Interactive Advertising Bureau
24 April 2019

Drop shipping vs affiliate marketing: which one is right for you?

Kateryna Khalus is the team lead in publishers’ department at Admitad. She sums up the perils that await publishers and e-shop owners.

If you want to launch a digital business, you are probably well aware by now that there are multiple ways to sell online. You might also know that neither affiliate model nor drop shipping require you to keep inventory, and both of them have low entry barriers.

What you may lack is the correct approach and life hacks that allow you to choose between the two and avoid losses.

Brand or no brand
First things first, get your priorities straight. Drop shipping is about building your own brand, whereas affiliate gives you an option of staying in the shadows.

Building a brand is hard. It takes a lot of marketing and management, not just drawing a logo and launching a number of communities on social media.

You would have to provide customer support, solve their problems, heed to their needs. Helping them out with returns and refunds might take around 25% of your working time. Even though you are not the one responsible for quality check, you will get complaints. This is okay.

It would be a lie to promise that the affiliate channels will help you totally avoid the trouble. Cashback model, for instance, will not. Contextual ads and social media teasers will.

Assuming direct control
While freeing you from many responsibilities, affiliate might also limit your opportunities. Publishers do not have the luxury of setting higher prices. They have to make do with what little commission they get – an average of 5-7% for Chinese shops.

For those willing to choose products and manage pricing on their own accord, drop shipping is preferable. According to Admitad data, mean markup among drop shippers was at 40% over initial cost.

Know your limits
In affiliate, your assortment is only limited to the advertiser’s catalogue in the region. To start selling new products in new markets, you would have to join another company’s offer in the affiliate network first.

With drop shipping, you might not ever need to seek out new advertisers. Large online marketplaces sell virtually everything, and ship everywhere. The thing you will be looking for is the correct market — the one with reasonable price for paid traffic.

Pay to win
Promotion costs are another hidden catch for drop shippers. You can put affiliate links even in social media bio, thus making it literally a zero-cost traffic source.

Drop shippers, however, have to buy a lot of paid traffic – most likely on Facebook. On average, they spend about a third of their income on ads.

You might be wondering – why all the fuss? Why spend hundreds of dollars a month for testing? The answer is simple: they are looking for the winner product. Winner products are the gold mine of drop shipping. Without it, sales will probably be quite sloppy. With it, you can gain a four times bigger payback in just a couple of weeks.

Try not to get blocked
If dodging security algorithms is your style, consider choosing drop shipping.

On Facebook, starting to increase your prices by 30-40% a day immediately after registration is a sure way to get your ad account banned. Drop shippers have to learn Facebook Ad Policy by heart if they want to survive.

Even if you bypass the aggressive AI, a number of things can still go wrong. Worst-case scenario: you spend $600 to find a winner product, launch the campaign, the sales increase tenfold…. and stop. Because your Stripe or PayPal deemed such activity suspicious and blocked the account for 20 days.

Affiliate publishers suffer problems too: social media smart feeds often mute posts containing an affiliate links, so promote advertisers’ goods via free posts might not be the best idea. In these terms, messengers — namely, Telegram is a pleasant exception. YouTube does not block links either, but beware of copyright when creating your own content.

“I could not choose one, so I chose both”
Indeed, there is a third way. A way to integrate affiliate into drop shipping. Purchasing customers’ orders via your own affiliate links.

In a way, it is cheating and large advertisers do not take this sort of practice kindly. Nonetheless, such moves are legal and not regarded as fraud. Moreover, it is a rising trend in the drop shipping industry.

Summing it up
Overall, drop shipping is like running a full-scale multi-department company - managing brand reputation, checking quality, supporting customers, controlling finances and marketing. But it removes barriers and allows you to work with literally every market in the world.

Affiliate has tangible limits, because it means promoting advertisers on their terms. That narrows down your options to specific markets, traffic sources and fixed commission rates. On the other hand, publishers are not burdened with the need to communicate with end users.

In the end, it is all about responsibility: drop shipper is liable directly to customers, and affiliate publishers to advertisers. It is a parent-child relationship. Which one are you?

About Admitad
Admitad is a global affiliate marketing network that helps advertisers boost online sales and monetizes web and mobile traffic for the world's best publishers. The company was founded in Heilbronn, Germany in 2009, and currently has offices in seven countries around the globe and over 400 employees.

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