If you are thinking of starting an online business, then two options that you will have probably come across are Ecommerce and Affiliate Marketing but which one is the best business to start?
As someone who has done one (Ecommerce for 7 years) and is making money from the other (Affiliate Marketing since April 2020), if feel that I can provide a unique insight into both of these online businesses, so I will look at 5 main areas of comparison between these two businesses.
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Before I get into the comparison, I do just want to clarify a couple of things:
Also, I don’t personally classify Affiliate Marketing as a business model, instead I see it as a way to monetise content that you create, such as blog post or videos but for the purposes of this post, I will call blogging Affiliate Marketing.
1. Start Up Costs
A big thing when considering an online business is how much is it going to cost to get started?
Ecommerce £2,000 – £3,000+
An ecommerce business has quite high start up costs as there are quite a few things to budget for with some of the main ones being:
Without a website, you don’t really have an ecommerce business! The minimum costs you are going to incur for your website are your monthly subscription costs and for a new website, these average somewhere are the £30/m mark but it does depend on the platform that you choose.
You also want to budget for a minimum of 6 months worth of your subscription or ideally 12 months as you want to give your site a chance of success so for this you are looking at £180 – £360 budget for this.
Depending on your site, there may be some costs incurred when building your site as you may purchase a premium theme, pay to have your site built and designed for you or require special features that need additional apps.
You need something to sell and this may be one of your biggest initial outlays as depending on the industry you are in, you may have to place a minimum order and this can be in terms of value or number of units and when you are in the early stages, it can be useful to try a few different stock lines to try and find what works for your business.
It is also a good idea to keep some cash in reserve of your budget to buy stock so that you have money to either re-invest in lines that are proving popular or expand your selection with products that you think may work.
Yes, you can re-invest the profits from your sales but from my experience, this is often better re-invested into marketing.
Talking of Marketing, this is going to be another large expense when just getting started as to start getting sales, you really need to paying to put your products in front of your potential customers and this is usually going to come from one of the following:
And these all cost money and as with your website subscription, you want to budget for a few months of marketing as you may find that your first few campaigns aren’t all that successful and you need to tweak them in order to make them profitable.
It is also something that you will need to continually invest in on a regular basis in order to get sales.
Affiliate Marketing £100 – £500
Starting an Affiliate Marketing website is considerably cheaper than Ecommerce as it doesn’t require all that much to get started, in fact, all you need is to start a blog and the best option for this is a self-hosted WordPress site and the only cost incurred for that is hosting.
In the UK, you can get hosting that is more than suitable for a basic blog for around £5/m from hosting providers such as Krystal but you may opt for slightly better than standard hosting that will set you back around £10/m.
If you pay annually, you may be able to get this discounted by either a percentage or the equivalent of 1 or 2 months free.
It also isn’t a requirement to buy premium themes or plugins for your site as there are plenty of free options out there that will be more than good enough to get you started.
The only additional costs that you may incur are if you outsource the creation of the content for your site but really, the first 30-60 posts on your site should be created by you so that you learn how to create, format and hopefully rank good content before paying anyone else to do it.
2. How Long To Make Money
A pretty common question for people looking to start either of these businesses is how long until you start seeing some return on your investment.
When it comes to making money from Ecommerce, it all comes down to ONE thing and that is How Good Is Your Marketing!
It really is as simple as that, if you have a very good marketing strategy and have some successful ad or influencer campaigns, you could see sales coming in within a matter of days or weeks and there are plenty of people who have been able to achieve this.
Some knowledge and experience of running things like Facebook ads will play a big part in this, if you are just getting started then it may take some time as you will be learning how to run these campaigns correctly in order to not only get sales but also get a good ROI (return on investment).
It can take anything from 6 months+ to start seeing any kind of income from an Affiliate Marketing website as most people will be very much reliant on SEO and it can take months for search engines to index and start ranking your site, especially if it is a brand new website.
This is because you need to build up trust in the eyes of the search engines and prove that your site isn’t spam.
As a personal example, I started my first blog on the 5th December 2019 and earnt my first commission at the end of April 2020, which was paid out to me in the May, so basically 6 months to earn anything from Affiliate Marketing.
3. Day to Day Running
One thing that I very rarely see people talk about is what these businesses are actually like to run on a day to day basis (probably because most people comparing them have never ran both!), so I thought I would talk about what they are like to run.
If you like being busy, then ecommerce might be a good option for you as there is always something to do when running an ecommerce business and my day generally went something like:
And that was 5 days a week, with the weekend being used to catch up on any non urgent jobs that I hadn’t been able to find time to do during the week.
As you can see, it is a pretty full day and also while doing this, I was a part time student and tried to have a social life!
With ecommerce there is ALWAYS something to do it is a business that you can truly throw yourself into and hustle all the hours you can and is great for people who are driven by getting that next sale but on the flip side, I found it a very difficult business to take time away from.
For the first 4 years, I didn’t take a day off and was responding to emails on Christmas Day, New Years Day, my Birthday and even when out with friends. It was very hard to switch off from and you need to work on creating a healthy work/life balance.
Running an affiliate marketing blog is very different to running an ecommerce business as it is very much on you to stay motivated and disciplined when it comes to building out your site.
This is because there are none of the prompts to work like there is with ecommerce, you don’t have orders coming in or emails to respond to, so you have to proactively manage your workload and if you are great at procrastinating, then this might not be the business for you.
The day to day running of the business can vary but will usually include the following:
From my experience it is a more laid back business and you can set your own schedule but you still need to put in the work in order to be successful, however taking the odd few days off is much easier.
When you are thinking about starting an online business, one of the big questions is how much money can I make or how profitable is it going to be and I can only talk from my experience of running these two businesses and how they worked out financially for me.
Profit margins for ecommerce businesses vary from niche to niche and in the jewellery niche, margins can be quite tight and at the end of most months I would average a net profit margin of around 20%.
One of the main things with ecommerce is that there are lots of costs that are incurred when running the business, such as:
Every single one of these expenses takes a little or sometimes a large chunk of your profits. There is generally more admin to do with ecommerce due to the varying amount of costs involved with running the business day to day.
For me personally, affiliate marketing has been a much more profitable business with a monthly profit margin averaging more than 90%, this is because the business incurs very little in terms of costs and overheads and my only two outgoings a month are my Web Hosting and Canva subscription and both of these come to less than £25/m.
But when it comes to making money from affiliate marketing, commissions do vary from niche to niche and those from physical products usually max out at around 15% per item but digital products can be a lot higher and you may also get a recurring commission if it a subscription service.
As business owners and entrepreneurs, we often think big but how big can these two business models go?
If you want to build a billion pound company, then you can do with ecommerce, you just have to look at the revenues from some of the biggest ecommerce businesses in the world..
As you can see from the info found by GlobalData, these companies (unsurprisingly topped by Amazon) have revenues in the billions of dollars and even the UK’s very own ASOS reported revenues in 2020 of over £3.2 billion. While not in the billions yet, Gymshark also pulled in over £260 million between the 1st June 2019 and the 31st July 2020.
Ecommerce is an incredibly scalable and as you can see, you can grow it to generate revenues in the millions or even billions but you do need to understand that scaling an ecommerce business does mean you will incur a lot of costs, with two biggest being staff and premises.
You will also incur all of the costs that I mentioned above in the profitability section, just on a much larger scale but there may be some discounts available for things like shipping due to the large amount of orders you would be posting out.
It will also require a lot of work and investment on your part to grow the business where it is generating sales in the millions every year and you will probably need a good team around you in order to do that.
Affiliate marketing blogs are scalable businesses but won’t reach the levels of revenue that an ecommerce business could potentially get to and according to MoneyMint*, the blog with the largest revenue in 2020 was the huffpost (formerly huffingtonpost), which had a revenue of $250 million.
*I couldn’t find a specific list of affiliate marketing blogs, the best I could find was general blogs but many will be making some of their income from affiliate marketing.
Now this is nothing to be scoffed at and I certainly wouldn’t say no to The MoneySmith making that kind of revenue but it is some way off the billions of dollars that I was talking to above. But as you can see, the revenue drops quite considerably between positions 1 and 5:
- huffpost.com – $250 million
- timothysykes.com – $120 million
- engadget.com – $50 million
- perezhilton.com – $40 million
- theblondesalad.com $35 million
The biggest difference between Affiliate Marketing sites and Ecommerce ones is that it is definitely possible to build a million pound blog on your own as there are many individuals who run six figures a month blogs on their own.
Even if you do need to build a team, the costs will be significantly less than ecommerce as the team will probably be smaller and you won’t need a large warehouse, just a small office.
My Final Thoughts
A lot of people will still ask the question “but Paul, which is the best business to choose out of the two?”.
The thing is, I can’t answer that and neither can anyone else as neither business is better than the other (even though some people will claim that), this is because it depends on YOU and what YOU want from your business.
For me personally, the hustle and bustle of running an ecommerce business was great in my 20’s and I loved every minute of it, plus there is nothing quite like the feeling of getting sales!
But as I got into my 30’s, running a business that gives me more flexibility to set my own schedule was more appealing and I love doing it as there are other things I want to pursue other things around my business.
So neither is best, you just need to figure out what kind of business YOU want to create, no-one else can tell you and people like myself can only give our experience and opinion.