Retailing online has seen huge growth in the affiliate sales sector due to the trackable, data-driven nature of online sales. For many popular products there are hundreds of websites and apps that provide product reviews, that feature a link to a retail website. The model is that if a visitor to the review website buys from the retailer, the owner of the review website earns a commission fee on the sale.
While there are always some ethical concerns that consumers might not be clear about, affiliate programs often encourage transparency in their policies.
A common model for aspiring retailers to follow is:
- Launch an affiliate website and earn commissions on sales
- Change to a drop-shipping model and earn a higher profit margin than the previous commission percentage
- Buy stock of the products you focus on and sell them directly
Looking at this from a high-level view, it’s about risk. There’s no large outlay required for being an affiliate, as you don’t have to order stock. You can launch quickly and without a huge marketing push, grow slowly and profitably. Eventually, the popularity of your service (as a product supplier may see it) will give you clout to negotiate with companies who will ship products for you for a fixed amount. Following this, you may have the necessary financials to order and manage stock to ship yourself (and employ staff to do this).
The main point here is that the affiliate-to-drop-shipper-to-retailer is a model built to scale, purely and simply.
Depending on your point of view, the products you sell, and the market you enter, will determine your success. That’s not necessarily true – if you’re looking to sell products in high volume, then you should be building to scale. If you want to sell lower volume, higher value goods then scale, at least in ecommerce terms, might not be so important.
If you’re considering following the affiliate-to-retailer model, a lot of product research would come from the programs you’re involved in. If “Product X” is very popular, then you may be tempted to sell it. If “Niche Y” features many related products whose combined popularity is high it will be an attractive market to enter.
Thinking about scale, your profit margins will largely be determined by your supplier prices – generally there will be price-breaks depending on the amount you order.
Scaling Warehousing And Fulfillment
Fulfillment and storage are a cost. You have to ship items, and you have to store them to start with. Unless you’re living in a space with a lot of room (and a very understanding family), you’ll need some kind of warehousing facility.
A scalable way to tackle this is to use self-storage companies. Self Storage is flexible – you don’t have to buy into a never-ending contract for a huge unit, and you can increase or decrease size as you go. It’s important to think about the type of storage you need – My Storage Pod has an infographic on indoor self storage vs container storage that shows some important things to take into consideration.
Of course, holding stock means spending time booking it and fulfilling it yourself. Using a fulfillment house is another cost, but usually a fixed cost that you can build into your margins, giving you free time while also ensuring a professional service for the most important people in your business – your customers.
Marketplaces Vs. Owned Websites
It’s very tempting to think big and start big, but the key to starting a business you want to scale is to get the processes right and think about market penetration. One of the quickest routes to market is to use a platform that already has a qualified customer base. Online, that can mean becoming a seller on Amazon, Ebay, or (depending on the products ) Etsy. All of these websites have huge numbers of customers looking for all types of products.
Depending on your model and the attributes of the products you wish to sell, these places might be the fastest way to go “from zero to sales.”
The other option, and one that many entrepreneurs looking to sell online take, is to create your own ecommerce store. That’s fine in principle, but it’s never as simple as “build it and they will come” – it’s truer to say “market it correctly” and they will come. These marketplaces have already done the marketing for you – you only have to list products and provide efficient service, whereas with a website you’re taking on a larger amount of work – although this may bring greater returns.
There are so many opportunities in online retailing, and many of them can be tackled with scale in mind.
Hopefully, you can learn from where others have failed – and succeeded – in order to succeed yourself.
This post was originally published at an earlier date.
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