For a buyer, the difference between an affiliate store, dropshipping service and an online store may not be obvious, but for an Internet entrepreneur (in our case, publisher), these are three fundamentally different business models. Let us figure out what pros and cons each model has.
The idea to open an online store occurs to many beginner (and not only) entrepreneurs. But few of them know that one can get by with a single affiliate showcase, without a warehouse, without purchasing goods, without delivery arrangements. In this article, we will consider the online store in its classic form, which most users are used to, that is, a full-fledged website on which you can choose your favorite product. This means that we will not consider stores in social networks (for example, accounts on Instagram or Facebook). Instead, we will analyze:
- Operation principles of an online store, a dropshipping service and an affiliate store
- Where the goods come from
- Where the goods are stored
- How the product info is posted on the website
- How the price is established
- Brand development
- Acceptance of payments from customers
- Delivery
- Returns
- Customer support
- List of expenses
Online store, affiliate store, dropshipping service:
operation principles
The classic online store works as follows: the goods are purchased, a warehouse is rented for storage, from which the goods will be dispatched to customers. The products are photographed (or the pictures of the goods are taken from open sources with the permission of the owner of rights), their images are published on the website along with a description. Categories, shopping cart, payment proceedings, delivery are adjusted. The store marks up the purchased products, receives the money from the customers and invests it into further purchases and store promotion. Depending on the turnover, the store may take the form of both an individual entrepreneur and a legal entity.
Dropshipping works a little differently: there are suppliers prepared to provide goods and help with delivery, but they either do not want to engage in sales, or understand that they cannot reach a wide audience without partners. Suppliers have a warehouse and a delivery service, all they need are orders that they are ready to deliver to customers. They make the databases of goods (photos, specifications, description) and give them to a dropshipper. The dropshippers select the goods that they are ready to sell, and upload them to their website from the database file provided by the supplier. The database file contains prices for the dropshipper — the cost that they will need to pay to the supplier. The dropshippers add their own mark-up and put the product with that new price on his website. The customer places an order on the website of the dropshipper, the dropshipper forwards that order to the supplier, who, in turn, delivers it to the customer. The supplier takes the “wholesale” part of the cost, the dropshipper takes the margin he included into the price announced on the website. Dropshippers must pay income tax so depending on the turnover, they may have the status of individual entrepreneur or legal entity.
Affiliate store is a website to which product feeds (photo, description, prices, sizes, specifications) are uploaded, but the user cannot add the goods to cart directly on the website of the affiliate store: in order to make the purchase the customer needs to go to the seller’s website to the required product page (from which its photo and description was “borrowed”) and make the purchase there. Roughly speaking, look it up in the affiliate store, but check it out in the online store. This scheme, unlike the others, works in accordance with CPA: the owner of the affiliate showcase receives a reward for each purchase made depending on the conditions of the affiliate program (a fixed amount for the order or a percentage of the purchase). The online store of advertiser itself handles payment and delivery.
Now let’s take a look at each step individually.
Where the goods come from
| Online store | Dropshipping service | Affiliate store |
|---|---|---|
| The goods are purchased from one or more suppliers using the store owner’s own funds / produced independently. | The goods are collected in the form of product feeds from one or several suppliers, or via a special application (for example, Oberlo or Dropified). The most popular dropshipper is Aliexpress WW, with which one can work via Admitad. | The goods are collected in the form of product feeds from one or several sellers (adverisers). In Admitad the offers working with affiliate stores, include a «Products» tool (the ability to upload product feeds). |
| Pros: The store owner has no limits in the choice of supplier. | Pros: There is no need to buy the goods from the supplier and pay him, until the customer makes the purchase. | Pros: There is no need to purchase the goods from the seller and pay him. |
| Cons: High entry costs: the store owner needs to purchase the goods on his own in advance. | Cons: The dropshipper can only select the products for his site from those who work according to this scheme. | Cons: The affiliate store owner can only choose the products for the showcase from those advertisers, who а) provide product feeds, b) are prepared to work with the showcase (moderation). |
Where the goods are stored
| Online store | Dropshipping service | Affiliate store |
|---|---|---|
| At the owner’s warehouse. | At the supplier’s warehouse. | At the warehouse of the advertiser (online-store). |
| Pros: Immediate update of stock balance, the owner can personally see and touch the products he sells. | Pros: There is no need to spend money on the warehouse and the salary for the warehouse keeper, no dealing with packaging issues. | Pros: There is no need to spend money on the warehouse and the salary for the warehouse keeper, no dealing with packaging issues. |
| Cons: Expenses on warehouse rent and its employees. | Cons: There is no way to find out quickly how many items there are in stock. | Cons: There is no way to find out quickly how many items there are in stock. |
How the product info is posted on the website
| Online store | Dropshipping service | Affiliate store |
|---|---|---|
| The seller must prepare the description of the goods and photographs in order to place them on the product card. | All pictures and descriptions are already available, they are used with the consent of the supplier and are uploaded to the website from an XML or CSV file, or through an application (for example, Oberlo or Dropified). | All pictures and descriptions are already available, they are used with the consent of the advertiser and are uploaded to the website from one file. |
| Pros: Original texts and images increase the conversion to purchases. | Pros: The necessary base, which is quite sufficient, is already in the file for uploading — it is enough to create a store. | Pros: The necessary base, which is quite sufficient, is already in the file for uploading — it is enough to create a showcase. |
| Cons: The owner cannot «borrow» somebody else’s descriptions and photographs for free, and making his own could be costly. | Cons: In order to stand out among competitors (similar dropshippers) you still have to write your own descriptions; also descriptions from the supplier may not be of high quality. | Cons: If you are working with several advertisers, their product feeds will vary in structure, and you will have to puzzle over how to upload everything automatically and on time. |
How the price is established
| Online store | Dropshipping service | Affiliate store |
|---|---|---|
| The owner of the store personally decides on the prices of his goods based on their cost of manufacture/purchases and his expenses. | You mark up the “wholesale” cost that the supplier gives you. The size of the mark up is up to you. | The price is set by the advertiser (seller), to whose website you are redirecting the customer. |
| Pros: You can inflate prices, transfer goods to the luxury segment, compete on the prices — the choice is yours. | Pros: You can control the price of the goods, albeit within the limits set by the supplier: organize sales, provide discounts. | Pros: The advertiser himself monitors the competition and knows what the “market” prices should be — you can rely on him in that respect. |
| Cons: At low turnover margins may become very high due to costs. | Cons: You will always have the “bottom limit” of the cost that you must give to the supplier. Plus, if the supplier is an intermediary and not a manufacturer, you will also pay his mark-up. | Cons: There is no way to receive the information about the price changes quickly nor to influence it. |
Brand development
| Online store | Dropshipping service | Affiliate store |
|---|---|---|
| You create your brand from square one. | If the supplier’s brand is known, you can refer to it with the supplier’s consent. Otherwise, you will also have to “create a name for yourself” from scratch. Large foreign suppliers usually do not allow their brand to be used, but small local manufacturers often do not mind. | You are using the advertiser’s brand, aggregating the advertiser’s offers on your website. |
| Pros: Your brand — your rules, you can make it any way you want. | Pros: You are free in the way you build the image of your store, and the brand of the supplier (manufacturer) can greatly help you. | Pros: Advertisers’ famous brands promote customers’ trust for your affiliate store, which ensures high level of conversion. |
| Cons: Large investment into promotion to increase brand awareness. | Cons: In the absence of a well-known brand of the supplier (or in case of the supplier’s rejection of the use of the brand), you will have to build the brand of your store without any help, which is quite expensive. | Cons: You expose the advertiser’s brand to risk, so you cannot use it freely in advertising campaigns (only by agreement with the advertiser). |
Acceptance of payments from customers
| Online store | Dropshipping service | Affiliate store |
|---|---|---|
| Money from the buyer comes directly to your account (bank transfer, credit, payment upon receipt), then you yourself decide how to spend these funds: buy a new batch of goods, pay salaries to employees, invest in advertising. | You receive payments and transfer the amount of the purchase value to t he supplier and leave the margin for yourself . Then you spend the earned margin on the further development of the store. | All payments are accepted by the advertiser’s online store. After the customer makes the payment, you wait until the advertiser confirms the fact of the purchase, and after that you get a percentage of the total cart amount of the buyer and withdraw the income from the affiliate network in which you operate. |
| Pros: You have more operating assets — you have the freedom to decide how to manage them. Money comes to your account instantly (online payment) or immediately upon receipt of the goods — you can put it into circulation faster. | Pros: You do not need to spend money on the purchase of goods — the consumer buys it, you receive your profit almost immediately. | Pros: There is no need to purchase the goods, to establish a form of payment — all settlements with the buyer are handled by the advertiser. |
| Cons: Expenses on the purchase of goods, on payment processing (cash register, fiscal drive). | Cons: small turnover means low development speed of the store. The sum of money at your disposal is not income, but profit almost immediately. At first, you will have to invest your own funds in order to maintain stable development of the project. | Cons: The period of confirmation of the purchase may extend to more than a month: during this period, you need to find other sources of operating capital to promote the affiliate showcase. |
Delivery
| Online store | Dropshipping service | Affiliate store |
|---|---|---|
| You yourself look for contractors; the shipping costs can be paid by both you and the buyer. | Usually, several reliable delivery options are provided by the supplier, the dropshipper can choose one of them. In this case, you decide who will pay for the delivery — you yourself (including it in the cost) or the buyer. | The advertiser is fully responsible for delivery, its conditions and cost. |
| Pros: You can design packaging options, add small bonuses and gifts in packages, choose any delivery options. You also decide which regions your store will work with. All you need is to find the qualified delivery service. | Pros: All processes have already been established (who picks up the orders from which warehouse and how delivers them) — you just have to choose the option that suits your region. | Pros: No delivery issues nor expenses — all logistics issues are resolved without you. |
| Cons: You will have to build relationships with delivery services and solve all the problems associated with them on your own. You may have to go through several options before finding the right one. | Cons: The question “Where is my order and when will it be delivered” will lie on your shoulders (it is a risk for the brand of your store, since the point of contact for the customer is you). You will not be able to influence user loyalty with packaging options and additional package supplements. If the supplier leaves his contacts in the package, the customer can start buying from him directly (check this point in advance). | Cons: There is no way to influence the quality, cost and time of delivery. |
Returns
| Online store | Dropshipping service | Affiliate store |
|---|---|---|
| You directly organize the return delivery of the returned goods to the warehouse and the refund of its value. You also decide whether the buyer should pay for the courier to come to him to pick up the order. | The customer requests a return, and you arrange it through the supplier who coordinates it with the delivery service. The refund issue is solved by means of mutual settlement with the supplier. | All the issues of returns are shouldered by the advertiser’s online store. |
| Pros: You can quickly resolve all logistics issues directly with the buyer and delivery service. | Pros: Interaction with the delivery service remains on the side of the supplier, you only deal with the client. | Pros: No worries regarding refunds and return of merchandise. |
| Cons: The time spent organizing the return of goods and refunds. | Cons: All processes depend on the supplier and the delivery service — if something goes wrong, the customer will ask you, and you will not be able to quickly resolve all issues directly. | Cons: There is no way to manage this process. Until the advertiser confirms the action, you do not know if the product has been returned (and whether you have received a reward). |
Customer support
| Online store | Dropshipping service | Affiliate store |
|---|---|---|
| You are engaged in customer support yourself: advise on the characteristics of the products, terms of payment and delivery. | You are engaged in customer support yourself: advise on the characteristics of the products, terms of payment and delivery. | All customer consultation is handled by the advertiser’s store. |
| Pros: You know your product well, you can independently advise the customers, inform them about special offers, make additional sales in the consultation process. | Pros: You can independently advise the customers, inform them about special offers, make additional sales in the consultation process. | Pros: You do not incur the expenses on customer support and a call center. You have no liability to the customer. |
| Cons: Temporary support costs, costs related to hiring staff for support or a call center. You bear full responsibility to the customer for the goods he purchased. | Cons: Temporary support costs. You have no expertise on the product, as it is on the supplier’s side. Costs related to hiring staff for support or a call center. You bear liability to the customer for the goods he purchased. | Cons: You do not communicate with the customers, you cannot make additional sales, you do not receive feedback. |
List of expenses
| Online store | Dropshipping service | Affiliate store |
|---|---|---|
| — Website (platform + development + domain + hosting + design) — Purchase of products — Warehouse (storage + servicing) — Acceptance of payments — Website promotion — Customer support — Delivery (optional) | — Website (platform + development + domain + hosting + design) — Acceptance of payments — Website promotion — Customer support — Delivery (optional) | — Website (platform + development + domain + hosting + design) — Website promotion |
As we can see, in the case of the development of our own online store, we have more expenses, but also more opportunities for increasing loyalty, developing the brand, expanding the business. In turn, dropshipping removes the headache regarding the storage of goods and the search for a delivery service, and the showcase allows you to minimize maintenance costs (including communication with customers) and only deal with website promotion. The choice is yours!