If you approach it correctly, you can make a lot of money and have fun with drop servicing.
You can stay behind the scenes and still deliver stellar services to your clients.
No need to deal with actual execution details.
And whether or not you’re aware of it, drop servicing is all around us at different scale levels.
What is it exactly?
How does drop servicing work, and how can you go about it most profitably?
That’s what we’ll tackle in this post.
Let’s get to it.
What is Drop Servicing?
The concept of drop servicing is pretty simple.
You charge more than you should for services and then farm the labor to independent contractors.
You are an intermediary between the service’s end user and its supplier.
In other words, you’re the middleman.
Drop servicing also goes by “drop shipping,” “white labeling,” “outsourcing,” and “service arbitrage.”
I’ll make those distinctions in the next section.
Despite being presented as a cutting-edge approach to online business, the core idea has been around for ages.
Think about the last time you ordered something online or had your house renovated.
The online marketplace you ordered from probably didn’t manufacture what you called.
The construction company you hired probably hired subcontractors to handle your remodel.
They charge a premium for connecting you with the services that you need.
They don’t provide it themselves.
Types of Drop Servicing
Drop Shipping
Using a drop shipping strategy, you can increase your sales without investing in costly stockroom facilities.
Your job is to make orders with your dropshipping supplier, and they will deliver the goods to the customer.
Thanks to e-commerce software like Shopify and DSers, anyone can open their online store and participate in the booming drop shipping industry.
This is good news for new business owners with limited resources.
You won’t need significant capital or think about inventory expenses.
White Labeling
With white labeling, a company outsources the production and delivery of its trademarked goods or services.
One benefit is that the business spends less time and resources developing and marketing the product.
Depending on their strengths, multiple companies can specialize in different product life cycle aspects, such as production, marketing, or sales.
White-label goods aren’t limited to physical products. White labeling has spread to service delivery.
For example, some banks turn to white-label services, like credit card processing, when they don’t have in-house systems.
Service Arbitrage
The word “arbitrage” is frequently associated with the financial markets and the practice of profiting from exchange rate discrepancies.
However, you can apply this strategy to the service industry.
When you connect service providers to clients, you get to set higher profit margins, meaning you get paid for your efforts.
So, essentially, you buy and sell services and make money from the price difference.
Outsourcing
The term “outsourcing” refers to the practice of hiring out work to an outside company.
This could be for completing a specific or providing an entirely separate service.
The outsourced company, a service provider or third-party provider, sets up its employees or automated systems to do the job.
This could be at the premises of the hiring company or elsewhere.
These days, businesses have many options for outsourcing various projects and functions.
These usually involve IT-related tasks like software development, coding, and customer support.
For example, when you call Amazon to complain or inquire about something, you’re not calling Amazon.
They outsource their customer service work.
Companies also usually outsource manufacturing, human resources, bookkeeping, and payroll processing tasks.
What Can You Drop Service?
Similar to how you can dropship a wide range of physical goods, you can also drop service many functions and solutions.
The following are some drop servicing business ideas:
- SEO (search engine optimization)
- Link building
- Ad copywriting
- Guest posting
- General content creation
- Video editing
- Graphic design
- Social media management
- Customer support
- Virtual assistance
- User testing
- Resume writing
- Voiceovers and music
- Lead generation
- Transcription
- Translation
- Accounting
- Interior design
- Animation
- Programming
- Web development
- Data entry and analytics
Of course, I recommend that you provide a service in which you have experience.
It will be much more challenging to handle if you deal with something that you’re not familiar with.
I’m not suggesting that you have to be an industry expert, but it will help if you know the ins and outs of the industry you want to pursue.
How To Start a Drop Servicing Business
Now that you know that drop servicing can operate in many forms, let’s talk about setting up your own.
Pick your niche.
The first step is to choose which service (or services) you will provide.
You have tons of options, as illustrated in the previous section.
You’re golden if someone is willing to pay for your skills.
But let’s say you’re having trouble identifying the specific need that your drop-servicing business will meet.
You might want to think about answering the following questions:
- Do I have any skills or experiences that I can monetize?
- If not, what skills would I be willing to learn?
- What skills have the highest demand in the current market?
- What business idea would be the least complicated to execute?
- Which niche can fetch my business the highest profit margins?
You have to look inwardly and consider what you would be passionate about providing.
At the very least, try to look for a gap in the market and do your best to fill it.
It would be best if you had a strategy moving forward.
If you want to do your homework, doing extensive research and writing a business plan is best.
Hire and Train Your People
This might seem straightforward, but picking the right group of people to work with is crucial.
After all, they are who will keep your drop service operations running.
If you don’t know where to look, try contract platforms like Upwork, Fiverr, Flexjobs, 99designs, Guru, and FreeUp.
When you have a shortlist of promising prospects, it’s time to put them to the test.
Let’s say you’ve reached a point where you have a bunch of applicants.
Consider the following criteria and qualifications for each one:
- How skilled are they at the service that you want to provide? You could ask for portfolios and references so applicants can back up their claims.
- Will they require training until they can operate to meet your standards?
- Do they seem reliable and trustworthy?
- Do they seem agreeable and pleasant to work with?
- Do they have a good attitude surrounding work life?
- Do they live in a different region from you, and is there a significant time difference? Will this time difference be an issue when meeting deadlines?
Remember, your business is only as good as its employees, so hire people whose values align with yours.
Once you’ve found the right people who fit all your criteria, you can start cultivating a long-term relationship with them.
You can provide opportunities for growth through projects.
Of course, you can start with more straightforward jobs to gauge their competence.
As time passes, you can assign more complex ones as you gain confidence in their abilities.
Establish Your Brand
Assuming you have a reliable group of employees and a strong business plan, the next step is establishing your brand.
A solid online presence should be your top priority if you want to attract customers in the digital realm.
Your website is the foundation of all this, but you should also create and maintain social media accounts.
So, where do you start?
Try checking WordPress, Shopify, Wix, and Squarespace.
These are some of the top website makers available today.
Many of them have free trials, so you can get started on your site without spending any money until you’re ready.
As for branding, you have to include the following elements in your branding materials and website:
- Your business’s unique logo and theme
- A backstory for your brand
- Brand goals and values
- A clear description of your services and what your clients can expect from you
- Your service rates
Market Your Services
It’s time to increase your visibility!
Promotion is essential to the success of any drop-servicing company.
If no one ever visits your website or learns about your business, what’s the point?
Improving your brand’s reputation, attracting new customers, and retaining current ones are all within your control.
Here are the types of marketing you can utilize:
Content Marketing
This is, perhaps, the most crucial aspect of marketing.
You need to produce high-quality content that will help build brand awareness.
If you produce content that will add value to your potential customers’ lives, they will remember you and probably keep coming back.
I suggest investing in blogs, videos, graphics, eBooks, emails, and maybe even a podcast that aims to educate and entertain.
Social Media Marketing
I’d be willing to bet your target market is social media.
Who isn’t?
Figure out the platforms that they’re on and start formulating a specialized content plan for them!
To be thorough, engage with potential customers on all available channels.
Referral Marketing
This is a highly efficient marketing method because it utilizes your existing customer base.
That’s why referral marketing is something you can implement later on when you already have a decent following.
You can introduce a referral program to incentivize repeat business from your current clientele.
It turns out that “word of mouth” is still the way to go in this modern marketing age.
Take on Your Early Work and Improve Operations
Once your initial sales come in, it’s all refinement from here on out.
Be steadfast in your efforts, and streamline your process as your business takes on more work.
You will gain insight into what works and what doesn’t as you engage with prospective customers.
An entrepreneur can’t stop learning!
It’s essential to focus on how your leads and clients are behaving.
ASK yourself the following questions:
- Should your rates be higher or lower?
- What sets you apart from your competitors, and how can you improve this aspect?
- Are you losing potential customers to competitors with stronger reputations? What can you do to emulate your industry leaders?
It’s never wise to be complacent, so keep improving until your business becomes a well-oiled machine.
Is Drop Servicing Legal?
The practice of drop servicing as an online business strategy is perfectly legal.
It is not unlawful to profit from the price disparity by reselling the services of another party.
The truth is that drop servicing is like any other business model in that you need to buy cheap and sell for more.
However, before launching your company, you should verify the legality of the services you intend to offer in the state where you plan to do business.
There could be limitations on the types of services offered or the required credentials to provide them.
It’s also wise to iron out your financial obligations.
To maintain credibility in the eyes of the government, you may need to submit certain tax return documents annually.
The following are some steps to take so you never get on the wrong side of the law:
- Be thorough and transparent in your terms and conditions so your clients know that you are merely the middleman.
- Know the taxes associated with offering contractor services.
- Get insurance to protect yourself and your business.
How Much Should You Charge For Drop Servicing?
Your pricing should be two to four times higher than your team’s pay to maximize profits.
Profit margins will be healthy, and you’ll have plenty of money left to invest in marketing to attract new customers.
Having said that, when first starting, focus more on volume than profit margins.
You should go for it if you encounter a “whale client” with a sizable budget.
But at this stage, any profit is better than none.
Now is the time to rack up experience, refine your operations, and get the ball rolling on referrals.
You can start charging more once operations are smooth and your brand is gaining more traction.
Is drop servicing profitable?
It can be if you find the right independent contractors to work with!
The Pros and Cons of Drop Servicing
PROS
Relatively Easy to Launch, Manage, and Develop
If you use a drop servicing model for your company, you will have a much easier time establishing your brand than sticking to the more conventional methods.
Because your company is only responsible for sales and promotion, all other services are outsourced to other companies.
You can offer as many services as you like and employ as many providers as you need.
More Fiscally Realistic
A traditional service business would typically have to invest in equipment, infrastructure, and employees to start operating.
Since you can forgo these expenses, your startup costs are meager.
Offers Flexibility
Since your drop servicing business will rely on independent contractors, you can take on as few or as many jobs as possible.
Let’s say the demand for your offered services increases. You can bring on more service providers to meet that need.
Easily Scalable
The drop service business model is designed for scalability.
You have a much higher chance of going forward and thriving with your business because you’re free to add more services to offer.
You can adapt to the times and onboard emerging service providers that modern clients need.
You are not limited to the services you offer at any given time.
CONS
Risky for Bigger Brands
Drop servicing is the way to go if you handle a smaller brand.
Why?
If a bigger brand adopts this strategy, all its service providers must provide the same rates, quality of service, and experience.
If you operate on a larger scale, you’ll have a tough time monitoring the performances of all your independent contractors.
Quality may slip here and there, reflecting poorly on your brand.
Dependence on Other Companies
The drop servicing model has its benefits but also makes companies reliant on outside parties.
Since brands are not engaged in any part of the servicing process, they have less sway over how things turn out.
If a company becomes dependent on a service provider and that provider suddenly ceases operations, that’s cause for concern.
Difficulty Finding Reliable Freelancers
There are a lot of freelancers out there, and new drop service owners usually try to work with them because they’re more affordable.
It’s not that easy to find reliable freelancers these days.
They can abandon projects because they’d instead take on higher-paying work.
If you have to find new people to work for you, this will delay turnarounds.
Final Thoughts
Reselling services can fetch a steady income by connecting clients with competent service providers.
The drop servicing business model has become an intriguing global trend.
To run a company that will survive and thrive, you should seek trustworthy service providers.
Working with the right partners will lead to improved lines of communication and a positive reputation in your industry.
You also want to ensure you’re “delivering” a consistently high-quality level of service for your clients.
Good luck!
