In this week’s episode of the Extra Paycheck Podcast we’re trying to figure out the differences between drop shipping and affiliate marketing business models.
Drop shipping or Affiliate Marketing? These two online business models get compared very often even though they’re completely different. In this episode I’d like to talk about the differences of these business models.
So what exactly is drop shipping? The main idea is that you find a whole-seller or a manufacturer who is willing to fulfill orders for you. You set up an online store and start selling a specific product. Whenever the customer purchases an item you’re the one who gets the money. Then you need to place that order with your manufacturer, provide them with customer’s shipping address and pay for the item. At this point the manufacturer will proceed with shipping out the product to that customer.
If there are any issues with the shipping or the product or the payment – you will need to take care of it. Customer service in this business model is my biggest issue. However, with drop-shipping you’re able to make more money per sale compared to affiliate marketing.
Most physical products sold through affiliate marketing will offer a 4%-10% commission while with drop shipping you are the one who sets your profit margin.
Another big issue I have with drop shipping is the branding. With this business model you have to create your own brand and market it like there is no tomorrow. What do you think is easier to sell online: a popular Sony TV or a no name brand TV? Building out that brand name, authority and trust is incredibly hard.
Personally I prefer affiliate marketing because there is less work and less headache with this model. You aren’t really selling products, you’re promoting them. If a sale occurs you receive a commission. You do not need to deal with manufacturers, payments, refunds, customer service, unreliable manufacturers and a lot more. Besides, you get to promote known and trusted brands. Sure, the payout is smaller but so is the headache.
That being said, I am not claiming that one model is better (or more profitable) than the other. I prefer affiliate marketing because it works well for me and has been working well for me since 2007. I do know people who do drop shipping VERY successfully and they would never touch affiliate marketing because of the lower payouts. In the end, it’s your decision to make.
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