The current pandemic has caused more and more people to turn to online shopping. But Covid-19 or not, our dependence on it has become inevitable. And so, many people are now looking to start their very own online business for their livelihood.
This is why drop servicing has become a popular choice for many budding entrepreneurs. If you want to start your own online business but are unsure about what drop servicing is, this article's for you.
What Exactly is Drop Servicing?
Also known as service arbitrage or white labeling, drop servicing is the business model wherein you sell a service to your customers and have someone else do it. You have a team to fulfill the orders and pay them for less than the price of what you charge your clients.
In essence, you pocket the difference in the price a customer is willing to pay and what your team is willing to get paid. You act as a liaison officer, a middleman, or a go-between as you take charge of the sale while your team takes care of providing quality service.
If you have heard of dropshipping, which is a more popular term, you would think that these two are the same. To a large extent, yes, they are similar. The only difference would be in what the offerings are. In addition, drop servicing isn't all about online services, as there are many drop servicing businesses that offer physical services with tangible results.
To help you understand better, the following are excellent examples of drop servicing businesses:
Graphic Design
You offer graphic design services to your clients. You then delegate the design requests to your team of graphic design freelancers. Once finished, you will send the designs to your clients.
SEO
You offer Search Engine Optimization services to your clients. You send their websites to your SEO team. The clients get to see their websites rank higher in search engines.
Content Writing
You offer your clients a package of 10 articles for $1,000. You send the articles to your freelance writers and pay them $500. You check the completed work then deliver them to your client.
Dry Cleaning
A customer pays you to dry clean their jacket. You send it to your partner cleaner. After it is done, you send it back to your client.
Baking
A customer wants you to bake them a customized cake. You ask your baker friend to do it for you for less. Once done, you will have the cake delivered to your customer.
There are many others you can drop service, and it's up to your imagination and your capability to execute them.
Drop Servicing vs Dropshipping
As you can see from the image below, the two business models sell something that you do not create yourself. In drop servicing, you sell services, while in dropshipping, you sell products. Both business models sell something for more, and you pay someone to do it for less.
These two have been around for longer, we may not have paid enough attention to it or may not have realized it. This is because some companies have been open about drop servicing, while some keep it behind the scenes. Either way, it's a lucrative business that we'll continue to see many of today and in the future.
How to Start a Drop Servicing Business
As many drop servicing businesses can attest, starting one and managing it are relatively simple. To start your own drop servicing business, you need two essential things: marketing it and building your team. We have created a comprehensive step-by-step guide to make them easy for you and came up with the following:
Establish Your Online Presence
While a drop servicing business isn't limited to online selling, it pays to have a solid online presence. Build a website where you'll list your services, communicate with prospects, and provide support to customers.
Marketing and Advertising
To find and land clients, you will invest in advertising, marketing, and promoting your business. You can do this on your website, social media platforms, business directories, etc.
Building Your Team
Search, hire and train your team of freelancers that will complete the services you offer.
Quality Control and Service Delivery
After your team delivers the service, you will check it for quality control. Once done, you can now send it to your client.
The Advantages of Drop Servicing
When carefully planned, a drop servicing business can be a money-making endeavor. It's not a get-rich-quick scheme, but it can offer you many advantages when you play your cards right. Let's look at the benefits drop servicing can present from three different perspectives.
Business Owners
Drop servicing can be a considerably simple and easy venture to get into as a business owner. The requirements to start one are not as vast and extensive as when starting traditional businesses. You won't have to think about locations, employees, and utilities.
You can start one in the comfort of your own home. You only need a stable internet connection and killer marketing skills. You would also need to have knowledge of your chosen niche. A basic understanding is enough, and you don't have to be an expert as it's your team's expertise that counts.
Freelancers
For a freelancer, working for a drop servicing business may be the key to keeping them busy with work. High competition, not enough skills in selling themselves, and other factors can have them scrambling to find a client. With a drop servicing intermediary, they will always have work coming their way that lets them focus on their craft.
Clients
With a drop servicing business, clients can have access to cost-effective services. It offers convenience as they no longer have to find freelancers to do the work, they just entrust it to a drop servicing partner. They can do away with searching for suitable candidates, vetting, and training them.
The Challenges of a Drop Servicing Business
As beneficial as a drop servicing business is, it also has its disadvantages. Some people see it as morally ambiguous as you are not the one doing the service for your clients. The key here is to keep them informed. Drop servicing is perfectly legal, just like any other business. The objective is to buy low and sell high.
Another challenge would be providing the quality of service that you promise your clients. Freelancers can sometimes abandon work or supply work that doesn't match what you advertise. The key here is to build a team you can rely on.
Drop Servicing FAQs
Is drop servicing legal?
Yes, drop servicing is entirely legal. To avoid any concerns about your drop servicing business, informing your customers upfront about your business processes is a good idea.
Is drop servicing profitable?
Yes, a drop servicing business is profitable. It doesn't require you to rent an office, have high capital, or pay for overhead expenses. If done right, you can earn as much as you want to.
Where can you find freelancers?
To build your team, you can look to online marketplace websites to hire freelancers. A few examples would be Upwork, Toptal, and freelancer.com.
