Affiliate Marketing for Newbies – Amazon FBA vs Dropshipping vs Affiliate Marketing: Where to Start?
Starting a business, e-commerce or not is rigorous work. Although e-commerce gives entrepreneurs the opportunity for an easy start-up, you still need to consider a few things to ensure that the money, time, and effort you’ll invest will be worth it. You must be spending your time in between researching and thinking, and still, you might feel like you don’t have enough skills or knowledge.
Despite the budget to start your business being ready, taking the next step to finally carry out your plan is scary. It’s understandable. What you decide for your business today will greatly impact how your business will move forward in the future.
At times, taking your fear and other things for granted and directly diving in bring returns. But in most cases, you need to listen to your fear and carefully plan out your steps before starting.
That’s why here’s a resource that will help you decide the kind of business model and strategy that will work best for your e-commerce business. Take a look at how Amazon FBA, Dropshipping, and Affiliate Marketing can help you reach your business goals.
Amazon FBA vs Dropshipping vs Affiliate Marketing: Differences between them
- What is Amazon FBA?
Amazon FBA is the e-commerce marketplace Amazon’s fulfilment program. Fulfilment or E-commerce Fulfillment is the process by which customers’ orders are delivered to them after ordering them online.
This process involves storing orders in the e-commerce marketplace’s or third-party logistics (3PLs) fulfilment centres, picking up the inventory, packaging, labelling, and finally, transporting the items to the customers’ shipping destination.
It also involves handling returns and item exchanges.
How it works:
There are two types of sellers on Amazon: those who manage the fulfilment of orders on their own using their own network and resources, and those who let Amazon fulfil their customers’ orders through Amazon FBA. The first one is called an FBM (Fulfilled by Merchant) seller. The latter is called an FBA (Fulfilled by Amazon) seller.
Amazon FBA is a fee-based fulfilment service by Amazon to e-commerce sellers on its platform. As an FBA seller, you basically handle selling their products up to its checkout and shipping to Amazon. Then, Amazon takes over through Amazon FBA to fulfil the customer’s orders.
As for the process, you first need to create a shipping plan on the platform’s Manage Inventory page. You will be prompted to specify the products you will be sending to Amazon for the fulfilment, their quantity, the shipping method and logistics carrier details, and lastly, whether or not you want Amazon to prepare and label the products for you.
When Amazon receives your item, it will proceed with the processes like picking up your inventory, labelling, packing, and any other process that is specified in your shipping plan. The last process will be delivering your items to customers. Your overall fee will depend on factors like the size and quantity of your products and the separate methods used by Amazon to fulfil your orders. You can use Amazon’s FBA Revenue Calculator to estimate the cost of your FBA fees.
If you are a seller with your own inventory, you can also use Amazon’s fulfilment centres as storage for your inventory for a fee. Currently, Amazon has 110 active fulfilment centres in the US alone and 185 total centres around the globe.
Moreover, Amazon recently launched its FBA New Selection Program which aims to make product launches cost-effective and easier for professional sellers new-to- FBA ASINs.
ASINs stand for Amazon Standard Identification Number. Through this program, new products are being launched by the brands on the platform, while new-to-FBA sellers get to try FBA without first worrying about the costs.
You should also read this blog titled Your FBA Shipment Checklist: What Is It About and How to Use It? for more Amazon FBA tips!
- What is Dropshipping?
Dropshipping is a business model by which a retail e-commerce seller sells items in an online platform without keeping an inventory. Instead, when a customer orders from the seller’s store, the seller buys the item from a third-party vendor or supplier who then ships the products straight to the customers.
How the dropshipping business model works:
In a dropshipping business model, the items do not pass through the seller when a customer orders.
The order fulfilment is done by the seller’s supplier, which is the third-party vendor or seller who actually has the stock or inventory of the products.
In 2018, the dropshipping market size was recorded to be at $111.28 billion. It was forecasted that it would have a computed market growth rate (CAGR) of around 29% in the span of 2020 to 2025.
The continuous popularity of online shopping makes beginner entrepreneurs choose to enter the e-commerce business instead of setting up physical stores. Dropshipping is one of the popular e-commerce business models business-minded people enter, and you can find drop shippers in almost any online marketplace.
Some sellers choose to dropship over any business model because of its low start-up cost and reduced responsibility in terms of order fulfilment.
- What is Affiliate Marketing?
Affiliate marketing is similar to dropshipping in terms of inventory. This business model and marketing strategy also do not require sellers to have a physical inventory or stocks of products. Rather, a company has the inventory of its own products and partners with affiliates who publish and promote its products to the target audience. This way, the company boosts its sales, and the affiliate earns through commission.
How it works:
In affiliate marketing, affiliates are people or other businesses who are officially attached or connected to a company with inventory to market and promote its products. The process of an affiliate earning an incentive for increasing the web traffic, conversion rate, and sales of a company it is in connection with is called affiliate marketing.
Affiliates promote or refer to the company’s products through banner ads, text ads, or links in blogs, websites, and social media networks. They provide a unique link that leads to the product. When a customer uses that link to purchase the product, affiliates receive their commission fee from the company.
Affiliates’ commission rates vary, depending on their agreement with the company.
They can earn at least 5% for every sale of the product they refer to up to 50% at a maximum. They can also be paid per click (PPC) or paid per lead generation (PPL).
On a related note, affiliate marketing is a sustainable advertising strategy that increases customer engagement, visibility, and sales of a product.
Moreover, it drove publishers and advertisers to find ways on how to leverage content marketing strategies.
In a 2020 Forrester study on affiliate marketing commissioned by Rakuten, they found out that 81% of advertisers and 84 % of publishers turned to affiliate marketing to seek differentiated contents that will drive their site’s revenue. In addition, Statista anticipates the US marketing affiliate spend to reach $8.2 billion in 2022, from a previously recorded spend of $5.4 billion in 2017.
Like dropshipping, affiliate marketing provides an easy, low to no-cost way to earn online. Furthermore, 15-30% of a company’s sales come from referral or affiliate marketing programs and plans. That’s why even Amazon has its own affiliate program called Amazon Associates, which it started in 1998.
And yes, this answers your question of combining Amazon FBA and affiliate marketing- they can be combined. Likewise, you can also combine dropshipping and affiliate marketing together for a higher passive income.
Pros & Cons Amazon FBA, Dropshipping, and Affiliate Marketing
What to choose for my business- Amazon FBA, Dropshipping, or Affiliate Marketing?
If you are looking for low-risk, low-capital, and low cost start-up business, then dropshipping and affiliate marketing is a better course for you. If you are planning to have an inventory in your business, then you can enter the Amazon FBA program.
Can the three business models- Amazon FBA, Dropshipping, and Affiliate Marketing be combined in a single business?
Yes, definitely! You can use affiliate marketing in your dropshipping business, or you can dropship from your supplier to Amazon FBA. You can also combine affiliate marketing with Amazon FBA to strengthen your marketing strategies.
How do affiliates and companies know that a customer purchase through the affiliates link?
An affiliate is given a unique ID which is stored in a cookie within the customer’s browser. The affiliate’s ID is tracked across all pages of the site because it is stored in a cookie. There are software tools like Everflow.io and LinkTrust, which are used to track affiliate ID.
The conclusion of what is best among the rest in Amazon FBA, Dropshipping, and affiliate marketing is ironically inconclusive. Each has its own benefits and downsides. When it comes to cost, affiliate marketing ranks highest among the three.
Then, dropshipping follows and Amazon FBA places last. But the cost isn’t the only thing that will guarantee the success of your e-commerce business. At the end of the day, it will all boil down to the business and marketing strategies your will use for your business.