If you’re looking to start an online business to build passive income, by now I’m sure you have heard of both Affiliate Marketing and Dropshipping. Both are valid ways to make an online passive income – and both have their own plusses and minuses.
First thing I would say is that the skillsets required to build both businesses have a considerable amount of crossover. Both require knowledge of online marketing and traffic generation, the ability to convert customers, and retaining customers in order to generate those all-important follow up sales. Where they differ is that dropshipping is basically an arbitrage play between sourcing the product at wholesale and selling at a price you set; and affiliate marketing is where you link to an affiliate vendor’s site and take a commission of any sales generated.
Affiliate marketing requires the ability to create engaging content whereas with dropshipping it’s more about the product itself, and the offer and value you are able to give around it. As I’m sure you know if you have been researching these two online business models as prospective online profit generators, Affiliate Marketing basically works as follows:
Customer finds your content and clicks on an Affiliate link, taking them to a vendor’s website. If they then purchase something from the vendor’s website, you earn an Affiliate Commission. Commissions can range from very low percentages through to more than 100%, or a fixed $ amount.
Dropshipping can be more accurately described as the following:
You create an ecommerce store, on which you sell products that you do not own. When you sell a product at a retail price you have set, you order that product from a third party supplier (such as the ubiquitous AliExpress) and you get the retail customer’s order fulfilled by the third part supplier. You pocket the difference between the retail price and the wholesale price, effectively an arbitrage.
As to which business model is best in 2020, it really is in the eye of the beholder. Both models have been proven to be successful many times over, and both are very scaleable, meaning that you can increase the revenue of both businesses without increasing your own effort in bringing that revenue in. An example of this for Affiliate Marketing could be:
You build a landing page as part of an Affiliate Sales funnel, and start by placing facebook ads linking to it at a very small volume. When you reach profitablility for the offer, meaing what you are affiliating is bringing in more money in commissions than you are shelling out in advertising, you can turn up your advertising campaign by increasing the budget, which in turn will increase your traffic volume, and hence your affiliate commssions!
Ok so this a grossly simplified example, but you get the picture. I would recommend that before you make your choice as to which of these online business models you want to choose, that you really look into it – it can be like beating your head against a brick wall otherwise. A great place to start is this article on Affiliate Marketing vs Dropshipping – it really spells out some of the pitfalls of each method.