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Drop servicing is a term that we hear used often, but we never quite understand what it means for most of us. Start your own Drop Servicing Business can be tricky. This article will guide you through the process with everything in detail!
What is Drop Servicing?
Drop service is the act of selling a service to a client for a certain price (for example, $500). Then you hire a professional to provide the service for the client at a lower price (for example, $400), and you retain the difference as profit ($100).
Drop servicing is also known as “service arbitrage.” This is because you can arbitrage the price difference between what a client will pay for the service and what someone will expect to be paid to carry out the service.
How does Drop Servicing work?
Let us take the example of John; John is a young man fresh out of high school who spends most of his time playing video games and live streaming his gameplays on both Twitch and Youtube. He also enjoys watching other gameplays and has noticed the incessant amount of ads on Youtube. Most of the ads are short yet engaging, and one day, he stumbles upon an advertisement seeking freelance work in graphic designing.
He reaches out to the freelancer and is curious how much he would expect to provide such a service. The freelancer tells him of his price of $150 per 10-second video. John then manages to snag a project with a client willing to pay $250 per video advertisement. He reaches out to the freelancer, gets him onboard to complete the project, and finds a backup service provider in an emergency.
John soon spent more time on his simple drop servicing. Once he saved up some money, he got his website and has a successful drop servicing business of providing customized short advertisements for Youtube and even has these ads on his videos.
Start your own Drop Servicing Business might pop few questions in your mind. So keep reading & you might find your answers soon!
Is Starting a Drop Servicing Business Legal?
The first question most of us have! The Drop Servicing business model is entirely legal. It operates under the same concept of a standard reselling business model, where intermediaries sell at a higher price than they initially procure it for.
It is a legal business to start and operate online, but you would like to form sure that you fully understand how it works. Drop servicing is almost like Drop Shipping, except that you are only offering services and not products. Dropshipping involves selling products and linking with suppliers to send the products to the buyers. Both are entirely legitimate businesses that you can start online. These two are some of the best companies to begin online.
Drop Servicing Vs. Drop-Shipping
We have covered the basics of Start your own Drop Servicing Business, but what is dropshipping? Although it sounds similar and the business model may follow the same basic concept, it is quite different.
What is Drop Shipping?
The pandemic has forced most of us to adopt online shopping as it was the only option due to the extensive lockdown imposed. Maybe you needed a new laptop or needed to replace your phone cover that was falling apart.
In scrolling down the various options of a particular product available on a broadly popular online shopping platform, have you not seen the same product advertised by different sellers but at different prices? If you were never an economics student, the thought that would have crossed your mind would have been that the ones advertised at a lesser price were of more inferior quality. That’s the conclusion most of us would reach that the more expensive one was of better quality and thus we would be more satisfied purchasing that. Let us take the story of primary school teacher Jenna.
Jenna was stuck in the town where she was teaching during the lockdown away from her family. She was teaching online for a few hours every weekday morning and was relatively free otherwise. You might wonder what Jenna has to do with drop servicing. Jenna now runs a pretty successful drop servicing business. How? She stumbled upon the drop servicing business model when shopping for a birthday present for her nephew. Her nephew loves model airplanes, and that is what Jenna was looking for on various online platforms. She decided to purchase two model airplanes from two other sellers, one which was expensive and one comparatively cheaper.
She shipped the more expensive one to her nephew and the cheaper one to herself. Upon comparing the two products, she was intrigued to find that there was no difference between them. However, she had purchased them at different prices from two other sellers stationed in different parts of the world. That’s when she started her research, learned what this business model was, and understood its mechanism. Although a primary teacher by day, Jenna soon became very successful in her drop shipping business venture and continues to profit from it every day.
You now might understand the difference between Start your own Drop Servicing Business & Drop Shipping business. Here are some more facts to clear that out!
Major differences between Drop servicing and Dropshipping?
Dropshipping is, therefore, the act of facilitating a sale of a product that you did not manufacture. In the simplest terms, all you have to do is select your product line and advertise it on your page at a price that brings you a profit. Then, when anyone makes an order, you can collect the money and place the exact order with the manufacturer you sourced the product.
Next, enter the buyer’s details and have the original manufacturer ship the product to your buyer. Of course, both these business models have their pros and cons. However, Drop servicing might be suitable for beginners, while drop shipping is a better option for the more experienced. Drop-Shipping may be a process of selling goods online without having to stress about the stock. Instead, the person selling the goods will refer sales to an affiliate who fulfills the order and offer a commission as an incentive.
Drop servicing follows a similar approach, but the person will be selling services instead of physical products. Example of this includes program optimization and logo design. Drop servicing would mean you receive the order for the service, and the service will be provided by a professional. Drop servicing is comparatively new during this money-making space and doesn’t have any courses or training as of now.
But drop shipping, on the opposite hand, has many classes and training from great entrepreneurs and professionals. The key advantage of selecting both methods would be that those wouldn’t affect refunds and returns. This aspect can be regarded as a massive tick in the pro column for Drop Servicing over Drop Shipping.
Drop Shipping is indeed really profitable, and people have built 7-figure businesses. But, that doesn’t mean that you can’t make an equivalent amount from drop servicing. If you provide the right niche service in the best way, drop servicing can, too, become a multi-million dollar business.
Best niches for starting your drop servicing business
- YouTube Intros
- Designing YouTube Thumbnails
- Data Entry
- Web Scraping
- Data Mining
- Graphic Design
- Video Creation
- Social Media Management
- SEO – Search Engine Optimization
- Developing Websites
How do you select an ideal niche when starting your own Drop Servicing Business?
The most basic niche for a newcomer in this business includes numerous traits to search for: It should be highly profitable – you’ll probably find it hard to form sales immediately, so you would like the sales that you do manage to develop to be as highly profitable as possible. It needs to be easy to understand – when you start, you don’t have that much experience, so the more manageable the niche is to get your head around, the better. Finally, you want it to be easy to sell. If your niche is in high demand and clients need it done immediately, they’re going to be more willing to agree to your terms tons quicker. You’ll close sales without the necessity for extensive negotiations.
Advantages of Drop Servicing
Less overhead costs
Start your own Drop Servicing Business is relatively cheaper as it requires little to no cost. The only substantial cost you would have to incur is the cost of the hosting website and platform.
You may choose what services you wish to offer, and you would not be restricted by any geographical or time barriers as services are intangible and need not be shipped as such.
There are no shipping periods.
As in drop shipping, there is no relying on the manufacturer to deliver the product to your customer on time as you would have control over when the completed service should be sent to your client.
Returns & refunds are eliminated.
As with tangible goods, there are no instances where your client would make a return with the service provided.
It’s a “set it and forget it” type of business.
Once you put in the time and effort to get your business running and have sourced many freelancers and professionals to provide the services advertised, you may sit back and enjoy the profit with little to no work.
Disadvantages of Drop Servicing
You can’t just sell any service you want.
Unlike in Dropshipping, where you can sell a myriad of products from pens to brooms to earphones, the best way to secure a profit is to select the right niche and recruit trustworthy freelancers who would be able to provide those services. Advertising on different services will get messier and require you to have at least a basic knowledge of all services.
You are not able to alter the delivery time of service.
Since you are not providing the service yourself, you have little to no control over when you will get the service. You can set hard and fast deadlines, but exceptional circumstances may arise for your freelancers, which may cause them to delay completing the service you have outsourced.
The most apparent negative attribute of drop servicing is a lack of quality control. You don’t own full control over the service quality since you aren’t doing it by yourself. You may end up spending more time editing other people’s work if you outsource to the wrong professional or freelancer. That would dwindle both your margin and your time. In an attempt to prevent this issue, make sure you have several vetted, qualified freelancers you trust. Then, you must put effort into building relationships with great freelancers so that you can count on them to deliver when a deadline looms.
There’s also a possible moral issue if your client doesn’t know you’re drop servicing the service. It’s morally questionable if your client believes you’re performing the service alone and you don’t tell them you’re outsourcing the job. If you do drop service, ensure you are transparent about your process. Inform your client that you have a team of qualified freelancers to who you have outsourced the provision of services and that you take full responsibility for the services provided. This is a great tip for anyone who wishes to Start their own Drop Servicing Business in the future.
Who are your competitors, and why is it important to analyze your competitors when Starting your own Drop Servicing Business?
It is crucial to analyze your competitors in business models such as Drop Servicing as it may have an immeasurable number. Since you have little to no control over the uniqueness of the product in this venture, the only thing that would give you an edge on the many other people engaged in providing such a service is to be a better enabler. Therefore, your outreach to customers is imperative.
The better facilitator you are to the service you are providing, the more customers you will retain and earn a higher profit. In starting first, you would have to find a service that has a little bit of traffic. Check out Fiverr.com and sign up on the platform. On the homepage, You will find a lot of services listed. At the top of the page, there will be a lot of categories listed. Hover your mouse over them, and you will see many subcategories listed in each of them.
Start clicking on each of them and see if the first page results get any orders on them. Anything more significant than 80-100 orders is a good niche. You may also try beginning with the niches we have narrowed down for you earlier in the article. Next, list all the niches during a separate notepad and move to the following: Analyzing The competition. There are two methods to analyze your competition; The free method entirely depends on Fiverr because that’s where you will be listing your service. You can use Google Ads to drive traffic to your website when starting your own drop servicing business for the paid process.
The competition for these niches must be pretty low to run a successful advertising campaign. Google has a free tool for assessing the competition called Google Keyword Planner, accessible from Google Adwords.
When Starting your own Drop Servicing Business, Remember the rule of thumb; Quality is number one. All the efforts you put in will be a waste if the good quality is not met. It’s a wrap. Catch you soon with another exciting and valuable article.