Someone who is starting a new online business could decide to go down the traditional route and set up an ecommerce website, or they could set up an affiliate website.
In this article, we discuss the advantages and disadvantages of each, and how these robust online business models can be best leveraged.
Starting an online business can be an exciting endeavour for aspiring entrepreneurs. A successful online business can reduce some of the significant costs and financial risks associated with offline businesses and enable entrepreneurs to maintain consistent margins with lower overhead costs.
While there are different types of online business models, affiliate marketing and ecommerce are popular due to the high potential for conversions and monetisation. Affiliate marketing is one of the largest sources of online income, currently estimated at $12 billion and accounting for over 16% of all ecommerce orders in the USA and Canada.1
For entrepreneurs already running an online business or in the process of launching one, it’s important to consider which business model is best-suited to their needs.
The difference between an affiliate website and an ecommerce website
An ecommerce site is where someone sells their own products or services to consumers using an online shop, and they earn money through consumers purchasing those products.
An affiliate website shows products from several different brands. Instead of the visitor moving through the sales funnel and directly to the shopping cart as they would on an ecommerce site, the user selects the product they want and ends up on that brand’s website. In return for referring a customer who buys something from the brand’s website, the affiliate will earn a commission on every sale they make. All sales are tracked via affiliate links from one website to another.
Affiliate Marketing Versus Ecommerce Marketing
Although ecommerce and affiliate marketing seem very similar to the untrained eye, they are very different.
While ecommerce sites can recruit affiliates to promote their products for them, affiliate sites list other retailers’ products and redirect visitors to their sites using affiliate links.
A typical example of an ecommerce site is Book Depository. When customers visit their website, they move through the entire sales funnel on-site. Their customers browse on their website and complete their purchases on it. Additionally, they have access to their shopping cart in the right-hand corner of the screen.
Source: Book Depository
An affiliate site might look similar.
In the example below, the Myshopping affiliate website has different categories the customer can click on. However, instead of purchasing the products directly via an on-site shopping cart, customers are redirected to the advertiser’s website.
For online business owners considering dropshipping as an alternative to affiliate marketing, understand more about the differences between affiliate marketing and dropshipping with our guide.
Is Ecommerce or Affiliate Marketing better?
There are several pros and cons to both situations. Entrepreneurs looking to get started should consider the following:
- The amount of time and money they are prepared to put into an online store and/or affiliate marketing business
- Their competition and target audience
- Any skill gaps
Since starting an ecommerce business usually requires more risk and financial investment, entrepreneurs should think about how much time and money they are willing to invest. An affiliate website might be easier if you are planning on doing this as a side job, or after work. If you have more time on your hands, then maybe an ecommerce store would be a better option.
ecommerce businesses can take years to grow, and require a full-time commitment and long-term vision in order to achieve scalable growth. Unlike ecommerce, an affiliate marketing business does not require setting up payment processing and return/refund systems, providing customer support, and management of day-to-day operations. Operating as an affiliate might suit individuals who are interested in starting an online side business with low overhead costs.
Entrepreneurs should ensure, whichever route they choose, that they identify their competition, what they do well and what they need to improve. Depending on their skill gaps, they may need to spend more time educating themselves on marketing methods, such as paid search. The other option might be to spend money getting people with those skills to help.
Benefits of Starting an Affiliate Marketing website
1. An Affiliate Marketing Website Costs Less
Creating an affiliate website is considerably cheaper than setting up an ecommerce store. For both, there would be the cost of setting up a website. However, affiliates will not have to worry about customer support, payment processing, sales taxes, warehousing or dropshipping, and other time-consuming aspects of selling their own products.
With an affiliate website, there are no additional costs because affiliates are showcasing other brands’ products, without having to buy them, store them and ship them to customers.
2. Affiliates Do Not Have to Worry About Customer Service
With an affiliate website, affiliates are partnering with other brands, which means that they do not have to worry about offering customer support to their site visitors. However, affiliate marketers should still take care to partner with brands that they know have a good reputation.
3. Affiliates Can Earn Commission on Items Not Featured on their website
As affiliates earn commissions on the sale value of any referred user purchases, they also earn commissions on items sold that the referred user had not originally clicked on the affiliate website. This means affiliates have potential to earn commissions on items they have not promoted or seen.
Benefits of Starting an Ecommerce Business
1. Greater Margins on Products
As there are no rules on what margins ecommerce business owners can make on their products, they are free to set their own. Affiliate commission rates are usually a set percentage of each sale referred, limiting affiliates earnings to the commission rate.
2. More Control
Whether running a promotion for new visitors or minimising upfront costs with dropshipping, online entrepreneurs with their own ecommerce sites can decide themselves on how to run things.
Affiliates are limited to available promotions the brands they feature are running. Of course, affiliates can always ask the brand if they would be prepared to run a promotion with their affiliate website, but there is no guarantee this will happen.
Dropshipping is a retail fulfilment method that does not require a business to keep products in stock. When an ecommerce store sells a product using the dropshipping model, it purchases the item from a third party and has it shipped directly to the consumer. As a result, the ecommerce store does not have to handle the product directly.
Dropshipping can be advantageous for ecommerce entrepreneurs because it doesn’t demand as much overhead as a traditional retail model. Since sellers do not have to buy and stock inventory, they can focus on investing in other areas of the business.
Online Entrepreneurs Should Select the Option Which is Best Suited to their Situation
The type of website entrepreneurs should choose for their online business depends on what they want to get out of it.
Entrepreneurs who care about offering tailored customer support by being in control of it might prefer a traditional ecommerce site. Those who are interested in spending more time working on their website and marketing might prefer to start an affiliate marketing site.
Affiliate marketing comes with a significantly lower barrier to entry and minimal start-up costs. It also offers marketers the opportunity to test and learn by selling other brands’ products before taking the risk of selling their own.
It is important for business owners to consider all options and look at the amount of time and energy they are willing to invest in their online business to make it a success.