After the great resignation during the pandemic, many people have changed careers or looked to start their own businesses. However, setting up a business can be hard. There’s a lot to think about and it can be a costly endeavor.
But what if it wasn’t? You may have heard of drop shipping before, but have you considered drop servicing?
In this article, we’re going to talk about what drop servicing is and why it makes for such a good online business. We'll also look at what the benefits of a drop service business are for you and your clients, and how to start a drop servicing business from scratch.
What is drop servicing?
Drop service can be an online business or offline, depending on what services you provide. In fact it makes a great online business. Basically, with drop servicing, you are selling services rather than products. But that doesn’t mean that you are the one actually providing the services.
Instead, as the drop servicing business owner, you are the salesperson and project manager, dealing with clients. You hire service providers to do the work, while you get the sales and ensure everything runs smoothly.
You might have heard drop servicing called service arbitrage, reselling, outsourcing, or a white label marketing agency.
There are many benefits to running a drop service business, including flexibility, low start-up costs, and good profit margins. In fact, it’s more than possible to create a six-figure business with drop servicing.
How does drop servicing work?
With drop servicing, you’re acting as a third-party service provider, a middleman, if you will. You decide on your drop servicing niche and choose what services you’re going to offer. You then advertise your business and attract clients to it.
You choose and train your service providers, making sure to negotiate the price so that they are charging you less than your clients are paying. Once you get an order, you allocate that work to your service provider. They do the work and then you check it over and pass it along to the client.
Your profit is the difference between what the service provider charges and what your client pays, minus your marketing spend.
You can see from this that you’re not spending hours writing, creating graphics, or any of the other possible services. You’re focused on getting clients in, building your drop servicing business, and ensuring that work is completed to the brief and to the deadline.
A drop servicing business can be anything you want it to be as long as there is demand for your services and clients willing to pay what you’re charging.
Drop servicing vs drop shipping
The main difference between drop servicing and drop shipping is that with drop shipping you are selling physical products. With drop servicing, you are selling a service.
But when it comes to choosing which business model to go for, there are more benefits and less risk to drop servicing than there are with drop shipping.
With drop shipping, you have to source your products, often dealing with overseas suppliers. You may need to promise to buy a minimum level of product from them to get the best price and you likely will need to negotiate for a price that suits you both.
When you’re dealing with sellers from different countries, you may find that you don’t understand the cultural differences, which may cause you problems when you come to negotiate.
You also may need to spend money on ordering samples of your products to check the quality.
In addition, if you’re shipping goods from China, for example, you have no control over when those goods are sent, how they are packaged, and how long delivery will take. In the meantime, you have customers that have already paid for their goods who are now awaiting delivery.
If anything goes wrong, they aren’t going to care that you have done your part. You’re the face of your business and they’re going to blame you if their goods don’t arrive or if delivery is later than promised. That leaves you dealing with angry customers, poor reviews, and the issue of refunds.
With drop servicing, on the other hand, you don’t have to deal with most of that. You do have to find excellent service providers and you’ll probably want to pay for a test order to see how they get on and how they work. You’ll also need to negotiate with them
initially to set a price.
However, after that, there are only two risks:
1) Your service provider might not deliver on time, or at all, and you’ll have to quickly find a new service provider to fulfill your order.
2) Your service provider will deliver something that the client doesn’t like and then you’ll have to deal with fixing it.
However, compared to the risks and potentially higher costs of setting up a drop shipping business, drop servicing really does come out well ahead.
Is drop servicing profitable?
In a nutshell, it is if you set it up right and run it properly. In fact, it can be a highly profitable business model and it is scalable. Once your business is up and running, it is relatively easy to increase your team to take on more work or to add more service offerings to grow your business and increase profits.
However, when you start your drop service business, you have to take the time to add up the costs of running that type of business. You’ll need a place to work and a laptop to work on. You’ll need either to pay for a site like Shopify or for web hosting, a domain name, and your own website. You will also have marketing costs, which may include paid ads. And of course, you’ll have the cost of paying your service providers.
You also need to look at how much you need to make to be able to pay yourself a good salary that more than covers your own bills.
Do these calculations before you approach any service providers or clients. You need to know your margins and work out how much profit you need. Ideally, you should be able to charge between two – four times what you pay your service providers.
While it is quite straightforward to run a drop servicing business, if you have the right temperament and skills, you do still need to treat it like a business, take it seriously, and develop a proper budget for it.
If you do all that, however, you’re starting off on the right foot to have a profitable drop service business that can grow at a pace to suit you.
Is drop servicing legal?
Yes, it is. There is nothing wrong or illegal with owning a drop servicing business. The only consideration is how you present it to your clients. You shouldn’t try to hide the fact that you’re running a drop service business. You should be open, honest, and above board in your dealings.
Just think about how you want to present it. You could tell your clients that you have a team of writers or graphic designers. You could simply lay out how you work. It’s up to you, but there’s nothing to be ashamed of and no reason to hide it.
All you are doing is providing a quality service and managing how that service is delivered. There’s nothing wrong with hiring other people to do the work, while you manage the business. That’s what every business does, whether it’s a drop service business or not. The only difference is that you’re more likely to be working with freelancers than with in-house staff.
While you can run a pure drop servicing business, this is also a popular business model that allows businesses to offer extra services on top of their own. For example, a bakery may hire a jam maker outside of the business to make a range of jams and preserves to sell in the bakery. Or an auto repair business may hire freelancers to provide car detailing, full wraps, and decals on top of their standard business.
You will need contracts for your service providers and your clients. Don’t skip this step or you could land in hot water if something goes wrong. While contracts might sound boring and unnecessary, they are for the protection of all parties.
For your clients, you can lay out your terms of delivery, when you expect to be paid, the consequences of late payment, and communication options, so you don’t get the type of client who expects to phone you at midnight. You should also specify that once paid, the client owns the work.
For your service providers, you need to make it clear that you own the work once you have paid and that they can’t use it elsewhere or sell it again. You should also lay out when you will pay your service providers, the current rate, and any other requirements.
The reason to do this is that if there’s an issue, instead of needing to spend hours wrangling and discussing it, you can simply point to the contract and there’s the answer in black and white.
It’s also protection for all parties in court, should it go that far. Your contract clearly states what is expected and disputes are more easily resolved.
You should also invest in good insurance to cover you in case there’s a problem. One other practical option to consider may be key man insurance to pay your bills if you’re unwell for a long period.
Obviously, this shouldn’t be taken as legal advice. Please consult your own lawyer and insurance provider.
Is drop servicing right for me?
By now, you should be getting a sense of what’s involved in a drop service business and what type of person it might suit.
Your main focus is to get clients through the door and to keep them coming back for more. You need to be a people person with great sales skills. You need to be able to clearly state the benefits of your business to your clients and why they should buy from you and not the competition.
You should be organized, good at negotiating, quick thinking, confident, calm, and good at dealing with any issues that arise.
While you don’t need to be an expert in the services that you provide, you do need at least some basic knowledge. You have to know, for example, if a piece of writing or a logo design has met the brief. You need to be able to judge if the quality is good enough to pass onto the client. It’s your name on the door if it isn’t.
If you don’t think you have the ability to generate leads and to convert them to clients, then perhaps this isn’t the business for you. Though, you could hire someone as a salesperson if you’d rather concentrate on the day to day running of the business.
You need to be honest with yourself about your skills and abilities. Can you spend time talking to potential clients and winning them over? Are your negotiating skills up to the mark? Do you genuinely like dealing with people?
Benefits of drop servicing
Hopefully, you’ve already begun to see the benefits of drop servicing for you, but there’s more to it than that. You have to be able to convince your clients of the benefits for them. Luckily, we’ve laid it all out for you below.
Drop servicing benefits for you
1) Flexibility
You can work as much or as little as you want to, depending on how much you charge and how much profit you need to make.
You can work from home and save time on the commute. You can be there for your family and make sure you are there for your kids. You really can build this business to suit you.
It’s easy to test new services and discover your client's response. And if you find that any service isn’t selling, it’s easier to discontinue that service quickly so that you aren’t throwing good money after bad.
2) Scalability
You can add more services as you grow if you want to, depending on demand. It’s not a huge leap, for example, from doing just graphic design to providing a full-service offering of graphics, website design, marketing, social media management, content writing, and more. The principle is exactly the same, no matter how many drop services you offer.
Or, if you want to stick to just the services you already have, you can easily add more team members to cope with increased demand.
Drop servicing is also great for expanding an existing business. If you’re already a freelance writer, for example, it allows you to take on more clients and earn more money, without doing any extra writing yourself.
If you’re a solopreneur in particular, you only have twenty-four hours in a day and you will hit an income wall at some point, without finding a way to expand what you can offer and how you offer it. Drop servicing really could be a viable answer for you.
4) Low-budget start-up
You really only need a laptop, hosting, broadband, and a straightforward website to make your drop service work. In fact, with sites such as Shopify around, you don’t even need a website. You could set out your stall on a proven e-commerce platform that’s already built.
And while you could spend more on fancy e-commerce solutions, hiring assistants, renting office space, and more, you really don’t have to. You could start off at your kitchen table and build your business from there.
You also don’t have to pay travel expenses unless you’re going to visit clients in person. And as so much can be done online, there’s no need to do that.
Drop servicing benefits for your clients:
1) A done for them service
Your clients don’t need to manage anything because you do everything for them. They don’t need to find freelancers, pay for test projects, or spend time managing multiple freelancers and their projects. That’s all down to you. This applies even more if you provide a one-stop-shop where they can either choose the services they need or have you run everything for them.
2) Saves time and money
With drop servicing, your clients get excellent work without having to spend time interviewing or hiring full-time or part-time staff. They save on hiring costs, HR services, staff training, and more.
Instead, they get the extra services they need without much greater costs and more time spent.
Drop servicing ideas
Here are just some drop service business ideas:
· Social media management
· Full marketing services
· Content management
· Content creation
· Graphic design
· Web design
· Search engine optimization
. Paid advertising management, such as Google or Facebook ads
· Uploading products to Etsy or similar stores
How to find more ideas
· Search on Google trends to see what’s popular and what people are already doing.
· Check out sites, such as Answer the Public and Quora to see what people need help with.
· Look at other drop-servicing companies for ideas.
· Brainstorm your own skills and experience for what you’d like to do and know you’re good at.
· Network with other businesses and see if there are any gaps in the market.
How to start drop servicing: Your drop servicing blueprint
Before you can jump into drop servicing, you need a plan and you need to work through setting up your business. Here’s where to start:
1) What are your goals?
Look at why you want to set up this drop servicing business. Look at your personal goals, such as more time with your family or more holidays.
Look at your financial goals. You need to know your minimum income that the business has to make, on top of any business expenses. Then look at what you really want to make. Dream big and imagine what your life will be like when you hit that goal.Work out what you need to make to make the business viable.
Write your long-term goals down and then create goals for your first year.
2) Choose your drop servicing niche
Think about what you’re good at and what you enjoy doing. You’ll enjoy your business far more if you actually like doing it.
Write down all your skills, talents, and experience to get some ideas.
Then narrow your choices down to three or four options. Do your research and check that there is a market for your potential services and then finalize your choice.
3) Research your competition
Don’t skip this step. You need to know what your competition offers and how you can differentiate yourself from them. You need to be able to clearly state why you are different and a better choice for your clients.
Check out their strengths and weaknesses. Find anything they aren’t doing well and do it better.
Not only that, but researching your competition is a great exercise for your marketing. You can see how they present themselves online and on social media, look at their branding, their content, and more. You can also look at their blog for ideas for your own.
4) Your drop servicing website
Choose your website platform. You may want to ignore building your own website at this point and simply build your store on Wix or similar sites.
Look at the pros and cons of each e-commerce platform, including the costs and decide on the best one for you.
This option does get you up and running more quickly and saves money as you don’t have to spend either time or money on building your own website.
When you’re ready and you’ve made some money to invest in it, you can do that later.
5) Market your drop service company
There are many ways to market the drop servicing business model and we can’t cover them all here, but here are a few suggestions for online marketing.
· We’ve already talked about networking, but it can be a great way to start off in your local area. There are many networking organizations, both free and paid to get you started meeting other businesses. You can learn from them, find out what they need, and offer your drop servicing.
· Social media marketing can help you reach a wider audience across the world. If you’re offering online services, you don’t need to stick to just one country, though do check out any legal and tax issues from selling internationally. With social media, it’s important to find the platforms where your audience is and then provide them with the content that they want.
· Content marketing is another excellent option for your online business. You can create a blog and share your posts on social media, which helps to boost your social marketing. Doing this well will also help your SEO efforts. Content doesn't just have to be written. Video creation is another excellent content tool. Video is highly popular online and video creation should be part of your marketing mix to promote your online store.
· Referrals are a great way to grow once you have a few clients. Ask them to recommend you to others who might need your services.
6) Build your drop servicing team
Find great freelancers to become your service providers. Negotiate prices that work for both of you, so they still make a living and you still make a profit. You need to treat them well so that they want to stick around. You don’t want to be constantly on the hunt for service providers if they keep leaving. It’s disruptive.
When you’ve found a few people you like, give them a paid test project to see how they do and if you like working with them.
While you can start with just one service provider, it’s best to put at least one backup person in place in case your provider is sick or wants vacation time.
You can build a team of service providers. With a full team, you shouldn’t ever encounter a problem with delivery as you’ll always have other team members to pass orders onto if there’s a delay. And you have the option to grow your business and take on more orders, which of course, leaves you with more profit.
You’re then ready to acquire jobs from your clients and assign them to your drop servicing team.
Obviously, you can do this on a more ad hoc basis, finding the jobs and then finding freelancers to fulfill them, and you may well start off this way.
However, if you want a stable business with a team that you know can deliver to every deadline, you do need to put a solid team in place. You don’t want to be in a position where you let a client down because you only negotiated with one freelancer who now isn’t available and you don’t have anyone else to step in.
7) Deliver what you said you would
Keep your word. Always. Your drop servicing company reputation hangs on it and so does yours, and you don’t need poor reviews from unsatisfied clients.
If there’s a problem, then let your client know in plenty of time, preferably armed with suggestions to help or another solution.
8) Rinse and repeat
You now have all the basics in place and you can keep adding new clients and working on retaining your existing ones. You can grow and scale your drop servicing company from here.
Look at delivering a great customer experience and delighting your clients so that they come back. It’s far cheaper to keep existing clients happy than it is to have to keep finding new ones.
At this point, it’s worth building and refining your sales funnel to optimize lead generation and ensure you’re reaching the right people with the right information at every stage of your sales funnel.
Look at your other processes too and write down how you do every aspect of your business. You don’t want to keep having to look up how to do basic things, such as post a blog on WordPress. Write everything down or film videos of it.
You’ll thank yourself later when you want to bring in a virtual assistant to help you run things.
9) Ask for reviews
Now you have some delighted clients, as soon as you’ve finished a project for them, ask for a review or testimonial. You want them to post on your Google Business Profile and on your social platforms to provide great social proof for other potential clients.
Ask permission so that you can quote them on your drop servicing business website and in your marketing materials too.
While we’ve written that as a list with separate steps, you’re going to find that these are ongoing, overlapping tasks that you’ll need to keep doing in order to build your drop service business.
How to find service providers for your drop servicing business
Obviously, you can ask around and you might already know the perfect person to become your service provider in your own network. LinkedIn is also a great place to get to know potential providers and see whether they’re a good fit.
There are also many freelance sites online where you can find service providers for your drop servicing business. Check out Upwork, Fiverr, People Per Hour, Freelancer.com, and others.
Take the time to vet the experts yourself. Check out my article on how to hire a marketing agency to save you time when finding your agency partner.
We hope you've enjoyed our guide on how to start a drop servicing business. Drop servicing works and you can make a successful business online with it that suits your lifestyle.