Most of the readers who visit MyWifeQuitHerJob.com fall into opposite extremes when it comes to their online business goals.
Either they want to go all out, create their own products or import their goods from Asia for maximum profit or they want to start an online store as a side business using the most “passive” methods available.
The prospect of making money passively without requiring much work is extremely attractive which is why many readers fall into the latter category.
In other words, they want to be able to make money with as little active effort as possible. They don’t want to have to carry inventory or do product fulfillment which is why I receive many questions having to do with either running a dropshipped online store or becoming an affiliate marketer.
However, there seems to be some confusion about the differences between these two types of online businesses. I got a question from a reader the other day asking…
Why would I ever want to run an online store, even a dropshipped one, when I could do affiliate marketing and not have to worry about anything?
Clearly, this reader isn’t aware of the superior benefits of running an actual online business as opposed to being just an affiliate.
While there’s extra effort involved in running a dropshipped online store, the rewards far outweigh the costs, especially if you want to create a business that can last the test of time and establish your own brand.
What Is Dropshipping?
Dropshipping is a way to run an online store where you don’t have to store inventory and you don’t have to ship product. The way it works is that you set up your storefront and collect money just like a regular store.
But instead of having to pack and ship the product once you receive an order, you simply place an identical order with the distributor at a wholesale price and the distributor takes care of shipping the product to the end customer for you.
The amount of profit you make is your selling price minus the wholesale price.
The main advantage of dropshipping of course is that you don’t have to manage inventory or product fulfillment. However, since you are selling the product under your own store name, you are still responsible for customer support.
Note: If this business model sounds attractive to you, you can use a service like Worldwide Brands to find pre-verified dropship vendors.
What Is Affiliate Marketing?
Affiliate marketing is when you refer a customer to another business and take a commission if the customer makes a purchase. In effect, your website acts like a marketing and referral engine and you don’t actually sell any product.
In addition, you don’t directly collect any money either. Once a sale has been made, the affiliate business is responsible for paying you your commission which usually occurs on a monthly basis.
How does the affiliate business know that it was you who referred the customer? A tracking cookie is placed on the customer’s computer whenever they click on a link on your site that takes you to their business.
If the customer makes a purchase and has the cookie installed on their computer, then you get credit for the sale.
Advantages Of Affiliate Marketing
The main advantage of affiliate marketing is that the entire sales process is completely hands off. Once you refer a customer to a business and the customer makes a purchase, your job is done.
You don’t have to worry about product fulfillment. You don’t have to worry about customer support. You just get paid your commission and that’s it.
With a dropshipped online store, the customer is effectively making a purchase from “your store” even though you are not the one fulfilling the product.
As a result, you are responsible if the customer does not get their shipment on time. You are responsible if the product is defective or arrives broken.
Therefore, you will have to devote a certain amount of time dealing with customer issues especially if your dropship vendors are not reliable.
In addition, with a dropshipped store you have to setup a complete storefront that accepts credit cards and other forms of payment as opposed to affiliate marketing where all you have to do is throw up an informational site or blog.
The amount of work required to start a dropshipped online store is definitely more than the effort required to be an affiliate marketer.
Why Running An Online Store Will Make You More Money
For one thing, the amount of profit that you can make dropshipping will be much higher than if you are just an affiliate. With an online store, you get to set your own prices unlike affiliate marketing, where all commissions are fixed.
Whereas you typically can make a 50% gross profit on your dropshipped goods, the commission earned from being an affiliate marketer of physical goods is typically much less.
But even if the profit potential were the same, running your own online store carries one major benefit that outweighs everything else, word of mouth.
When you act as an affiliate, you are not a real business. You are just a referrer of business. As a result, when a customer makes a purchase using your affiliate link, you don’t get any long term benefits for the sale.
Where do you think the customer will go if he wants to buy again? Do you think he’ll go through your blog or back to the website where he originally made the purchase?
When he tells his friends about his new cool gadget, do you think he’ll refer his friends to your blog or to the store where he made the purchase?
Whenever you make a sale as an affiliate, it’s a one off transaction. That’s pretty much the only sale you are ever going to make from that one customer. Whereas with an online store, you have the opportunity to establish a reputation and a brand to get repeat business.
With an online store, whenever someone raves about your product or service, you’ll get the credit for it. Whenever someone asks for a referral, your store will be the one referred.
A quality online store will naturally grow over time with a strong foundation of repeat customers and word of mouth. However as an affiliate, you will constantly have to drum up new business and referrals because there is no customer base. There is no foundation.
Opening an online store takes more effort and is less “passive” but the difference is that you are building a true business, one that will naturally grow as your reputation spreads. So why not put in a little extra effort and build something that has the infinite potential to grow?
- Create A Profitable Online Store In 5 Easy Steps
- Why Dropshipping Isn’t As Easy And Simple As You Think
- How Much It Costs To Start An Online Store And Should I Dropship Or Carry Inventory
- Is Affiliate Marketing A Better Option Than An Online Store?
- Starting A Blog Vs Niche Affiliate Site Vs Online Store – A Comparison Of 3 Online Business Models
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- Business Expenses: What You Can Deduct on Your Taxes
- Mid Year Income Report: How Our Online Store Performed In The First Half Of 2013