We live in an age when people are constantly coming up with new ways to make money. The internet has opened up countless doors and opportunities for serial internet entrepreneurs and made earning a passive income easier than ever.
Some financial experts argue that the true key to wealth is earning money while you sleep, so it’s only natural that many businessmen and women’s goal is to create a passive stream of income that requires no effort or time to maintain.
That goal is what turned people into various internet businesses. For example, it’s a safe assumption to predict that you’ve heard of drop shipping. However, that business model’s cousin, drop servicing, is very rarely discussed.
That’s a shame, too. With drop shipping, there is still a level of management, marketing, and admin that is associated with running the business. While there is still some of that present in drop servicing, it is not nearly to the same extent.
It’s a great opportunity that many people are missing out on, which is why we’ve decided to put together this article telling you everything you need to know about the model.
What is drop servicing?
Drop servicing is the perfect alternative for those that aren’t too keen on the idea of drop shipping for whatever reason. It’s a remarkably similar type of business, with the exception of not selling physical products.
As the name implies, rather than shipping out products to your customer base, you’re instead offering up services. Naturally, this means that you’re going to have to find people to do those services, but once you do, the business requires little input on your part.
Your primary role in the drop servicing business is going to be the marketing side of things. Once you have the services that you need to provide, you need to make sure that you market your business effectively; otherwise, you’re just wasting your time.
This sets drop servicing apart from drop shipping, where there is just as much focus on the business management as there is the marketing.
Your financial model with drop servicing is fairly simple and self-explanatory. You earn a commission fee percentage on each service that is ordered on the site, the same way you would earn a commission from selling goods. While this means that your earnings per unit are going to be fairly low, your profit margins should be great.
You have little expenditure with this kind of business, consisting entirely of your website maintenance and your marketing budget.
Drop servicing is also known by the name service arbitrage. What this means is simple. Essentially, you find a client that is looking for a service. You offer to provide that service for a fee and outsource the job to someone else. Meanwhile, you don’t inform the client that you are not the one completing the service.
It is a similar business model to subcontracting, in that a client needs something done, but lacks the means to do so. They hire you, and you also lack the means to carry out the job, so you hire additional help.
It’s a complicated way of explaining that you are acting as a middle man between workers and clients.
However, keep in mind a big mistake that new drop servicers make is offering a service they know nothing about.
Now, you’re not the one carrying out the service, so you don’t have to be an expert. However, you still need to have a solid foundational knowledge about what it is you’re selling.
How does drop servicing work?
While that’s all of the fundamental knowledge that you need to know, how drop servicing works in practice is, obviously, a little more complicated and challenging.
While it is, like a lot of online businesses, friendly to those without deep knowledge of business management, it does require a little bit of knowhow to set up effectively.
Primarily, knowledge of marketing and business creation is going to go a long way to making your drop servicing company a success.
For example, you should know that the first thing you need to do on the road to setting up your company is market research. It would help if you found out what services are in demand, what the going rate for those services are, and how competitive the freelancer or professional market is for that work.
Without this knowledge from the beginning, you’re doomed to fail. That’s because carrying out this market research is going to help you identify the niche that you want to sell in.
You can ask any online freelancer or businessman what the key to success is, and they should all say the same thing: Find a small niche and become the best at what you do in it.
This logic applies to your drop servicing business, too. It would be best if you balanced out the demand for a niche with the competition. For example, let’s say that you want to go into graphic design.
The demand for that is high. Everyone and their mother need custom logos for their streaming channels, YouTube, social media, and so on. The competition for the market is massive, and you’re going to be up against some major corporations.
While this is an example of a general niche that is going to be hard to succeed in, you can also use the logic of niches here to increase your odds of success.
Instead of simply stating that you’re going to offer graphic design services, let’s say you’re going to offer yoga-based graphics design. Now you have much less competition to deal with and a more specific idea in mind as to who is buying your products.
That brings us onto our next point, which is understanding your audience. Drop servicing, while a service, is still a product from your end. You’re trying to convince your clients to purchase something from you, and the better you understand that client, the more likely you are to succeed.
This again goes back to business fundamentals, understanding the target audience of your niche.
While the general age range and gender are likely going to be a given, for example, graphic design for yoga is going to have a predominantly female audience with an age range of 18-30, what’s more, important is understanding your audience’s pain points.
These pain points are the things that are troubling them, and the reason that they purchase your service.
Let’s use the yoga example again. Why would someone need to order yoga GFX? Let’s say it’s because they need a design and branding for their online presence. Okay, why do they need that branding? To increase the likelihood that they’re going to get followers? Okay, why do they want that? To get enough followers to become famous. Great, and why do they want that? So, they can make money doing what they love and get away from a boring nine to five life.
You can apply this technique to any niche, which is what makes it so effective. What do we do with this information, though? Well, we use it to create our marketing material. If we assume that our client is ordering our GFX because they want to maximize their chances of making it big online and looking legit, then we can focus on that in the material that we come up with.
This where the concept of features versus benefits comes into play. Rather than focusing on the idea of cool looking graphics, tell your audience the benefits, in other words, the followers, freedom, and recognition that the service is going to give them.
Once you have all of that work done, you’re ready to get started – check out our post for free tools. Either hire a designer or create your Shopify website yourself and work on getting yourself a consistent array of freelancers.
Use your research to create and execute your marketing plan, and don’t be afraid to cold call/email potential clients, to begin with.
Is drop servicing right for me?
This is a question that you’re going to have to ask yourself at some point in your endeavors. Unlike other businesses, like Etsy stores or print on demand t-shirt drop shipping, drop servicing is completely devoid of any product.
While it operates the same way in certain aspects, it does not in others. It’s going to be up to you to deal with unhappy clients and work around revisions, as well as figuring out what freelancers to use for what particular job.
There is a much larger focus on your customer service and marketing skills over your branding and products, which certainly isn’t for everyone.
However, if you’ve found that you are good at managing people and products, and you have good marketing and people skills, then drop servicing is going to suit you just fine. It is a small business that is like a mini mixture of project management and HR, in that you have to manage your people that are working on any given piece at any given time.
Is drop servicing legal?
What trips a lot of people up on the legality of drop servicing is the level of deception that is inherently involved in the business model. You’re not telling your clients that you aren’t providing the service, nor are you telling the worker that you aren’t the client. Instead, you are acting as a go-between that neither of them is aware of.
Despite the seemingly high levels of shadiness here, drop servicing is fully legal. You can run and operate your business with no worries about that.
While, from a morality side of things, you might feel a little different about whether or not you should be drop servicing, the law doesn’t impact your decision in the least.
It’s time to start wrapping up our guide to drop servicing. Like any online business, a solid understanding of the fundamentals can go a long way to make it a success, and like any other business, we could write several books on the topic.
However, you’re going to have to make do with the little bit of information we have here for you today.
Another way to look at the drop servicing business model is like the agency model. It’s similar in that you are the main point of contact for the client, not the freelancer. However, the difference is that your freelancers are hired on a per-job basis and are not contracted to you. There is no official paperwork, responsibilities, nor is there any NDA.
This might be what attracts so many internet entrepreneurs to drop servicing. The inherent ease of access to a business model, which, just a few years ago, required a lot of knowledge and resources to set up, is very appealing.
Regardless, if you decide to pursue a drop servicing store, remember the things we discussed today, and you should be set up for success.