Affiliate Marketing or Dropping Shipping: Which is the Better Business Model in 2024?

In e-commerce, two business models have emerged as powerhouses: dropshipping and affiliate marketing. 

Both offer the potential for significant income and the ability to build a thriving online business. But which one is the better choice for you in 2024? 

In this article, we'll discuss the pros and cons of each model, drawing insights from experiences of several successful 7-figure affiliate marketing coaches.

Understanding Dropshipping

Dropshipping is a retail fulfillment method where you, as the business owner, don't keep the products you sell in stock.

Instead, when a customer places an order, you purchase the item from a third-party supplier, who then ships it directly to the customer. 

This model allows you to start an online store without the need for a large upfront investment in inventory.

Dashboard for Inventory Source, a marketplace to source drop shipping items.

The Pros of Dropshipping

• Owning a Business: Dropshipping allows you to own and operate your own online business, giving you the freedom and control to make decisions about your brand, products, and marketing strategies.

• Selling to the World: With an online store, you can reach customers globally, tapping into a vast market that extends far beyond your local area.

• Potential for Scalability: When you find a winning product, you can scale your business by increasing your advertising and marketing efforts to drive more sales.

• Product Flexibility: If a particular product isn't selling well, you have the freedom to switch to a different product without being stuck with unsold inventory.

The Cons of Dropshipping

• High Advertising Costs: When starting from zero, launching a successful dropshipping business can require a significant investment in advertising. You’ll also need to add on top of that expenses for software like Shopify to get a storefront going.

• Upfront Research Time: There are thousands of products that are available for dropping shipping these days. Finding and vetting the right suppliers can be time consuming compared to other business models like affiliate marketing.

• Low-Profit Margins: Dropshipping typically offers lower profit margins compared to other business models, as you're competing on price with other online retailers and you have to pay your suppliers first which eats into your margins.

• Customer Service Burden: As the business owner, you're responsible for handling all customer service inquiries, returns, and refunds, which can be time-consuming and require additional resources as your business grows.

Understanding Affiliate Marketing

Affiliate marketing is a performance-based marketing strategy where you, as an affiliate, earn a commission by promoting other people's or companies' products or services.

Instead of selling your own products, you're essentially a middleman, driving sales and earning a percentage of each successful transaction.

Video: Walkthrough of how to start an affiliate marketing with and without an audience

The Pros of Affiliate Marketing

• Low Startup Costs: Compared to dropshipping, the initial investment required to start an affiliate marketing business is much lower, as you don't need to worry about inventory, shipping, or customer service. You simply need to get your website going and purchase some software to help you market and create content.

• Medium to High Profit Margins: Affiliate marketing typically offers higher profit margins than dropshipping (industry average is 5–30%), as you're not responsible for the costs associated with producing the physical products.

• Passive Income Potential: While nothing is truly passive, maintenance is low ith the right strategies and a well-optimized sales funnel. You can generate income streams through affiliate marketing, earning commissions even while you sleep.

• Scalability and Flexibility: Affiliate marketing allows you to easily scale your business by promoting multiple products or services, and you can quickly pivot to new opportunities as the market evolves.

The Cons of Affiliate Marketing

• Lack of Control: As an affiliate, you don't have full control over the products or services you're promoting, and you're dependent on the actions of the product creators or companies you're affiliated with.

• Potential for Saturation: With the growing popularity of affiliate marketing, the market can become saturated, making it more challenging to stand out and attract new customers.

Comparing the Two Business Models

Now that we've explored the key aspects of both dropshipping and affiliate marketing, let's compare the two to determine which one might be the better fit for your business goals in 2024.

Startup Costs and Cash Flow

One of the primary differences between the two models is the initial investment required. Dropshipping typically has higher startup costs, as you need to invest in a Shopify store, paid advertising, and the ability to cash flow the products upfront to fulfill customer orders. 

In contrast, affiliate marketing has a much lower barrier to entry, with the main expenses being the cost of tools like a website builder, email autoresponder, and potentially some paid advertising.

Additionally, affiliate marketing offers more favorable cash flow, as you don't have to worry about cash flowing the transactions of your buyers. In dropshipping, you need to have enough capital to cover the cost of products as orders come in, which can create cash flow challenges, especially in the early stages of your business.

Profit Margins and Scalability

When it comes to profit margins, affiliate marketing has a clear advantage. 

Since you're not responsible for the costs associated with physical products, such as manufacturing, shipping, and handling, your profit margins can be significantly higher, often ranging from 5% to 70% (every affiliate program has their own commission percentages). 

In contrast, dropshipping typically offers lower profit margins, usually in the 10% to 15% range, as you're competing on price with other online retailers.

In terms of scalability, both models offer the potential for significant growth, but the path to scaling may differ. Dropshipping is often considered a "volume game," where you need to make a large number of sales to generate substantial profits. 

This can require building a team to handle the increased customer service and operational demands. Affiliate marketing, on the other hand, can be more easily scaled as a solo entrepreneur, as you don't have to worry about the logistics of fulfilling orders or managing customer service. You do however, need to worry about getting traffic to your website as this will be your primary lead generator.

Customer Service and Control

Another key difference between the two models is the level of customer service and control you have over the business. 

In dropshipping, you're responsible for handling all customer inquiries, returns, and refunds, which can be time-consuming and require additional resources as your business grows. 

Affiliate marketing, on the other hand, allows you to focus solely on marketing and promotion, as the product creators or companies you're affiliated with handle the customer service and fulfillment aspects.

Additionally, with dropshipping, you have more control over your brand, products, and marketing strategies, as you're building your own online store. 

In affiliate marketing, you're dependent on the actions of the product creators or companies you're promoting, which can limit your control over certain aspects of the business.

The Final Verdict: Which is Better for You in 2024?

Based on the insights and experiences shared by multiple 7 figure Shopify coaches, the affiliate marketing model appears to be the better choice for most entrepreneurs in 2024, especially if this is your first business online.

The lower startup costs, higher profit margins, and the ability to scale as a solo entrepreneur make affiliate marketing a more attractive and accessible option, especially for those just starting their online business journey.

That said, dropshipping is not a bad business model by any means, and it can still be a viable option for those with a larger budget and a willingness to invest the time and resources required to build and manage a successful dropshipping operation. 

However, the inherent challenges of dropshipping, such as the need for a significant advertising budget, the burden of customer service, and the lower profit margins, may make affiliate marketing the more appealing choice for many aspiring online entrepreneurs. You simply need more skill sets to survive as a dropshipper among the competition.

The Choice Is Yours

Ultimately, the decision between dropshipping and affiliate marketing will depend on your personal goals, resources, and risk tolerance. 

If you're looking to start an online business with a lower barrier to entry and the potential for higher profits and scalability, then affiliate marketing may be the better fit for you this year. 

However, if you're willing to invest the time and resources required to build a successful dropshipping business, and you have the necessary capital to get started, then that model may still be a viable option worth considering.

Regardless of which path you choose, the key is to thoroughly research, plan, and execute your chosen business model with a focus on long-term sustainability and growth.

By understanding the pros and cons of each approach, you can make an informed decision that aligns with your unique business goals and personal preferences.