If you've heard of the business model of dropshipping, you may know its spin-off, drop servicing. The drop servicing business model has become popular because it can generate a good revenue stream without a huge investment if you can do it right.
However, you may want to know exactly what drop servicing is, how it works, whether drop servicing is profitable or not, how it compares to a dropshipping business, and how to get started.
In this guide, you will learn all about drop servicing. You'll also get to know about the biggest pitfalls to avoid to ensure that you build a sustainable drop servicing business.
Drop servicing is a business model in which you sell a service that you can't implement yourself, then outsource the work to a freelancer or agency that has the ability to complete the project. You are only responsible for selling the service to the client.
That means it is a form of outsourcing, or service arbitrage, which is just a fancy term for reselling. You act as a middleman, pitching and selling services to customers while the service provider completes the project behind the scenes.
This is very similar to what offline businesses do through subcontracting. If you are asking any type of worker to do something, the person you ask for a quote for their service is likely to outsource the work to another company or individual. That's the basic idea behind it. Dropshipping is also a great way to make money at home. You can even try out both dropshipping and drop servicing as only a small investment is required for those two business model.
There is a lot of overlap between dropshipping and drop servicing. While both strategies involve working with other individuals and companies to fulfill customer orders, there are fundamental differences between the two.
▪ Dropshipping is a popular and affordable business model that lets you sell physical products without having to manage your inventory. The suppliers you work with will take care of the inventory, do the packing, and ship goods directly to your customers.
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▪ Drop servicing, on the other hand, involves the sale of web development, copywriting, graphic design, video editing, and social media marketing services. However, instead of providing these services yourself, you hire a freelancer to do the work. Then you send the accomplished work to your client.
Thus, the main difference between a dropshipping business and a drop servicing is that one involves the sale of goods, while the other involves the provision of services.
Another difference is related to the level of competition in the marketplace. Since drop servicing is a relatively new business model compared with dropshipping, the market is not that saturated. However, you'll still face challenges, such as finding high-quality freelancers at prices that fit your budget.
Similar to dropshipping, it’s not difficult to start a drop servicing business. Continue to follow these step-by-step strategies and tactics to learn how to start drop servicing so you can create your own business.
1. Do Market Reach & Pick Your Niche
The first step to starting your drop servicing business is to conduct thorough market research to determine what's hot and what services people are willing to pay for. You may want to write down and record your skills and the areas you want to excel in by researching freelancers' job boards and Google Trends to find skills and services that are in high demand.
Also, remember to check the profit margins these services offer you (the difference between the price the client is offering you and the approximate price the freelancer expects). If you don’t know where to start, it’s also a good idea to take a look at your competitors.
For example, just Google "Blog Writing Service" and you'll find many companies that already offer it. Now you can visit their website to see how they offer their services and how much they charge.
2. Build Your Team
If you want to run a long-term drop servicing business, the freelancers you hire to do the client work must be proficient in their work, responsible, time-saving, and cost-effective.
So the second thing you need to do after choosing the right niche for you is to look for potential freelancers or agencies who can outsource projects. Learning how to choose outsourcing agency will save you time and help you reach all your business goals. If there are service providers nearby and you already know them, that's great. Otherwise, the Internet makes things easier:
- Freelancermarketplace (e.g., Upwork, Fiverr, etc.)
- Job boards specific to your service (e.g., ProBlogger for writers)
- Freelancers and service-specific social media groups (e.g. Pinterest Freelancers Groups & Facebook Groups)
No matter what area you are in, narrow your list of candidates down to your top 5-10 favorites and then offer each of them paid practice assignments. Yes, it's an upfront investment. But choosing the right service provider now will save you from the underlying worry. Note when running the test job, you need to consider the following aspects:
- The response time
- Who follows instructions
- Who is the most talented
- Who seems happy to work with them
Keep in mind that skills are generally easier to train than reliability, work ethic, and work attitude.
3. Create an Optimized Profile/ Website
After determining your niche and service provider (freelancer or agency), another step is to create a simple but effective profile or website based on your decision. If you are making a website, make sure it is responsive to all devices and easy to navigate.
Your profile needs to attract customers and clearly explain the services you offer. It can bring you more potential customers if you can add the contact information in detail in the profile.
Also, it might stop visitors if the information on the profile is too complicated and vague. Remember to update the profile with evidence and comments so potential clients can trust you.
4. Find Customers & Clients
Finding customers is an important step in drop servicing since it’s not a "fresh blue ocean" already. To do this, you need to know the target audience or customer for your service. Once you know who your prospects are, you'll know where to find them.
Many would argue that building a website is the best way to search for customers and network. This is true to some extent. Having a website does show that you are legitimate and authentic.
You’d better make sure to build a good relationship with your customers so that the next time they need a similar service, you'll be on their minds. Before looking for clients, don’t forget to set rates that are easy to maintain for you and the freelancer without going off the charts and expecting too much from the client.
5. Use Safe & Convenient Payment Tools
It’s another key and fairly simple step that leaves many beginners confused. Since you may have both domestic and international clients as well as freelancers, you need to find flexible payment tools.
For domestic payments, you can use popular e-commerce websites, mobile banking, etc. Some of the most popular tools for international transactions are PayPal, Worldpay, Sage Pay, etc. You just need to find a payment tool that works for you, your clients, and freelancers.
6. Get First Order & Keep Going
The first order may come easily or it may come hard. Whatever the outcome, the secret of winning the game is to stay focused and don't give up. As you interact and have more conversations with potential customers, you'll learn the dos and don'ts.
Pay close attention to what these prospects and customers are saying. Is the price too high? Are you missing a key detail that everyone expects? Do your competitors have a good reputation to keep you up?
Read more to learn how to get your first order.
Now you know the key features of drop servicing and how to start it. Let’s have a look at the advantages and disadvantages of this business model.
▪ Low Start-up Cost: You don't have to invest in many service skills. The fact is that almost every work can be outsourced to a third-party service provider who can easily do the job if you trust them. Your startup cost should be to create a one-page website that showcases the services you offer.
▪ High Income: That's one of the benefits of doing this online business. A single sale can make you a total profit of up to $1,000.
▪ Recurring Revenue: The other interesting part is recurring revenue. You can earn money online every month at no extra cost. Some clients may decide to let you pay them a monthly salary in order to provide their services.
▪ No Professional Skills Needed: You are free to do nothing in this business because every process can be outsourced and automated.
If you're successful in drop servicing, you can earn hundreds of dollars an hour without even having to do anything. However, you should be aware that there are still some downsides to giving up the business.
▪ Quality Control: The main disadvantage of drop servicing must be the lack of quality control. You have no control over the quality of your order because you didn't make it yourself. If you accidentally outsource to the wrong provider and they deliver generic output, you'll spend a lot of time fixing their work. This eliminates the whole concept of drop servicing.
▪ Moral Issue: There are always ethical issues around drop servicing. This is mainly due to some people not disclosing that they outsource or hire someone else to do the job. This leads customers to think that the person they are dealing with is a service provider.
▪ Rely on Freelancers: As you know, the business is hiring other people for your work to expand the business. Therefore, you will have to rely on outsourcing and online freelancers to make money. But what if your freelancer has too much work from other clients and can't support you at the last minute? What if they fail to deliver your work on time and the situation continues until you receive the refund request?
Reselling service is a viable business model that can help you generate a steady stream of revenue by connecting customers who need services with quality service providers. That's why drop servicing is becoming a trend.
However, to truly run a sustainable and profitable business, the goal is to partner with a credible white label organization. Avoid freelancing and offshoring, as these are usually temporary solutions that don't give you any stability or scalability.