What's The Difference Between a Salesperson, Affiliate Marketer, and Drop Shipper?

What's The Difference Between a Salesperson, Affiliate Marketer, and Drop Shipper?

You may ask yourself, "what's the difference between a salesperson, an affiliate marketer, and a drop shipper? Aren't they all basically the same thing?" The reality is that a salesperson, an affiliate marketer, and a drop shipper operate in similar but different ways, and this impacts the way that they earn money, which affects how much money they can earn. There is no definitive answer as to which one "is better" or makes more money, as many variables are involved. One selling model may work better for one person, and another model may work better for someone else. Success can depend upon the types of products you are selling, your personal strengths, and the type of customers you are targeting.

Here we will compare and contrast the nature and earning potentials of:

  • Salesperson

    Two different compensation models are paid to most salespeople: base salary plus commission and straight commission. Salespeople can be employees, or they can work as independent contractors. A salesperson working for another company as an employee is typically paid a base salary to sell that business's products and earns additional sales commissions for their sales. This is the base salary plus commission model. This salesperson's salary and commission percentage can vary greatly depending on their industry, location, experience, and other factors, but the commission percentage of an entry-level person earning a base salary plus commission will be about 5%. This rate can increase with time and experience, reaching the higher end at around 30%.

    Alternatively, a salesperson compensated with the straight commission model could earn a much higher commission percentage, generally anywhere from 30-50%. However, these salespeople will not receive a base salary and could be solely dependent upon their commission and the volume of the sales they make. This type of salesperson can often operate as an independent contractor but may also be listed as an employee.

    Generally speaking, the bulk of the income of a typical salesperson who earns a base salary plus commission will come from their base salary. On the other hand, those earning straight commission will earn a much higher commission rate but no base salary. Additionally, those earning straight commission may be required to have higher levels of education, much more experience, and technical knowledge/skills. The sales they are involved in may be more difficult to close, time-consuming, and complex in nature.

    Salespeople compensated with a base salary plus commission can earn a stable and reliable income with additional income from their commissions and bonuses while potentially receiving company benefits packages. Those working for straight commission can be in a high-stakes scenario as their income will be based solely on the number of sales they make and their commission percentage, with the possibility of a high level of competition from within their own company. Furthermore, they may be expected by the company to convert a certain amount of sales. Due to these factors, the turnover rate for salespeople earning straight commission is high, and they make up a much smaller number than those in sales who earn a base salary plus commission. However, they can turn their large commission rates into a substantial income if they are good at selling.

    This is a basic breakdown of the two main types of compensation models for those who work in sales for a company, either as employees or independent contractors. However, other models exist, such as tiered commission, territory volume commission, etc. Salespeople can operate in many different ways. "Inside sales" is when a salesperson works at a distance, selling from an office or home over the phone or through email correspondence. "Outside sales" is when a salesperson visits clients in person to try and make sales. Outside sales can be made through priorly arranged client meetings, trade shows, or even door-to-door. Salespeople can utilize one or a combination of these methods to sell products. Salespeople don't usually house any inventory themselves as that aspect would be handled by the company they work for. Shipping and further correspondence with a customer may be addressed by another department of the company, although salespeople can also assist with these aspects of the business.

  • Affiliate Marketer

    Affiliate marketing is done online through various avenues such as social media, YouTube, affiliate websites, blogging, etc. Affiliate marketers operate as independent businesses and get paid a commission for recommending or funneling sales to another company's products on that company's website. Many companies will have an affiliate program to help promote their products. Once signed up, the company will provide the affiliate marketer with an affiliate link that allows the company to track precisely where the traffic to their website originated. When sales are converted and processed by that company through the affiliate marketer's special link, the affiliate marketer earns a commission. The idea is to promote a product online, drive traffic to another company's website where a sale may take place, and make a commission on that sale. Typically, affiliate marketers earn around 3-10% commission on the sales generated from their links, but some affiliate programs can pay up to 30%.

    Affiliate programs usually have an extended cookie period, meaning if the person who clicks your link doesn't immediately make a purchase but does so within a specific time frame, you will still earn a commission on that sale. The extended cookie period will vary on the company and affiliate program you are enlisted in, but they can range anywhere from 24 hours to 30 days. In addition, some sites will offer their affiliates lifetime commissions on the traffic they drive to their website. Meaning, that if an affiliate drives a unique user to a company's website, that company will indefinitely pay the affiliate commissions on that individual user's purchases over time.

    Affiliate marketers typically depend on a large sales volume to make significant money because their commission rates tend to be relatively small. Successful affiliate marketers that are good at driving lots of traffic can earn substantial amounts of money from their affiliate commissions. Since the internet is very expansive, affiliate marketers can target many potential customers and be involved in several affiliate programs, drawing money from multiple sources at once. One benefit of affiliate marketing is that the affiliate marketer does not deal with customer service issues or shipping, as they are simply recommending a product and a link to another business's website. All customer service and shipping issues will be handled by the company that is actually selling the product. Affiliate marketing is a great way to earn money for an online entrepreneur. It can generate significant income for the affiliate marketer as well as the business whose products they bring attention to.

  • Drop Shipper

    Drop shipping is a common business model employed by many companies today but is often misunderstood. Drop shipping functions by a seller (drop shipper) forming a business partnership with a manufacturer or distributor of a product. The drop shipper has an independent company that markets, promotes, and sells a product at a price point they set. The drop shipper deals with customer service and receives and processes orders for that product. When a customer orders a product from the drop shipper, the drop shipper then processes the payment and uses the money from the customer (or the drop shipper's own money) to order the product at a wholesale cost from their supplier. The supplier then ships the product to the customer directly from their warehouse to the customer address provided to them by the drop shipper.

    In this arrangement, the drop shipper handles the payment processing and customer service end, and the supplier handles the warehousing and shipment aspects of the transaction. The drop shipper then keeps the difference between the retail price they have sold the product for and the wholesale price they paid to their supplier. This is a convenient relationship, as the drop shipper doesn't have to worry about manufacturing, warehousing, or shipping. The supplier also benefits because the drop shipper will market their product, find customers, and handle subsequent customer service issues.

    Drop shipping can be accomplished through a variety of means. It can be done strictly on the internet, similar to affiliate marketing, or it can be a more traditional "hands-on" business and employ a combination of in-person meetings, demos, tradeshows, telecommunication, and email correspondence, as well as having an online presence. As a frame of reference, drop shippers commonly aim to have around a 30-33% profit margin on the products they sell. Although this can be higher or lower depending on the retail price they set and the wholesale price they have worked out with their supplier. Drop shippers do not earn a sales commission from the companies they work with, as they are independent businesses that buy wholesale from suppliers and sell at retail prices to consumers.

    Dropshipping allows for a degree of freedom in how much a drop shipper earns on each sale and how the drop shipper operates their business, interacts with their customers, and pursues their sales and marketing strategies. Drop shipping is a great business for targeting repeat customers as the drop shipper will make the same amount on each product the customer buys over time. Furthermore, drop shippers can diversify and promote various products in different industries. There are low startup costs as well as the drop shipper can leverage the purchasing power of their customer, as well as the warehousing and shipping ability of their supplier. This makes drop shipping an excellent low overhead option and one that can offer high-profit margins.

  • Liability Considerations

    Many salespeople may fall under the liability protection of the company they work for provided to them as an employee and may not have to worry about certain aspects of running a business that their company handles. However, this does not apply to salespeople operating as independent contractors or affiliate marketers and drop shippers as they are also acting as independent businesses. Those operating affiliate marketing or drop shipping businesses and salespeople who operate as independent contractors may want to consider forming a Limited Liability Company or another type of business structure that provides liability protection in order to shield themselves and their assets legally, as well as being able to take advantage of certain tax benefits. To learn more about the various business entity types, please view our Compare Entity Types page. InCorp can assist you in the official formation of your business, whether it be an LLC or a Corporation, an LP, or an LLP.

    Additionally, when adopting a business structure that will be recognized as a legal entity by the state, you will be required to have a designated registered agent. InCorp can provide helpful registered agent services that ensure your business is compliant with state regulations while keeping track and notifying you of any official legal documents regarding your business.

When considering being a salesperson for another company, an affiliate marketer, or a drop shipper, there is no clear-cut answer as to which is the better and more profitable option to pursue. They all have similarities and differences, and an individual's success in any of these fields may depend on their strengths, weaknesses, and interests in regards to how they personally want to sell products and engage in commerce. For example, one person may find success and ease in affiliate marketing, while another may struggle in that industry and become successful in drop shipping.

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