Drop shipping created amazing new opportunities for beginner entrepreneurs. In a similar way, drop servicing is applying these business models towards services instead of physical products. Drop servicing avoids many of the common problems with drop shipping.
Most likely you already use drop services without even realizing it. Many companies that provide your services rely on freelancers to help fulfill service requests. There are many industries that benefit from the drop service business model such as:
What is Drop Servicing?
Drop servicing is a business model where a company sells a service and uses freelancers to complete the work. The drop servicing company acts as a broker between clients and freelancers and earns a profit.
By using freelancers, beginners can quickly compete in the marketplace and build systems that can grow and scale. Beginners can avoid the expenses of hiring full time employees, and only pay for services as needed, after they sell those services to a client.
How does Drop Servicing work?
Let's say a marketing agency sells an SEO package to their clients for $2000. The marketing agency would then find qualified freelancers to complete this work for $1000, earning a $1000 for the company.
The benefit to this business model is that the marketing agency can hire freelancers after they sell services to the client. Beginners starting out can avoid the time and expense of hiring full time employees to fulfill these services.
With the rise of the gig economy, websites like fiverr are full of freelancers looking for work. Drop Servicing or Service Arbitrage is a way to start a business by using independent contractors to provide deliverables to clients in need of those services.
Drop Shipping vs. Drop Servicing Business
In recent years many entrepreneurs have started their businesses based on drop shipping products from China. This business model faces many challenges and unexpected costs for beginners. Earning profits is becoming much more difficult with rising shipping costs and longer shipping times.
With drop shipping, entrepreneurs find trending products on Chinese wholesale websites like Alibaba or Aliexpress and attempt to sell them for a profit on their own Shopify stores or other platforms.
Common Drop Shipping Problems Include:
Product Returns
With drop shipping products, returns will cost you a lot of money. It may often cost more to ship a product back than the value of the product itself. How will you handle storage and processing of defective products? These are very common issues in the drop shipping business.
Damaged & Missing Items
Quality control is an ongoing concern for drop shipping products coming from China. Products may arrive with damaged packaging, broken pieces, or may never arrive at all. Combined with long shipping times, this makes for unhappy customers.
Processing Orders
Each time a customer purchases your product, and order is placed with the wholesaler and then shipped to the customer's address. As you sell more products, this process can quickly take up the majority of your time. You will need to purchase additional services to help grow and scale your online business.
Long Shipping Times
Drop shipping products from China often take 2 weeks or longer to arrive to the customer. Amazon typically offers 2-3 day shipping along with package tracking. There is little incentive to order through your drop shipping store compared to just buying it on Amazon like everything else.
Low Profit Margins
The actual profit earned on each drop shipping product can be very low, making it very difficult to even cover expenses. You will also be in competition with large corporations like Amazon and Walmart. You also won't know which products will sell until after you spend money on ads.
Drop Service Arbitrage
In terms of business profitability, drop servicing is much better overall. The profit margins are much higher, and you can see a greater return on all your efforts.
As an employee, you have a certain set of skills that your employer pays you for. What if there was a way you could outsource your job at a profit? With drop servicing you can do exactly that by using freelance services and new artificial intelligence tools.
Entrepreneurs can build a successful drop servicing business by building relationships with businesses and freelance workers. This process of earning a profit from outsourcing services is also known as service arbitrage.
Businesses today can't afford to ignore the profit potential from social media and online business. Without having a website, it's difficult for customer's to even find their products or services.
Common Drop Services Include:
Graphic Design
Having a professional looking and engaging photo can have a massive effect on generating engagement. These graphic design services can include creating video thumbnails, info graphics, logo design and many more.
SEO Ranking
Many businesses don't have the time or money to dedicate towards a full time marketing team who can get their sited ranked their website in Google. This can be a very lucrative service if you are able to deliver reliable value to your customers and increase traffic.
Content Creation
The internet thrives on new content that will keep people engaged on social media platforms. This is one of the best ways to use free traffic to market your business. These services may include creating Facebook pages and posts, email sales letters, websites and more.
Video Editing
YouTube is one of the world's largest search engines and a great way to reach more customers. This is another service that you could offer as part of a drop service business. Video services can range from simple editing to creating advanced motion graphics.
Blog Post Writing
Blogs today have become one of the best sources for organic traffic online. Being able to rank for valuable keywords can generate tens of thousands of dollars in revenue. This requires writing professional content that will help a website improve their SEO rankings.
How To Start A Drop Service Business
1. Choose A Niche
What services do you hope to offer your clients? If you already have experience in a certain area, that's a good place to start. Think about what services are currently in demand that also fit with your knowledge and experience.
Equally important is selecting services that are also currently in demand with a high profit margin. You may need to readjust your niche once you start marketing your services and receive feedback from different businesses you speak with.
2. Finding Freelancers
Once you have selected the services you will be providing, you will need to find people to fulfill those services. Online marketplaces like Fiverr, 99designs, Upwork, Guru, Flexjobs, and Freeup are all great places to find freelancers.
Although drop servicing uses freelancers to complete the majority of the work for your clients, your brand and reputation are on the line. It's your responsibility to ensure that the work produced by your freelancers is professional quality that will satisfy your clients.
Some important considerations for your freelancers:
3. Launch Your Business
The next step after selecting your niche and fulfillment, you will need to advertise your services. The most important part of your new online business is establishing an online presence. It's highly recommended that you create your own website and social media pages.
One of the most inexpensive and popular ways for beginners to get started is by using WordPress. The main essentials for building a website is a domain name and hosting provider. Your web presence will become the first point of contact for future customers.
4. Marketing and Lead Generation
After you've created a professional looking website and social media profiles, you will need to collect leads and find customers.
Successful Strategies Include:
5. Your First Sale
Most businesses understand that social media can increase their profits, but they often struggle putting an effective plan into practice. Marketing skills can take years to master, and business owners are too busy actually running their business. This is where you can step in to provide value.
You will need to understand the needs of your clients so that you can create a quote based off the market rates on freelance platforms. Once you know the cost of outsourcing these services, you can send your client a pricing quote.
Drop Service Business Costs
The core essentials to start a drop servicing business are very inexpensive. The monthly cost of purchasing a domain name and hosting is about $20 or less. Hiring freelancers will be the largest expense, but will only apply once you've found your first client.
You will need to create spreadsheets of the costs of all the different clients services you will be providing. Once you know how much these services will cost, you will be able calculate your profit margins and run your business properly.
Drop Service Business Laws and Taxes
Disclaimer:
This information should not be considered financial or legal advice. With any business, you should always follow all laws and regulations for your operations. You should do your due diligence regarding contracts for the deliverables that you will provide to your client.
You will also need to keep diligent records of all your business expenses for tax purposes later. This will include all the money you spent on domains, hosting, page builders, email hosting, and most importantly all the money you pay your freelancers.
It may be wise to consult a license tax professional regarding any state and local taxes you will owe. There are also many online resources you can use to prepare your own taxes.
Summary
Drop servicing is a great business model for beginners that avoids many of the common pitfalls with drop shipping. There is a low barrier to entry and a high profit margin on services rendered. All you need is a simple basic website and some social media pages.
This business provides real value to customers and has the potential for massive growth. If you provide high quality work to your clients, you will establish a strong reputation and generate even more business.
Like all businesses, drop servicing will require dedication and consistently taking action towards your goals. Too many people don't see instant results and get discouraged. Creating passive income sources require putting in the hard work upfront so that you can reap the benefits for years to come.
If you want to learn more about drop servicing and other ways to make money online, please subscribe to our newsletter and check out our resource pages for information and tools about starting an online business.
