Affiliate Marketing Vs Dropshipping? Which Is More Profitable in 2024?

Anyone who has Googled, ‘How to start a small business in 2024’ will probably have come across two terms: ‘affiliate marketing’ and ‘dropshipping’. 

Both affiliate marketing and dropshipping can be promising first steps into business. Thanks to the growth of ecommerce and their relatively low startup costs, they have both seen a spike in interest over the past few years.

The key difference between affiliate marketing and dropshipping is the level of control in product management and pricing. While affiliate marketers earn a commission upon successfully recommending products from other businesses at a set price, dropshippers sell and set the price on products that ship directly from a supplier to their customers.

With the affiliate marketing business model, money is made on commission, earned through sales generated by affiliate links. In dropshipping, shipping and inventory costs are offset by shipping directly from the manufacturer, while the dropshipper is free to set their own prices. Out of the two business models, which comes out on top in 2024?

Affiliate marketing vs dropshipping

Affiliate marketing is a process by which an ‘affiliate’ (someone officially attached to an organisation) earns a commission for marketing another organisation’s product. Sales are tracked through an affiliate link that connects from the affiliate website or posts to the product page. For this reason, affiliates are typically publishers, influencers, or other kinds of content creators.

Dropshipping is a type of order fulfilment process by which a customer orders a product from a retailer, who then passes the order on to a third-party supplier for manufacturing and distribution. This model outsources logistics, such as shipping and inventory, making it a great option for a low-overhead, low-risk startup. Although they sound like completely different businesses, there are similarities between the affiliate marketing model and dropshipping, especially if you are considering starting an online business. 

What do dropshipping and affiliate marketing have in common?

1. Both are thriving online industries that are only expected to rise.

2. Both dropshippers and affiliates oversee product promotion.

3. You don’t need to hold inventory. 

4. There are low barriers to entry. 

5. You can start with a minimal initial investment.

What are the major differences between dropshipping and affiliate marketing?

1. While both industries involve promoting products you don’t own, the legal responsibilities are different. A dropshipper will have customer service obligations and consumer laws. An affiliate marketer has no such obligations but must comply with The Australian Spam Act and The Do Not Call Register.

2. Complaints about dropshippers usually target the business, whereas affiliate marketers are more likely to be personally targeted.

3. You can set your own prices in dropshipping, but affiliate marketing has fixed commission rates that are typically stipulated by the organisation and out of the affiliate’s control.

4. Dropshipping payments will go through as soon as the customer pays for the order. Affiliates have to rely on their clients and may have to chase up payments.

Two great options for budding entrepreneurs. Which one is better? Read on and find out.

Affiliate marketing

Affiliate marketing provides a way to earn money by recommending other products or services. This style of marketing works through the power of recommendations.

According to data from HubSpot, studies have shown that while 75 per cent of people don’t believe the information in advertisements, 70 per cent do believe in consumer opinions. This jumps to 90 per cent when the recommendations come from friends or family. When it comes to buying decisions, the likelihood of purchasing after being referred by social media is 71 per cent. With numbers like these, it’s hard to deny the power of the spoken word.

In 21st-century parlance, many social media influencers are modern-day affiliate marketers. Influencers often succeed at affiliate marketing by leveraging parasocial interaction – that is, the idea that celebrities and online personalities spark a one-way relationship with fans, creating familiarity so the fan perceives them on equal footing as a friend or even family member. This may lead to increased engagement, as well as increasing trust in their opinions and recommendations.

It’s no longer just physical friends and family that we trust, but our online friends (and brands) who we have never met. Of course, this trust doesn’t just appear miraculously overnight, but builds over time. It requires a local knowledge of the social media platform and a consistent effort to cultivate a following.

Types of affiliate marketer business models

Unattached affiliate marketing: The affiliate marketer has no connection to the product or service, nor any related knowledge or skills relating to the product. The lack of attachment absolves them of personal liability if the product does not meet expectations because they do not need to make any recommendations. 

This type of affiliate marketing is usually performed via affiliate links through Google Ads or Facebook Ads. It may be an attractive way to earn passive income. However, as a low stakes game, it may also produce low returns for affiliate marketers. As an affiliate, there is no guarantee that your target audience will engage with your ads in these channels. 

Related affiliate marketing: The affiliate marketer is related to the product or service by industry, niche, or another relation. They don’t necessarily use the product or service. They don’t make any claims about the product or service, but their authority on the subject makes them a trusted source.

For example, if an affiliate is a beauty influencer, they may have a contact who works for a major player in the beauty industry. That contact may be hosting a product launch event. The affiliate may choose to promote this event with an affiliate link, choosing to leverage their authority in the beauty industry and trust in their contact. This can work in both parties’ favour, but it could also backfire depending on product/market fit.

Involved affiliate marketing: The affiliate marketer typically has a deep connection to the product or service they are promoting. They have used or currently use the product or service and they are confident that their positive experience can be replicated and shared. As such, recommendations are more likely to be sincere, positive, and backed by real-life experiences. This is commonly used in services-based marketing, with Audible, Squarespace and Skillshare all having large affiliate networks.

Pros and cons of affiliate marketing

When it comes to the affiliate marketing business pros, there are so many opportunities for affiliate marketers, especially when you consider that more than 80 per cent of brands have affiliate programs. As such, there is significant upside to making affiliate marketing profitable for someone who is willing to succeed.

With affiliate marketing, you don't need to manage your own website or handle logistics like inventory and shipping. This means lower overheads than traditional retail. Content creation can also be as easy (or as complicated) as desired. Many content creators work straight from their phones, while others may choose to invest in specialist equipment.

When it comes to affiliate marketing business cons, with such low barriers to entry in a competitive marketplace, it can be difficult to succeed. Affiliates may need to work harder to stand out, especially at a time when people are self-employed or working in the gig economy. There is potential for an affiliate’s marketing budget to balloon, especially when you throw a few business subscriptions in the mix. 

Moreover, most affiliate programs will stipulate the commission rate for the affiliate marketer without providing room for negotiation. The contract may also stipulate that certain thresholds must be met before payment, so underperforming can mean missed paychecks. Speaking of missing pay, affiliate programs may not always stick to a regular payment schedule. That means any financial issues on their end, or the brands they’re working with, may lead to a delay in payments.  

As far as creative control goes, affiliates are also restricted by whatever rules are set out by the affiliate program or brand they’re working with. This may mean enforcing the brand is portrayed in a certain and particular way and providing a list of off-limit topics for affiliate marketers to steer clear of when promoting a product.

Finally, growing an audience and a following requires time and patience. If you choose affiliate marketing, know that it's not a 'get rich quick' scheme. It can be a good way to make money online, but it involves market research into the product and marketing tactics, content creation, and ongoing audience engagement.

Start up costs of affiliate marketing

The startup costs of affiliate marketing will vary depending on time, motivation, effort, and the affiliate’s existing online presence. Let’s break down the main cost categories:

• Startup

• Marketing

• Tracking

Startup costs include legal requirements, such as business registration, but may also include the cost of renting an office space or buying accounting software. Most of your initial costs will probably fall under this category.

Marketing costs will include anything you need to grow and drive traffic to posts, blogs, and websites that contain affiliate links. This can include email marketing software, content management systems, or buying ad space. 

Tracking includes any tools that help measure data, from post engagement to your earned commissions. Many affiliate networks will have their own tracking software that tracks clicks and earnings. You may also benefit from web analytics services to improve your website or social media posts, such as Google Analytics, Buffer or Hootsuite. There are many tools available that are free or offer free trials or plans, making it easy to try before buying.

Profitability of affiliate marketing

If you take the affiliate marketing route, know that affiliate marketing is a performance-based gig. With endless brands and products looking for affiliates, it may be easy to find a gig, but it means nothing without the motivation to succeed. Successful affiliate marketers work hard on driving traffic to their posts or affiliate website, maintaining an online presence, and increasing their click-through and conversion rates. Of course, this means there is no end to earning potential for the right person partnering with the right product.

Affiliate programs differ when it comes to commission models. For instance, the Amazon Affiliates program can offer anywhere between 1-20 per cent, while eBay’s Partner Network offers between 50-70 per cent.

How to find affiliate business opportunities

There are many ways to look for an affiliate marketing program:

• Performing a Google search.

• Searching affiliate directories.

• Examining your competitors.

• Going to the main company website and signing up for their affiliate program directly.

The list of affiliate programs is endless. When looking for the right affiliate program, you may like to ask yourself the following questions:

What are the company's products?

You should look into the company and the products they sell to make sure they align with your niche and expertise. It's important to make sure that you can positively endorse the product as ultimately it's your reputation on the line.

Is the business running the affiliate marketing program reputable?

Do people generally trust this company? Is it well-known, long-established, or well-reviewed? Does it have a good reputation overall? The more reputable a company, the less likely you are to get scammed, see delays in getting paid, or encounter other issues.

What is the commission structure of the affiliate program?

Don’t be afraid to shop around for competitive commission rates. These can differ wildly, but your ideal rate should take into account the type of commission (usually percentage), payout model (are they pay per action or pay per sale?) and the product being sold (is the commission rate high because the product is hard to promote?).

Consider the cookie lifetime

A cookie is a small block of data that is placed on a user’s computer, usually to save browsing data or credentials. In affiliate marketing, these cookies track affiliate referrals. These cookies expire after a set amount of time, at which point you will stop earning a commission. The longer the cookie lifetime, the longer you have to generate income, so choose a company where you can make the time count.

Dropshipping

Dropshipping is an order fulfilment method that has risen in popularity over the life of the internet and the rise of ecommerce. A customer can order from a dropshipper, who will then forward the order to a supplier who then handles manufacturing, shipping and handling.

Suppliers will sell to dropshippers at wholesale prices, while dropshippers are free to set their own price to reflect shipping, digital marketing and other costs. It's a popular way to break into ecommerce because it doesn’t require holding any inventory, just like affiliate marketing.

Pros and cons of dropshipping

As with affiliate marketing, dropshipping is an online business model that opens up a range of opportunities. It's a low risk business model which anyone can get started with quickly at a very low cost. It takes just a few minutes to set up a Shopify storefront, and if you use a service such as Dropshipzone, you’ll also unlock a world of vetted suppliers, products and shipping options as soon as you get approved as a retailer. Dropshipping is a flexible business that can be run from anywhere – home, a shared office space, the local library, anywhere with an internet connection. Dropshippers can work as many or as few hours as they want. Generally speaking, as with most business models, effort drives results.

When choosing products, it's not too difficult to find dropshipping suppliers. Hundreds of vetted suppliers use Dropshipzone. You can also browse a dropshipping directory such as Salehoo, Worldwide Brands or Aliexpress. As with affiliate marketing, dropshipping doesn't require you to hold inventory. With Drophipzone, you simply place an order with your individual supplier at a wholesale price after your customer places an order with you at a retail price.

Naturally, low risk business models, such as dropshipping and affiliate marketing, will attract more competition. Not only are dropshippers competing with other dropshippers, but as a dropshipper you're unlikely to have an exclusive relationship with suppliers. This means a dropshipping store will often be competing with identical products where the only differentiators are price and brand. That's why it's important to build your own brand through storytelling. Leveraging your marketing skills to build clever marketing campaigns becomes a key driver of success.

Dropshipping also has lower profit margins than traditional retail. This may be a hurdle for new businesses setting up an online store for the first time, but it can be overcome as time passes and the business gains a following.

Lastly, dropshippers will also be tasked with handling customer service, which can pose its own unique set of problems. As a dropshipper, you don’t have direct control over product quality, shipping or tracking, but you will be the first port of call for any customer complaints. If your dropshipping suppliers are poor or slow communicators, you may have trouble resolving customer issues and complaints in a timely manner.

Start up costs of dropshipping

The main startup costs of dropshipping will depend on where you choose to host your store and what domain name you would like to use. When dropshipping, you generally will sell from an ecommerce store on your own website. In 2024, Shopify has a wide range of plans starting at USD$29, and you can buy a domain through Shopify for as low as USD$14 annually. This isn’t including free trials and other deals that may be running at any particular point in time. 

Other costs to consider before dropshipping

• Cost of product validation: You may want to place a test order for the products that you plan on selling in your online store.

• Cost of marketing: This could include creating and scheduling social media posts, using Google Ads or Facebook Ads, or hiring a graphic designer. Going meta, you may even want to hire your own affiliate marketer!

• Directory fees: Some dropshipping directories charge subscription fees to access their database. 

• Cost of business name registration: In Australia in 2024, it costs $42 to register your business name for one year, and $98 for three years. You need to register a business name to conduct any business under a name other than your personal name. This is a legal obligation.

There are some red flag costs to watch out for when starting dropshipping and selecting suppliers. For example, a legitimate supplier should not charge a fee for exclusivity or a subscription to purchase specific products on an ongoing basis.

Profitability of dropshipping

Dropshipping can be a very profitable business model, but it shouldn’t be considered a ‘get rich quick’ scheme or passive income stream. It typically has low profit margins compared to traditional retail, with the average dropshipper making between 20-30 per cent profit from each sale. You can increase your profit margins by dropshipping more high-ticket items or increasing your selling price to make more money on the margin, but the real key is market research. Knowing exactly what products are in demand, for who and where, is crucial to being successful at dropshipping, no matter whether you choose to sell an inexpensive product or a high-ticket item purchased at a wholesale price.

The good news is that ecommerce is thriving, across every business. People are more likely to buy products online than ever before, and it’s never been easier to sell online. The dropshipping industry is estimated to be worth $301.11 billion in 2024. With online shopping showing no signs of stopping, it seems like a promising investment.

How to find dropshipping opportunities and get started

Getting started is as easy as making a personal commitment to improving your business acumen. Do market research to choose the right niche for you, get your important documents in order (including your ABN), and prepare to find your ideal dropshipping supplier where product quality is paramount.

With the right research, you can set up your own online store and find your own suppliers independently, with or without directories. But that’s not even the easiest route – there are a lot of ways you can start dropshipping, including joining a turnkey platform like Dropshipzone. 

Choosing which option is best for you?

Both dropshipping and affiliate marketing are low-risk business models with their own set of advantages. What works best for you will ultimately come down to your individual skillset and appetite to succeed.

While the affiliate marketing business model involves content creation and basic knowledge of SEO, it is more ' hands-off' than dropshipping. If you already have a large following on social media and you're looking for an extra income stream, it may be a good option. But it isn't a truly hands-off business. If you have little to no social media presence, it’s going to take a lot more work, but it’s low risk and may work if you are consistent and patient.

The dropshipping business model is a lot more hands-on as it involves managing customer service on top of content creation. However, you're typically more likely to see profits early on. Of course, there are plenty of ways you can automate your business too, with various tools available on most reputable ecommerce and dropshipping platforms. If you're a motivated business owner, your dropshipping business should pay for itself and more. 

If you're looking for the lowest upfront investment, want to maximise your free time, or simply generate a supplementary income stream, affiliate marketing may be a better choice. If you're considering starting an ecommerce business where financial freedom is the end goal, and you're willing to put in the work, dropshipping is a great business model providing a way to earn money online.

Dropshipzone is taking the lead on dropshipping

As Australia’s leading B2B retail marketplace, Dropshipzone gives your ecommerce store access to thousands of products sold by hundreds of verified suppliers.

Even better, Dropshipzone suppliers take care of inventory management. As a dropshipper, you don't need to hold inventory, with all stock shipped directly from warehouses in Australia. At Dropshipzone, we also provide customer support from a dedicated team of account managers in Australia. 

It’s so easy to get started with Dropshipzone and making money online. Once approved as a retailer, you can have a store up and running and selling within minutes. So, what are you waiting for? Sign up with Dropshipzone as a retailer today.