Affiliate marketing vs E-commerce – what should I focus on and why?

Many entrepreneurs look to the internet as a way to create a company without the expensive start-up costs. Internet businesses avoid the heavy associated costs of office space, furnishings, work materials, and additional employees while offering the added benefit of working from home or even while traveling. Fortunately, consumer trends have moved in the same direction. More people go online to find needed products or services and never consider visiting a physical store for their needs. While this online consumer trend increases worldwide, creating an online business may be the most effective strategy, rather than simply the cheapest. While starting an online business has numerous benefits and conveniences, creating a strategic business plan can be tricky. The first decision you’ll have to make is whether to adopt an Affiliate Marketing or an E-commerce business model.

Affiliate marketing is a model that promotes other companies’ products or services. Your website would attract a certain niche consumer and refer that consumer to the product of a relevant company. In turn, you would earn a pre-determined commission. E-commerce is a business model which creates a website to sell your own product or service, much like a physical retail store. This can be a product you’ve created yourself or a reselling opportunity. Regardless, the prices of your product are totally in your hands and you collect any profit. In the end, deciding between these two business models is a personal preference choice, but understanding the benefits and disadvantages of each model will help you make a decision that’s right for you.

Affiliate Marketing: Pros and Cons

Affiliate marketing comes with obvious advantages as you do not need to develop a product line or invest in any reselling opportunity. Your site is created offering links to external products or services within your niche, and if these products are purchased, you receive your commission. At this point, your job is over. You never have to deal with consumer payment collection, packing and shipping, customer service, or even sales taxes, making this an easy and low-maintenance business. In fact, many sites can be created to be practically self-run; once the initial page is created, the only further work needing to be done is site maintenance and source relations. Having no inventory also means no warehouse rentals and the complete freedom to work from where you want, when you want. This option is commonly used for those wishing to maintain a business while traveling, as the only materials you really need are a laptop and internet access.

As easy as this sounds, affiliate marketing has its share of frustrations and barriers. First off, the vast majority of affiliate markets earn their traffic entirely from search engine results. This means that your website needs to have the most appropriate keywords and the most developed SEO (Search Engine Optimization) in order to attract any customers. Keeping your keywords up to date is the key to your success. While this is in no way a deal breaker, it does mean that you may have to work for a very long time before your business attracts enough traffic to earn any significant amounts of money.  As a new website will never be at the very top of a search engine results compilation, be prepared to spend a lot of time and dedication to your site. An affiliate market is absolutely not a quick money scheme.

Another frustration with affiliate marketing is that you may never build your own stable customer base. Once you’ve successfully introduced a visitor to a product and have collected your commission, that visitor will no longer need your services. From here on, that visitor will be able to go directly to the product source website for any repeat purchases. That same visitor is also more likely to recommend the source website to a friend rather than your affiliate website. Often, the source website will collect the consumer’s contact information for direct marketing, so you may be purposely kept out of the loop. With no concrete way to engage a customer base, your company’s success will rely heavily on your search engine optimization.

Placing the burden of product development and customer service on the source company is a significant advantage of affiliate marketing, but it does mean that you rely on the source’s stability. The source company is free to run itself however it pleases, and some of these decisions may affect your ability to promote its products and receive your commission. The source company, at any time, can change prices, adjust commission rates, go out of business, or even change the product line. A product may begin to deteriorate in quality, something you have no power to change. Many source companies seek affiliate marketers to help their new or floundering business get off the ground, but once they find success, they may cut the contract. This means that often you may be working with an immature or poorly developed company and will need to make sure that any shortcomings from your source will not affect your site’s ability to promote.

E-commerce: Pros and Cons

E-commerce is a very clear cut idea. You develop a product or service, or even buy into a product for resale, then sell it in your online store rather than a physical one. While the startup costs are slightly more expensive for this business model, it isn’t enough to be a deterrent. With this business model, you can choose to host your own webpage, sign up for a hosted shopping cart such as Shopify or Big Commerce, or even sell on sites such as Amazon for no more than the cost of your inventory. There are many different ways to set up an e-commerce business, but one fact remains the same: you are selling products that you own. Selling your own product means that you control every aspect of the business and never need to rely on a source for your success. Without a doubt, you will make more money with e-commerce than with affiliate marketing. You will be able to control your own profit per sale and will rely on your own skills as an entrepreneur for success.

While e-commerce is a go-to business model for those who already have a product or service developed, it can be used by anyone. Many people chose to buy a niche product in large quantities and resell them at a marked-up price or even use e-commerce to sell educational courses. Regardless of what you’re selling, the product is yours and you control the sale from start to finish. This means not only attracting traffic and making the sale, but executing the payment method, shipping logistics, and any customer service needs. This business will be very hands-on and you will need to put significant effort into establishing a brand and standing behind the quality of your product. If you pull this off successfully, however, there are some huge advantages to adopting this business model.

Higher profits per sale are only the start to the list of advantages for e-commerce businesses. If you successfully make a sale and stand behind your product, you can start to build your customer base. Your customers will keep coming back for repeat purchases and you are free to handle your direct marketing however you like. As you can control you own business policies as well as products, a well-built e-commerce store can be an extremely sustainable business. Whereas affiliate marketing can have some strict restrictions in advertising, if you own an online e-commerce store, you can buy traffic through PPC services, such as Facebook. This means you can attract customers by more than just search engine results, leading to a quicker profit. Running an e-commerce business is time consuming and requires constant dedication, but your hard work will pay off with higher payouts, increased sustainability, a solid customer base, and quicker profit times.

Making Your Decision

In the end, choosing between an affiliate marketing and e-commerce business strategy is entirely personal. While e-commerce can make more money in less time, it is also very hands-on and comes with a greater risk, as you need to invest in your own inventory. Affiliate marketing comes with significantly less risk and less work, but your success can be very dependent upon your source companies and attracting site traffic can be a frustrating process. Making this decision, you need to consider your lifestyle, how much time and energy you want to put into your business, and what your priorities as a business owner are. Done well, both business strategies can be extremely successful and sustainable.