Drop servicing is the new business buzzword and is something all entrepreneurs should consider. With drop servicing, you can sell your service without actual service input, so you can focus on marketing and other business activities while the outsourced service provider handles most of the nitty gritty.
Drop servicing is profitable, easily accessible, offers expansion opportunities, allows for diverse services, has lower overhead costs, and has low initial investment. The downside of this business model is a lack of consistent quality, communication difficulties, competition, and legal complexities.
Drop servicing is a new and exciting way to run a business, especially if you’re a new entrepreneur looking for low-cost opportunities. Before you take on the wonders of drop servicing, a deeper look at the pros and cons will decipher whether it’s a suitable business model.
I personally own a drop service business, and generally find it a good business to be in.
Understanding Drop Servicing As A Business Model
A drop service is when you act as the middle-person between a client and an outsourced service, which is typically digital but can work for certain in-person services. As a drop service business, you source third-party companies or individuals who will carry out your chosen service independently while you handle the customer, keeping the communication channels separate.
In a drop-servicing business model, you pay a lower rate for a freelancer, agency, or contractor to conduct the service, and you add a profit and sell it to the customer. Your job is to gain clients, advertise, and liaise separately between the provider and client to communicate the client’s wishes and follow up on progress and project deliveries.
Some business examples of drop servicing include:
- Offering a content writing service where you hire freelance bloggers to write blog posts.
- Creating a moving company that outsources the work to a network of independent moving companies, where you manage pick-up, drop-off, and information exchange via phone and email.
- You offer graphic design, web creation, and SEO services and outsource to freelancers specializing in each field.
The Top 7 Drop Servicing Pros
Drop servicing is growing in popularity and with reasonable justification! These pros are utterly compelling, and you may wonder why you haven’t taken advantage of this business model yet.
1. You Can Expect High Profit Margins
By hiring skilled third parties in their field, you can streamline work in the blink of an eye, and the more work you get in, the more money you get out.
Say you sell a blog writing service where you charge $40 for 1000 words and pay your freelancers 62.5% of the sale, which is $25. Ethically, the writer gets the more significant piece of the pie, but you get $15 for something you didn’t do, but you can still decide on what margin suits your business.
With drop servicing, you provide ample job opportunities that can multiply that $15 to $1,500 when you sell 100 articles – which is easy to do in a month with the lengthier posts and high volumes often sought by clients. All you need to do is market, mediate, and pay your freelancers.
2. Low Startup & Fixed Costs
The main elements you need are a website, a marketing plan, and employees or outsourced agency. Luckily, work-from-home digital jobs are in high demand, and freelancers are delighted at the opportunity to work as such. You can hire freelance writers, digital artists, web developers, and even managers- without needing be-all and end-all contracts. On a freelance basis, you can pay workers as you make money.
Unlike ecommerce or other business models, you don’t need inventory.
3. You Can Offer Diverse Services
Digital skills these days are multi-dimensional, and you can expand your horizons. You can sell related services like web development, analytics, and SEO optimization as separate or bundled service options you assign to the respective workers.
4. You Can Invest More In Marketing
If marketing is your strong suit, or better yet, your passion, spending time growing your business brings in more money and provides more people with jobs to keep up with the demand. Marketing and lead generation are the most critical aspects of making drop servicing successful.
5. It’s Easier To Go Global
If you’re a digital service provider, you’ll have no trouble crossing borders and oceans to reach clients and find workers willing to give their all. Physical services are a bit trickier to expand globally, but it is still possible.
6. The Drop Servicing Model Is Scalable & Flexible
With the workload not dependent on yourself or your own team, ramp up can happen quick (so long as you have a reliable service provider). Contrast this with ecommerce business where you’re subject to inventory and supply chain constraints and you can see the appeal of drop serving. As your business grows, you can also simply add more services and test the waters to see if it works. This also means you can keep up with the ever-changing economy.
7. Location Independence
Since you’re not physically providing service, just liaising it, you can be anywhere in the world.
The Main 5 Drop Servicing Cons
Although the pros are glorious, drop servicing isn’t for everyone, and these negatives explain why.
1. It Isn’t As Easy As It Looks
Rome wasn’t built in a day, nor was any successful drop-servicing business. If you’re keen on a drop-servicing business model, you need to ensure that you can sell the services. Reaching your target audience can be difficult and expensive. Your primary skill, aside from managing the service providers, will be advertising. And many of these markets will be rife with competitors for adspace.
2. Quality Inconsistency
Not all freelancers or third-party companies were built equally, and some may drop the ball on quality. Lack of consistency may dishearten clients. One way to prevent this is to appoint someone in charge of quality control.
In other cases certain deliverable promises may not be met. For example, you advertise a 48 hour delivery and while the drop service provider advertises the same, they fail to meet the window, making you look bad.
3. Bad Communication Is Bad Business
One missed email could cause serious havoc, such as a missed deadline or a customer unhappy with the service outcome. You need to be stringent regarding communication, as that’s the most significant responsibility of a drop servicing business.
4. There Could Be Tough Competition
The digital age has grown some online warriors who work like magic – your business needs to prove better than the rest. Blog, content, and social media drop-servicing companies are quickly rising, and soon, the market may be saturated. Make sure your business model has flair!
5. You Could Grow Too Fast Too Soon
If you’ve discovered the newest, in-demand drop servicing idea, be prepared to meet all expected deadlines. It’s easy to bite off more than what’s chewable, and you should know your capacity – or hire quickly!
Growth Beyond Drop Servicing
Drop servicing as a business model maybe limiting as the business grows and you want to simply maintain quality, or add further value to the product line, ie. fastest in industry completion times for business that does virtual staging. In that case you may need to shift to an insourced service provider model. In this case you’ll need to hire train and retain employees along with develop all of the organizational infrastructure needed to keep them efficient.
Now that you’re caught up with the latest and greatest business model, you can let your imagination run wild with which services you’d like to sell. If the cons aren’t a deal-breaker, you’re in for a profitable and formidable business venture!