For a newbie looking to gain financial freedom in the digital world, the choice of which business model to adopt can be very challenging. This is because there are several options available to the new digital entrepreneur. I discussed some of these opportunities in my article “Kiss Your Worries Goodbye – Top 5 Open Secrets To Wealth Creation & Financial Freedom That Are Benefiting Millions Of People”. Even with only these five business models, the dilemma the newbie like you faces is which of them is the right one to choose to start with. Surely you will be looking at factors such as barriers entry, capital requirements, skills requirement, customer needs, profitability, and ease of doing the business among others. Just like you, I was faced with a similar dilemma. While it is always advisable to pursue your passion, I believe that the best strategy is to start with the ones with low or no barriers to entry.
Before I proceed any further, let me put a disclaimer here. I am no expert and do not pretend to be one. The views I express here are my personal opinions or preferences, and the opinions and experiences of a couple of mentors I have spoken to. Different people have different success rates with these models depending on their personal idiosyncrasies and other factors. So you should consider what works best for you. This article may also contain affiliate links, though not all links may be affiliate links. If you click the links to the affiliate website and place an order I may receive a commission from that transaction at no extra cost to you.
In this article, I will seek to throw more light on some of the models that ordinarily post reasonable profit margins but require little to no capital injection. These have no entry barriers. You can literarily hit the internet streaming within a short time with little initial capital. Indeed, my mentors both advised me to start with affiliate marketing since that requires very little initial cost and basic knowledge in surfing the internet. But in my readings, I also found dropshipping very interesting and appealing. I will therefore narrow down on these two, hoping that my views will help you out of your dilemma.
Online Market Trends
As you may be aware, both affiliate marketing and dropshipping are business models that operate best as digital or online marketing instruments. Market watchers report that the number of people buying goods and services online since the beginning of the millennium has grown in leaps and bounds. Reports suggest that in the year 2021 the market is projected to increase by about 90 million users from the 2020 figure of a little over 2 billion users.
Statistics available show that revenue from dropshipping in 2017 amounted to about $85 million representing 23% of global online sales. Industry observers predict the market valuation of dropshipping will reach $557.9 billion before 2025, thus recording a Compound Annual Growth Rate (CAGR) of 28.8%. It is estimated that profits from dropshipping can go as high as 50% more than online businesses that keep their own product stocks. So this is clearly a market worth you exploring.
Meanwhile, Google Trends statistics show that the number of searchers interested in affiliate marketing has grown by over 200% from their 2015 base figure. In particular, 85% of online buyers make their purchasing decisions after doing their investigations in Google.
There are similar reports from KPMG, which show that online business is on an upward trajectory with more and more people turning to the internet for their purchasing decisions.
What is Dropshipping & How Does The Model Operate?
Dropshipping as a business model enables you to start an online business where you sell goods to your customers without having to keep an inventory of your goods. In simple terms, you advertise and retail on your online store the products of a third party supplier who keeps inventory of the goods. When the customer buys the product at your retail price, the product is shipped directly from the third party supplier to your customer. This eliminates the need for you to keep stocks. Hence, you do not spend on warehousing and handling. You only serve as an intermediary between the third party supplier of the products and the customer. Your role is simply marketing, promotions, and after sales customer support.
This business model is ideal for people who do not want to or do not have what it takes to go through the drudgery of having to come out with their own product designs, hold inventory of stocks, and manage handling and shipping. It is also ideal for financial freedom seekers who have very little startup funds since all that it takes is the cost of designing and hosting your website. (By the way, you can learn how to design and host your website easily from the Digital Expert Academy owned by The Six Figure Mentors). It also allows you to try various products and niches since you can literally promote any legally acceptable product on your site.
The cool thing about it is that your smartphone can just be your virtual warehouse, your advertising billboard, and your customer service office. You don’t even need to be a tech genius to run dropshipping. Your basic knowledge of surfing, downloading, and uploading on the internet is sufficient for starters.
Is Dropshipping Profitable?
Indeed, the profit margins of dropshipping can go as high as 50% more than if you had to stock the products yourself. This is obvious since warehousing costs, handling, and shipping costs are all eliminated. Once the customer buys the product, you deduct your profit before forwarding the product cost together with the shipping charges to the original supplier.
Downside of Dropshipping?
It is generally a low risk business model. Nevertheless, the risk of vulnerability of your website can not be discounted. That aside, you do not exercise control over stock inventory and product design. The manufacturer can decide at any time without notice to withdraw a product(s) from the market. This could mean that your bestselling product may suddenly go out of the market. However, with a good marketing strategy, you should be able to introduce your customers to equally good alternatives.
What is Affiliate Marketing & How Does The Model Work?
“Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts” – Wikipedia. In the affiliate marketing model, your role is essentially to promote the business of another entity for a fee or commission when customers buy the product through your affiliate links. So as an affiliate marketer, your task is to promote other people’s products. Typically, this is done using your website or any social media channel(s), YouTube, Facebook, etc, to direct your following to an affiliate link provided by the product(s)/service(s) owner. When your followers complete a purchase on the owner’s website through your affiliate link, you earn your affiliate commission. In most affiliate programs, once the purchaser goes through your affiliate link to purchase any product(s)/service(s) sold on the website, you, the affiliate marketer, get your commission even if did not promote those product(s)/service(s).
Affiliate marketing as a business model also requires relatively low startup capital. If you have a very strong social media following you may not even need to set up a website. All you have to do is utilize your social media following to market the products, without expending any fees on advertising.
The low capital and tech requirement make it an ideal option for those who want to do business in the digital space but do not have resources or complex tech knowledge. In fact, social media freaks like you can take advantage of your presence in the space to make a lot of fortune for yourself.
Is Affiliate Marketing Profitable?
The simple answer to this question is YES! This is because you may not need to spend on advertising, and even if you do, the advertising budget is very tiny compared to traditional advertising. What you should keep in mind is that, in affiliate marketing, the margins earned are paid periodically to the affiliate. The affiliate must also earn a predetermined minimum commission to be able to cash out. The timelines and minimum thresholds are usually set by the parent company.
Downside of Affiliate Marketing?
The associated risks of affiliate marketing are similar to those of dropshipping. Another downside is the fact that you are always redirecting traffic from your website to the website of the product/service owner. With time the customers may go directly to the main website rather than going through your affiliate site. This action may result in a loss of earnings by the affiliate. You also don’t receive your earnings immediately and yet part of it is locked up with the program owner.
The Question of Choice – Affiliate Marketing or Dropshipping
Now you are at the crossroad of decision making between the two business models. Which way do you go – affiliate or dropshipping? After all, they both have similar characteristics: relatively low risk, good income potential, no need to keep inventory, low barriers to entry, and a limitless number of products that you can put on offer.
Take a look at the table below. It summarizes the main advantages of one over the other.
|A very good source of passive income||Relatively higher returns and profits|
|No need to worry about customer support||Constantly interacting with customers|
|Relatively easier to find affiliate products to market||Profits are received the moment the purchase is done.|
Affiliate Marketing vs Dropshipping
I think that neither dropshipping nor affiliate marketing have any significant advantage or disadvantage over the other. So as a newbie I suggest you consider your individual preferences and those of the market you intend to serve. Otherwise, nothing stops you from going with the two business models at the same time if you have the resources, time, and zest. So whiles making good margins from the dropshipping business you are at the same time growing a great long term source of passive income from affiliate marketing. Indeed, by combining the two business models on one website where you review various products and services, you minimize the expenses on your marketing budget while leveraging on the same to maximize your returns. However, some affiliate programs such as The Six Figure Mentors program can serve as a stepping stone for recognition necessary for dropshipping.
What a wow!
Drop your comments if you may.