The drop servicing business model is as old as the first realtor: people are willing to pay a nice price portion for someone skilled to find them their dream home.
So what can we learn from real estate brokers?
Focus on the service aspect: serve your clients the best and the ROI will be manifold.
Meaning of Drop Servicing Business Model
The drop servicing business model is setting up a business of providing high-value services to clients while supplying them from competitive-pricing providers, such as freelancers, small businesses, and agencies.
Instead of products, you sell services. Drop servicing is profitable because it enables charging high-profit margins, which may go up as high as 70%.
Drop servicing is also known as drop-shipping services, white labeling, outsourcing, or service arbitrage.
History of Drop-servicing
Long before the boom of the idea to resell services, mail companies in the 50s and 60s used the mail order system to drop-ship products. They were the intermediaries that took the advantage of having people’s addresses and phone information at their disposal.
Later, with the advent of the Internet, it is when the true drop-shipping business started to bloom. Businesses capitalized on the ease of setting up an e-commerce business, massive online selling platforms such as eBay and Amazon, access to a global target audience, and creating niche brands specialized in delighting a narrow group of target customers.
Unlike drop-shipping products, a drop-shipping services business has the upper hand of fewer physical barriers. Especially when there are supply chain restrictions, the drop-servicing business model is attractive for entrepreneurs because of the expanded access to online resources.
Similar to drop-shipping products from a store that you don’t own, drop-shipping services are delivering services from third-party providers to your clients.
You should not confuse the meaning of drop-shipping services with a drop-shipping service company. Drop-shipping service companies deal with the logistics aspect of selling from third-party online stores.
Drop-shipping services include rebranding, repackaging, quality-checking, expert scrutiny, project management, or in other ways adding value to the basic provided service so that your client gets an awesome deal at a great price they are willing to pay.
White Labeling Services
White labeling is selling branded products or services manufactured or executed by a third party. The brand company adds extra value with the brand name and the unique marketing strategy that targets specific audience needs.
The advantage of white labeling is that service (or product) providers can focus on developing proficiency, authority, and mastery at a certain skill, process, or business area. A project with multiple white-label service providers gets maximum quality impossible to pull off just by hiring one company.
White Labeling is also sometimes called Private Labeling. An example of white labeling in the service department is having an online publishing business that sells ghostwritten content under the company’s main brand.
Arbitraging services is buying services at a lower price from one market to sell them at a higher price in another market. Companies that arbitrage services mediate between service providers and clients — they are service mediators.
Price variations of the same service in different countries are one example of service arbitraging. However, viewing the advantage of the service arbitraging as a drop-servicing business model only in terms of geographical limitations is a big mistake. For example, for many countries, solving the tech skills gap is only possible by expanding beyond local borders.
Outsourcing is subcontracting services to a specialized provider. The main difference between outsourcing and drop servicing is the beneficiary.
In outsourcing, the beneficiary is often the company doing outsourcing itself to gain departmental easing or proficiency. IT managed services and facility management are two typical examples.
In the drop servicing business model, third-party clients are beneficiaries of the third-party service enhanced by the drop servicing company.
You should not compromise quality for the sake of a lower price. Learn how to establish quality control systems for your team of freelancers:
Is Drop Servicing Simple and Easy?
While it is true that establishing a drop-servicing business requires less investment than owning a physical office, not all is roses. For example, you can:
- Have an excellent idea, but a poor team of service providers who fail to deliver.
- Skip defining work quality standards, so the outcome doesn’t match the client’s requirements.
- Fail to define objective measurable criteria for a service and rely on opinions, tastes, and preferences instead.
- Miss acting on audience insights, and develop a drop service business idea that no one needs.
- Lack knowledge in a highly specialized technical area and fall victim to service provider scams.
It is therefore crucial to pick a solid idea you can add value to and bring it closer to the audience.
Drop Servicing Business Ideas
The best drop-servicing business ideas increase the service value. Here are some profitable niche ideas for starting a drop-servicing business:
Audio and Video Production
Video editing, video animation, sound editing, and podcasting are several sub-niche skills you can repackage and rebrand as a production business. Audio and video production can be sold as a single package or under an umbrella of digital marketing services.
Design, Branding, and Packaging
Design sells. In today’s digital world, design sells even more. A simple T-shirt shop based on a like-minded community spirit is the perfect example of how to sell design as a drop-service business model.
Copywriting is a specific skill based on persuasive writing. There are so many copywriters out there that will appreciate someone else doing the admin and contract work for them while they focus on the creative work. Technical copywriting is attractive because it enriches the basic model with extra skills: technical knowledge, documentation writing, and formatting.
While website building may look like a saturated niche at first, the opposite is true. Audience-specific website builders are getting more and more popular. So, you can start a drop-servicing business with something similar to a website builder for cooking recipes.
The success of any business lies in finding interested buyers, those buyers that are eager to leave a 5-star review without asking. Since online customers are more difficult to please, every little piece of data that guarantees more sales due to more SQLs counts.
If you are an expert in a specific area but lack skills in another, you can build a consultancy service hub by drop-servicing the consultancy skills of your service providers.
Social Media Services
Social media channels are packed with value when it comes to finding and utilizing drop-servicing business ideas. Social media groups, chats, comments, and likes are important for brands because they provide a flurry of data that can be used as feedback for improved engagement.
Benefits of Drop Servicing with Freelancers
The “service” aspect of the drop-servicing business model should not be underestimated. Clients are happy to pay more if someone skilled ensures they don’t waste hours trying to find exactly what they were looking for, especially when it comes to complex projects.
1. Access to expertise
Having the knowledge or knowing how to get the knowledge in a certain niche is sellable. So, you can base your drop servicing business under the consulting cap or brand it as a tech project with unique and disruptive value.
2. Service personalization
Building teams with freelancers who are adroit in specific skills lets you build a brand that produces perfection, at a much greater quality, in less time.
3. Reducing complexity
When a client has a large project with multiple unrelated tasks, your service help comes at a cost to connect the dots and bring a team together at the best value.
4. Managing price differences
Since you have access to a pool of variable freelance providers with various service prices, you know how to pull the maximum out of the price difference and win more projects than usual.
5. Solving bottlenecks
It is here where the money drains for clients. Unable to find out what eats their budgets, they overpay for particular bottleneck solutions. Drop servicing is the sewage cleaner for such bottlenecks because you can analyze and identify exactly where the money goes and offer better solutions.
6. Relatively new market
Freelancing is not new but digital marketplaces are growing at a super-fast pace and you have access to create drop servicing teams for clients to enhance their digital presence and revenues in unprecedented ways.
Drop servicing is a volatile market, so you have better success prospects to learn as you go. Acting as the mediator between clients and freelancers, you can listen to what clients say and what freelancers provide to come up with solutions that change with changing project requirements.
Is a Drop-servicing Business for Me?
If you connect quality work with being your own boss, then a drop-servicing business is an option because of its variability and prospects for growth.
Starting an online business doesn’t only have to be e-commerce, such as selling physical products in a webshop.
An online business that includes the service aspect of selling is increasing in popularity because of the consumer’s trend to get almost all information about products online. People have access to thousands of products that compete for their attention. The service aspect of selling makes all the difference in whether a brand will succeed and grow or fail behind the competition.
What is the service aspect? A service aspect of a physical (or digital) product goes beyond its appearance based on outer characteristics. It also includes reliability, assurance, empathy, and responsibility. Here are some examples of each service aspect for physical and digital products:
- Appearance. The office staff is appropriately dressed. The website has a clean appearance and it is easy to navigate.
- Reliability. The item was returned in the time specified in the return policy. The training course delivered knowledge exactly on its promises.
- Responsibility. The sales manager was available for all questions before the meeting Graphic design was correctly executed according to client requirements.
- Assurance. The product met all technical specifications. The work was completed based on established quality standards.
- Empathy. The customer personnel addressed everyone waiting in the queue individually. This digital marketing agency was genuinely concerned about asking questions and solving my problem.
Customer convenience is the major benefit of going into drop servicing.
How to Set up a Drop-Servicing Company
Here is a step-by-step guide to help you start a drop-servicing business:
- Choose your industry. Drop servicing can be highly profitable if you go into the niche that is right for you. Services are usually connected to digital businesses working with freelance experts who re-package, re-brand, and re-sell the service at a higher price. Graphic design, logo design, website building, and marketing services are good candidates for a drop-servicing business. But don’t think that you can simply increase the price for an identical cheaper product because people will find out and you’ll be out of business before you know it. That takes us to the next step.
- Add value to the drop-shipped service. Adding value can include creating a business strategy blueprint or a sales funnel blueprint for the sales and marketing team. Creating workflow systems for teams that are experts in your niche also adds value to a generic service. Added value is a surefire way to beat the competition, too.
- Outperform your competitors in solving a customer problem. The only way to find out if you’re better than other businesses is to ask. Discover what lacks in the niche by engaging in social media groups, online forums, business social channels, and surveying. Solving a problem innovatively is a service aspect of the business. If you are good at it, establish your drop-servicing business around it.
- Check compliance. Depending on your industry, different legal requirements can apply. Some services may require licenses. Investigate local tax requirements. This step is needed to avoid bottlenecks that may crop up later due to unforeseen legal obstacles.
- Build a brand. Building a brand is what online businesses like to poetically call “finding your tribe”. All of the above steps will create your brand, but the most important step is knowing the type of customers you serve and their typical problems. Narrowing down your niche is more effective for an online business because you train your team to be the best-skilled provider of certain services.
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