What is a Drop Servicing Business?
In the short history of the internet, we’ve seen many radical innovations that have changed the way we do things. We’ve seen social media change the way we connect. We’ve seen streaming platforms change the way we consume media. We’ve seen online education change the way we learn. Another aspect of life that the internet has undoubtedly shaken up on a foundational level has been commerce.
Models of brick-and-mortar commerce that have been around for thousands of years have drastically changed in only the first two decades of the internet.
With innovation comes rapid transformation of business models. During the last few years, dropshipping was the trend that took over the internet’s version of commerce, e-commerce. It gave millions of people a new opportunity to make money and provide value for customers. But a new model is taking flight: Drop servicing.
What is drop servicing?
Those in the drop servicing business provide valuable services to customers in need. Drop service businesses act as the middleman between the customer and the service provider. It’s similar to sub-contracting work in the real world. Drop servicing has a few different names such as service arbitrage, middleman agency, or white label agency.
With the technologies and conveniences of the internet, this newer business model is growing in popularity. With drop servicing, you can provide any number of services to customers in nearly any niche, industry, or vertical. You can develop websites for fashion companies, create content for and manage social media platforms for brick-and-mortar restaurants, provide email marketing services for influencers, create video advertisements for course creators, write blogs for landscaping companies, help rebrand software companies, and more. And, drop service businesses accomplish all this without doing any of the actual service fulfillment.
This simple business model has several alluring advantages and only a couple of potential disadvantages to keep in mind. Wannabe internet entrepreneurs are finding this business model to be the next big profitable opportunity online.
How does drop servicing work?
- Like any business model, it all starts with the customer. Customers have problems. These problems need solving. You, as a drop service entrepreneur many miles away somewhere on the internet, might solve this exact problem for businesses.
- With your savvy marketing plan magnetizing prospective customers, you’re able to connect with the business that needs your help. After connecting, you and the prospective customer decide you are a perfect fit to work together. The client tells you exactly what they need a.k.a. places an order.
- Then, you take the order and coordinate with your trusted team of "white label" service providers. (White label refers to any service that comes with no branding or identification so you can label it as your own service.) You charge your new customer a certain amount of money while paying the service provider a fraction of that fee for the services provided.
- The service provider fulfills the services and sends you the deliverable. You approve it, put your name on the finished product or service, and pass it along to your excited customer.
Without even needing to fulfill the actual work yourself, you’re able to pocket that profit margin: what the customer paid you minus what you paid the service provider. Acting as a middleman, you ensure the quality of work is adequate and manage the relationship and communications with the client. You are handsomely rewarded for your trustworthiness, reputation, project management skills, and ability to produce quality results (even if you didn’t even do the work yourself).
What are the benefits of drop servicing?
Drop servicing comes with many benefits for all parties involved: the customer, the service provider, and you as the drop servicing middleman.
From the customer's perspective, using a drop servicing business makes things a lot simpler. The truth is, it’s not easy for busy business owners to discern between the millions of freelancers, agencies, and service providers online. Using a drop service provider who specializes in one service and has lots of good reviews is the simplest way to get your problems solved. Another benefit of using a drop servicing business is that you’ll be dealing with customer service professionals who are experts at managing your needs.
From the service provider's perspective, this business model cuts out one of the most dreaded aspects for any freelance service provider: the sales process. It’s very difficult to be an expert in providing a service like content writing or web development while also being an effective salesman. Once a service provider connects with and provides solid work for a drop service business, they can find themselves with a steady flow of client work. The best part, they may never need to deal directly with an impatient, demanding, or upset client.
From the drop service business owner’s perspective, you’ll find yourself launching a business with very low barriers to entry. There are countless problems that businesses are willing to pay good money for. The requirements to get started are minimal (but more on those later). And, the internet is full of freelance service providers hungry for more work. Additionally, the profit margins can be high and long-term contracts allow for steady recurring income.
How can you start a drop servicing business?
First, choose the service you want to provide. For many, this may be the most difficult part. Unless you have a previous track record or interest in a specific niche, your options are as wide as every service available in any niche.
It’s important to ask yourself a couple of questions before picking a niche.
- Am I or could I become an expert in gauging the quality of this service? You don’t need to be an expert in doing the work. But it will be helpful to become apt at identifying whether the service provided by your team of freelancers is going to satisfy a client’s needs.
- Is this a common problem that many businesses need a solution for (and will create a consistent stream of prospects)? If this is a common problem faced by many businesses, you will have no problem finding customers who will pay for your solution.
What services can you offer in your drop servicing business? Here's just a short list of services you can provide eager customers through drop servicing:
- Social media management
- Website development
- App development
- Graphic design
- Logo design
- Customer service
- Conversion rate optimization
- Email marketing
To ensure you are successful in connecting with your prospective customer, it’s best to pick one service to offer. Additionally, it helps to narrow down who you serve. For example, you do web development for accountants. This will help position you as the expert in your target market’s eyes and ensure customers flock to you.
After you’ve decided what you provide and for whom you do it, it’s time to build your website. This drop service website should include information about what you do, who you do it for, why they should trust and work with you, and how to connect with you to work with you.
Next, you’ll need to build your team of service providers. You’ll want to look for white-label service providers or freelancers. Before doing this, you’ll need to decide what your fees will be so you can find service providers who can complete the work at a much lower fee than you’re charging the customer. Some drop service businesses mark up prices as much as 3x to ensure a 66% profit margin that allows them to cover other expenses and turn a healthy profit.
Where can you find service providers?
Here's a list of the top places to find freelance service providers:
To read more about finding freelance work, check out this blog.
Now, you’ll need to find a way to get in front of your prospective customers. This step is often the most challenging for any business owner. Marketing your business will be an ongoing process as you continue to build. Some marketing ideas include:
- Creating content on social media to position yourself as the expert in your niche
- Cold emailing or calling prospective businesses
- Running advertising campaigns
- Ranking high on search engines through SEO
- Joining networks and attending events filled with your ideal customers
After you connect with customers, all you’ll need to do is sell the service to your interested prospect and begin the work. You’re now officially a drop service business.
What are the drawbacks of a drop service business?
Sounds easy? Out of all the business models around, drop service is one of the easiest to get started with. There are, however, some potential drawbacks of which you should be aware. Providing a good, quality service will be your top priority as a drop service business. Dealing with clients means that “quality” will be subjective. Clients are coming to you to solve huge problems in their day-to-day business life. Pleasing customers isn’t always easy and you’ll need to know how to handle managing customers’ expectations. If things go wrong (and no doubt something will always go wrong in any business), a drop service business owner needs to be able to step in and make things right. This poses a particular challenge for some, but it’s par for the course for any service provider.
Due to the low barrier to entry, this business model will inevitably become highly competitive. With good due diligence upfront, a dedication to providing the best quality services around, and the willingness to make your customers feel cared for, anyone can cash in on this exciting new business model.
*The opinions reflected in this article are the sole opinions of the author and do not reflect any official positions or claims by Acer Inc.
About Alex Clark: Alex is a contributing writer for Acer. Alex is a Texas-based writer and B2B email marketing strategist specializing in helping technology brands connect to their customers. He has lived all over Asia and has consulted with business clients in numerous industries to grow their brands.
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