’t have anything to do with the customer, other than sending the item to the customer.
If a customer gets a bad product or doesn’t get the product at all, they expect you to take care of it. You can’t tell the customer that it’s not your fault. Technically, you are not the supplier; you are the seller.
In dropshipping, you also need to know how a business works from start to finish. Customers expect you to know what the products are made of, when they will be shipped, how long it will take to ship them, and if there is a warranty. You are in charge of all customer relationships when you dropship.
How dropshipping can make you money
In dropshipping, your profit is the difference between the price the supplier charges and the price you charge, less any taxes and business costs.
A supplier might, for example, sell a coffee mug for $20 plus $5 for shipping. If you sell that product on your website for $30 plus $5 for shipping, you make a profit of $10.
You need to take your costs out of the $10. Say you sold 100 things in one month. Your gross profit is $10 times 100, which equals $1,000. If your tax is 10% of $1,000 and you have a Shopify store, you pay $29 a month for your subscription. This means that your total monthly cost is $100 + $29 = $129.
$1,000 minus $129 is $871. This is your net profit for the month, unless you have to pay for things like advertising or virtual assistants.
Dropshipping: How to Get Customers
Direct marketing is the main way to get people to buy from you through dropshipping. You need to put up ads on Facebook, Instagram, Google Ads, and YouTube, among other places.
In these ads, you hope to get a potential customer to click on the link that takes them to a product page and then buy.
The second method is free and can be done through blogging or social media. You can get people to follow you on Instagram, Facebook, YouTube, and other sites. Once you have a following and are seen as an influencer, it will be easier to get your products to the people you want to buy them.
The other way is to pay people who have a lot of followers to market for you. It’s like a sponsorship program where they can say nice things about your products and tell their followers to buy from your website or product page.
How does affiliate marketing work?
Affiliate marketing is a way to make money where you promote the products of someone else but don’t sell them yourself. It’s easy to figure out how to do.
It’s like being a model or someone with a lot of followers and telling them that the products you promote are the best. If the people you tell about these products buy them, you get a commission.
You are the affiliate in this business. Before you start, you need to find a company that has what is called an affiliate program. Sign up for this program, and when you’re accepted, you’ll get a link.
This link is unique to you, and it’s the only way the company can tell if a buyer came from you or not. You will use that link in all of your marketing and advertising. If someone visits your website and clicks on that link, he will go to the company’s website, not yours.
He will finish the purchase on that website, and the company will record that as your sale. Most of the time, the commission is paid to you every month.
In affiliate marketing, most of the products you promote are digital ones, like eBooks, e-courses, or software. But you can also recommend physical products, like those on Amazon.
Affiliate marketing: How to handle orders
In affiliate marketing, you don’t handle the order. It is processed by the business system of the company. The company will ask for the customer’s credit card information and ship or deliver the item or electronic goods to the customer.
How to get people to use your service through affiliate marketing
In affiliate marketing, you don’t provide customer service. Your referral would be taken care of by the company that makes the products. If the product is bad, they should talk to the company or the person who sold it, not you. But if you sell bad goods, your reputation could be hurt.
How will this come about? Well, people who bought the item because you told them to would go back to your blog or YouTube channel and say it’s bad. If other people see this, they won’t buy, which will hurt our affiliate sales.
Affiliate marketing: how to make money from it
The commission is the money you make from affiliate marketing. Because of this, you can’t change it. The commission rate is different for each company. Amazon’s discounts range from 4% to 10% per item, but many software companies offer discounts of 30% or more.
There are two kinds of commissions, as well. The first one is flat, while the second one keeps coming back. If the commission rate in a flat type is 10% and the price of the product is $100, you will only get $10 as a commission.
In a recurring commission, you get paid every month as long as the customer keeps paying. For instance, you might have sold software that costs $50 per month. If the commission for that product is 30%, or $15, then you would get $15 every month for as long as that customer subscribes to that product.
Affiliate marketing: How to get customers
Blogs are the most common way for affiliate marketers to get new customers. You put your links in a lot of blog posts that you write. A product review is the most common type of endorsement. For example, you can write a listicle or a review of the five best aquarium filters.
You put links to the aquarium filters in that review. If the customer clicks on these links and buys something, the company that sold the aquarium filters will give you a commission.
YouTube is another way that people often promote products. Here, you can review products and software and get a lot of subscribers. When your subscribers click on your links and buy something, you get a commission.
When you do affiliate marketing, you need to be trustworthy. You should know a lot about your field, which will make people believe you. You could, for example, make a YouTube channel about aquariums. You can talk about how to set up an aquarium, how to care for different kinds of fish, and so on.
Once you have a big following, you can start recommending aquarium-related products and get paid a commission if people buy them.
Dropshipping’s Pros and Cons
Let’s look at the best things about dropshipping.
You’re in charge.
In dropshipping, you set your own prices and decide how to market your products. You can change and edit the photos to make them look better than they did before. With dropshipping, you almost don’t have to follow any rules, such as FTC standards. You also don’t have to say that the products you sell don’t belong to you.
With dropshipping, you can set your own prices for your products. You can also offer “white label” services, in which the products you sell have your name on them.
You decide what you want to sell.
Dropshipping lets you sell a huge number of different products. You can sell clothes, mugs, carpets, desks, cabinets, drones, and a lot more.
You can’t choose the product you sell through affiliate marketing. You can only sell the products that affiliate programs let you sell, and you can’t sell anything else. You can’t make bonuses or freebies, but you can do this with dropshipping.
Dropshipping also gives you a lot of chances to jump on a trend. For example, there was a time when people were crazy about fidget spinners. You can make a lot of money selling fidget spinners if you do dropshipping.
You deal with customers directly.
When you use dropshipping, you decide how to deal with your customers. You can talk to them and get to know them better. You can make things right and get them to stick with you. You can build loyalty through programs, coupons, discounts, and other marketing campaigns.
Affiliate marketing has many advantages.
What about marketing through links? Does it have any good points? Some of the things you might like about it are listed below.
You get commissions over and over.
Many companies with affiliate programs offer commissions that keep coming back. This means that all you need is one customer to have a steady source of income every month.
If you think about it, you can make $15,000 per month if you can get 1,000 people to sign up for a software that costs money every month. If the commission is $15 per month and 1,000 people buy the item, you would make $15,000 per month.
And there’s only one product we’re talking about. What if you promote more than one product that pays the same amount? You would make a lot more money than if you sold things by the piece.
You get help with advertising.
In affiliate marketing, the company whose products you’re promoting makes a lot of marketing materials, like banners and blog posts, that you can use to promote them. You can put these articles and banners on your site instead of making your own.
These banners are great because they have been shown to get a lot of clicks. You put these banners on your website with your affiliate link, and then you let the banners do their job. It’s like advertising, but you get paid for each sale that goes through.
You make money without doing anything.
Affiliate marketing is a way to make money without doing anything. You can make money while you sleep. Once you post something to your blog or upload a video to YouTube, people can see it. Even if you are sleeping, if they see it and decide to buy, you get a commission.
Affiliate marketing is great because you don’t have to look for customers yourself unless you want to advertise. It’s like having a hobby in which you write about whatever interests you. In exchange, if people buy the things you recommend, you get a commission.
Dropshipping has some drawbacks.
Before you start dropshipping, you should know that it has some problems, which we will talk about below.
It’s a running business.
Dropshipping is a busy business, and you have to keep an eye on your orders and make sure they are filled on time. If you don’t do this, the shipments will be late, which will make your customers unhappy.
You also need to keep an eye on the trend. If a product related to drones is no longer popular, you should stop selling it and look for something else to sell. As a running business, it’s like being your own boss. If you don’t do anything to help the business, it won’t work.
Also, you should be on the lookout for complaints from customers. You should be able to answer their questions and help them with their problems. If you don’t do this, people will think badly of you. You’ll lose customers, and they won’t tell their friends and family about you.
You have no say over shipping or quality.
Since you are selling someone else’s goods, you don’t have any say in how good they are. You will never know if these products are good or not unless you buy them.
Shipping is another thing you don’t have any control over. Even if you place the order within 24 hours, it may take your supplier three business days to ship it. We call this “processing time.” Some suppliers, especially those in China, have huge warehouses where they have to look for products by hand before sending them to your customers.
When you return or get a refund, you lose money.
If a customer asks to cancel, you can’t get the money you spent on shipping back. That money is now gone. This can happen if your supplier doesn’t keep its promises or if the shipment takes too long.
For instance, you might sell goods from China that would take 60 days to ship. Once you’ve paid the shipping fee and your customer asks for a refund, you’ve already paid for it, so you can’t ask your supplier to pay you back.
Affiliate marketing has some drawbacks.
Affiliate marketing has some downsides, which we’ll talk about next.
The company can stop paying the commissions.
Some companies can stop the commission whenever they want or lower the cost of the commission depending on how well they are doing financially. If the commission stops, you’ve done a lot of hard work that won’t pay off anymore.
You are up against a lot of people.
Since you are not the only one endorsing the product, you should give your followers a good reason to buy the products from you. This means that if you want to sell, you need to shine and stand out as the most trustworthy influencer in your niche.
You don’t have any customers.
If you do affiliate marketing, you don’t really have a base of customers. You might, for example, be recommending aquarium filters. Most of the people who watch your videos on YouTube won’t buy from you again. They only need to buy one aquarium filter, after all. It’s possible that these customers just happened to stumble across your website, which is why they bought the product you recommended.
Which is better: dropshipping or affiliate marketing?
What you want will determine which choice is better. Affiliate marketing is the best way to make money without doing much work, especially if you don’t want to deal with customer returns or complaints.
Dropshipping is the best way to go if you want to be in charge of your marketing and build a customer base that will buy from you again and again. You can make your own loyalty programs and add or remove items from your store whenever you want.
Summary
Both of these ways to start a business need a small amount of money and a lot of hard work. Dropshipping is much easier than affiliate marketing because people want to buy things they can touch, feel, and use. On the other hand, affiliate marketing can be great if you want to make money while you sleep.