Drop Shipping vs Network MarketingLast Updated:
If you are looking for potential sources of income which involve selling items, then you may want to take a look at drop shipping and network marketing. While the two concepts have wildly different processes, they both involve selling items and using communication skills to gather more customers and ultimately achieve better profit. If you’re great at doing both, then you may want to read on — we compare the two so you can decide which way to go.
Definition and Business Process
Simply put, drop shipping is partnering with a supplier (called a drop shipper) who is willing to fulfill the inventory and delivery responsibilities on your behalf. While your online store is under your management and control, the items you sell are in the purview of your drop shipper. You simply pass any orders you receive to them, and they will take care of the rest — until the package arrives at the customers’ doorstep.
Meanwhile, network marketing involves authorized distributors and relies on their connections and marketing skills to sell the products. This usually involves a membership fee and an upfront purchase of the products to be sold. Distributors can then sell these products to their family, friends, and other contacts on their own. There are also some companies with programs that ask distributors to recruit other individuals to resell the products as distributors as well, creating a whole network of uplines and downlines.
In drop shipping, initial and maintenance costs are at a minimum — you only have to shoulder your online store fees and any membership fees from the drop shipper, if any. Website fees usually range from $10 to $20, while drop shipping subscription fees can range from $25 to $50. As for the items, you don’t have to buy them upfront — you only have to pay for them when you receive an order from a customer, and since they already paid you for it, you already have the funds to pay the drop shipper.
Aside from membership fees, which are usually hundreds of dollars’ worth, companies with network marketing require you to buy a set of products upfront, usually as a “starter kit” for you to sell. This can range from several products to a whole package of different product variety, depending on your choice. The advantage here is that you will be given a considerate discount, and you can sell the products at a lower price point.
In this regard, the two are actually similar. When you partner with a drop shipper, you have to base your prices from what they give you. You can’t set them too low as your profit margins will suffer; you also can’t set them too high as customers will opt to look for cheaper deals elsewhere.
The same goes for network marketing: the companies give you a considerable discount when you buy products from them so you can set the price competitively. You do have the freedom to set the prices by yourself, but you still have to use their suggested prices as your basis –go too high or too low, and you’ll lose customers, and a decent profit at that.
Drop shipping can be a secondary source of income for those with a full time job since it doesn’t require much of your time and effort. Once you have chosen the products to offer and your online shop is up and running, all you have to do is forward the orders to the drop shipper, and they’ll take care of the rest. You can focus on your job, or perhaps spend some time formulating marketing materials to attract more visitors and potential customers to your shop.
While the same goes for network marketing, you would have to exert more effort when selling. Unlike in drop shipping where your online store is accessible to anyone 24/7, you will have to engage in conversations in person and try to convince your family and friends to buy the product. As for selling products to your co-workers, you may have to do this when you are off duty, since some companies frown upon, or even outright prohibit, this during work hours. If you don’t have a full-time job, you can probably dedicate more focus on selling the items, allowing you to gain more sales.
Potential for Additional Income
In drop shipping, the process is pretty much confined to selling products. You can offer a variety of them or focus on trending niches, or add seasonal products when they are in demand. There is almost no room to gain additional income, as you are basically running a store where customers order items, day in and day out.
As for network marketing, there are companies that give their distributors the opportunity to recruit members and earn a bonus for every signed individual. You can create a whole network of downlines that help you generate even more income. Depending on the company’s program, you can also get a portion of your downline’s sales, while you offer a discount to them whenever they replenish their stocks from you, making it a win-win situation.
You may want to be weary of companies that give a lot of emphasis on recruiting members and give bigger awards for recruitment rather than product sales, though. These may be illegal pyramid schemes. Just keep in mind, if a company earns mostly because of recruitment, then they are most likely a pyramid scheme and you would want to steer away from them.
The Bottom Line
To summarize, drop shipping is great if you have little time to spare for your business venture, since all you have to do is set up a website, partner with a drop shipper, and forward all orders you receive over to them for processing and delivery. The cost, time, and effort needed to start is minimal, and you probably won’t even reach $100 for the initial cost. You can also divert more focus on advertising your shop since it isn’t necessary to be hands-on with the transaction processes.
On the other hand, network marketing heavily relies on your ability to convince your personal contacts to buy the products from you, as opposed to buying from the grocery store or online. While the initial cost can reach hundreds of dollars, since you have to pay for the membership fee and the products you want to sell upfront, there are no other maintenance fees that you need to keep in mind. If you have communication and people skills, and enjoy engaging people into a conversation, then this one might be for you.