Most businesses are either in the affiliate marketing or dropshipping category. The two are similar in that merchants carry inventory, deliver products, and are responsible for marketing. They differ in that merchants set their own prices in dropshipping, whereas in affiliate marketing, they aren’t allowed to do this and only receive a commission.
In affiliate marketing, the merchant makes a percentage of every sale. It can be that you spend more on ads than you end up making. If clients show an interest in the product, but feel it is too expensive, you can’t reduce the price to meet demand if you’re in affiliate marketing. Due to this, you’ll probably make less money than in dropshipping.
Payments may be delayed in affiliate marketing because some merchants will inevitably be late with deposits. In some cases, a merchant will be in the process of closing down or declaring insolvency while an affiliate is working hard to earn his commission. The affiliate business loses all the money spent on advertising if a merchant declares bankruptcy, and gets no commission to boot.
The risk is much lower with dropshipping in general. Funds become available each week. There may be certain limits to be reached with an affiliate marketing business before you can cash your first check. For example, if you’re an Amazon affiliate who is not based in the United States, you can only be paid by gift card or check. To get the check, you have to have made at least $100. When rates are really low, making $100 is not that easy. With dropshipping, you get exactly as much money as you made, no deductions.
Dropshipping allows merchants to maintain high margins. With this model, you can buy a product that costs a few dollars and sell it for tens, retaining a substantial part after marketing costs. On the other hand, affiliate marketing commissions are a portion of the amount the product was sold for. The merchants are left with much less when they factor their percentage, marketing costs, and other costs.
We feel dropshipping is the better option for the above reasons.