March 9, 2011
The Small Internet Business Assistance Program was designed to help individuals start an internet business that works best with their interests and abilities. One common question is if it is more profitable to run an affiliate program or to run an ecommerce store. This is a difficult question to answer because there are so many variables involved. The short answer is: it depends.
This article will explain the key places where expenses arise and at what point one becomes more profitable than another.
An affiliate program is a great way to start on the internet because it is a good way to start making money without having to dedicate a significant amount of time and money into developing your website. As an affiliate, you make money when you refer a customer to a site and they ultimately buy something from that site. The site then passes back to you a percentage of the sale as a referral fee. When running an affiliate program, all you have to focus on is content for your site and for search engine optimization and building promotional links to the sites you are working with. The work is very basic and straightforward and works very well if you do not have a lot of time or inconsistent time to dedicate to your internet store. The basic overhead costs associated with this type of business include your business registrations and your web hosting. Of course you can always spend more than that, but those are the basics. The disadvantage is the commission given can be quite small depending on the company you are promoting. For example, Amazon affiliates start out earning only 4% of the purchase price with the ability to get up to 6% if they get more sales, but this is still a pretty small commission unless you are getting a great deal of traffic to your site.
The advantage of the ecommerce store over affiliate marketing is that you have potentially more profit per sale, but this is entirely based on how much overhead you are spending. If you stuck with do-it-yourself search engine optimization (not promoting your products through adwords or other paid services) then your basic operating costs would include your business registrations, web hosting, e-commerce software package, SSL certificate, and merchant account. In addition, there would be the cost of inventory (if you are not drop shipping), the cost of customer service and the associated labor.
While there are considerably more costs associated with an ecommerce store, an e-commerce store that carries it’s own inventory can expect to keep 50% of the purchase price as profit and overhead (non-inventory expenses), an e-commerce store that drop ships inventory can expect to keep 35 to 40% of the purchase price as profit and overhead, while an affiliate can expect to receive 4 to 15% as profit. Thus if your e-commerce store overhead is more than 20 to 30% of your costs, then it is probably cheaper to be an affiliate.
When starting out, your store will always have more overhead than income (unless you work with a partner such as the internet business assistance program). It is the nature of business. It takes time and money to get started. If you don’t have the monthly personal cash flow to cover overhead costs from your internet store, or don’t have a partner like the internet business assistance program, then it is probably best to start your internet enterprise using affiliate marketing.
I generally recommend to the people that I work with who can dedicate a consistent amount of time each week to their business to seek out a drop ship supplier and start with an e-commerce store but if you cannot dedicate a regular amount of time each week so that customer service cannot be at its peak, then it is probably better to start with an affiliate program and when your site is getting enough traffic to justify the costs, then convert over to an ecommerce store.
Distributed by the Internet Business Assistance program, where you can start an Internet Home Business with the help of an experienced internet business owner. Our goal it to help you build a successful online business without your business ever losing money. Learn more at www.yourbetterbuy.com