Thursday, July 27, 2006

Dropshipping: A Step Beyond Affiliate Marketing (Article)

Affiliate marketing is a great way for some of us to make money online. Dropshipping may be a better solution for others. It may be a bit more daily work, but the rewards can be just as good!

As I continue to grow as an affiliate marketer, I strive to learn new and more diverse opportunities to make money online. Remember that the one of the most common suggestions of online entrepreneurs is to create multiple streams of incomes from many different campaign and programs. Further, understanding the multiple types of online money making programs helps you find the “niche” that will ultimately make you the most money.

For some, affiliate marketing may seem a bit intimidating: It is driven a lot by reviews, reports, advertising, promotion and sales. In affiliate marketing, you, the online entrepreneur, are just a middle man: You direct people to your site (or landing page) and it is your job to convince them to buy from another website. If you achieve your goals, you will receive a portion of the sales, lead or click that came from your site. There are a few downfalls to this:

1) You have no control over the selling site.

2) You must rely on their ad-copy as much as your ad-copy to ultimately make the sale

3) You lose sales tracking ability the minute the buyer leaves your site. Tracking sales to ad campaigns is very difficult.

4) You are competing against other affiliate marketers.

5) Relatively speaking, compensation can be low and out of your control.

For example, I currently promote a product that the website founder likes to change the price and the commission of the product very regularly. Some weeks I make close to $30 per sale, other weeks, less than $8 per sale (for the SAME product!). As an affiliate marketer, what I am to do? I either must grin and bear it or drop them as an affiliate.

So what other options are there to help reduce these issues? The closest program to affiliate marketing that reduces or eliminates the affiliate marketing issues is dropshipping. With dropshipping, you are actually selling the product; you are no longer the middle man. This is similar to buying wholesale and marking up the price for each product, but with a little twist! With dropshipping, you only purchase the product AFTER someone purchases the product from you. In addition, the product is never in your hands; it is shipped directly to the end customer.

For example, let’s say you want to sell ipods. First, you would find a dropshipper that sells the product (at a below market value to you). Second, you create a website, an eBay auction, Amazon Shop, etc. When someone makes a purchase, you return to the dropshipping site, place the order for them, include their address information and the sale is completed. Your earning is the price difference between the final customer cost and the wholesale cost + shipping cost + dropshipping fee. Let’s say that your wholesale cost of an ipod is $150 and you sell it for $200. The dropshipper charges you $18 for shipping and $2 for the dropship fee. Your profit on the sales is then $30.

What are the advantages over affiliate marketing?

1) Control of the final landing page and how the product is presented.

2) Less competition

3) Ability to set your own price and earnings

4) Ability to track your sales to completion

5) Less time required (in some cases) creating an avenue to sell the products (through eBay and Amazon, for example)

6) Potential higher earnings per sale (relative to affiliate marketing)

What are the disadvantages over affiliate marketing?

1) You are now required the action of purchasing each product after a sale

2) Setting up payment methods (though companies like Paypal make this pretty easy…they just take a percentage of the sales)

3) Direct contact with the customer

4) Finding the right product at the right price with the right dropshipper can take some time and negotiating.

5) Higher risk of fraud and poor dropshipping companies.

As similar as the two programs are, they are quite different in what they have to offer you. Affiliate marketing usually requires a bit more front-end work, but once the commissions start coming, the maintenance is fairly minimal. As for dropshipping, you can get set-up and going relatively quickly. With superstores like eBay and Amazon, dropshipping requires no custom landing pages and minimal promotion. This, however, requires a little more work throughout the existence of the campaign. The per-sale-action ultimately requires more work in the long run. Both work very well, but it is up to you to choose which one works best…maybe it is both!

- Matthew Bredel

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