Humans have always bought and sold goods and services to one another. Before we had paper currency, we bought and sold goods and services by bartering and exchanging. Animals and their hides, teeth, tobacco, weapons, tools, and crops were some of the most common items humans used to barter with.
Before the popularity of ecommerce and the invention of the internet, goods & services were generally bought in person, directly from the seller. Today, goods and services are still sold directly from the organization to their clients, like when a customer shops at Walmart. However, since the internet, sellers began creating a new business model to sell their products online without a physical storefront.
There are many types of online companies and ecommerce structures selling physical and digital products. These include B2B, B2C, C2C, and C2B businesses, making the world of ecommerce that much more complex. Each type of ecommerce structure involves selling goods and services to a client, but the in which we complete the finished result varies.
Drop Servicing Business Models
Drop Servicing is a means of selling services for profit. The drop servicing model involves selling a service to a customer for a fixed price and then hiring someone else to complete the project. The subcontractor hands the finished product back to the seller, who repackages it and marks up the price for the client. Services are completed at a lower price, and the seller pockets the difference. Another name for drop servicing is service arbitrage.
In this way, the client is satisfied, but the seller makes additional money from the cheaper labor they just purchased. Dropshipping is similar to a drop servicing business in that it involves a third party or subcontractor creating the product and completing the service.
A typical example of drop shipping would be a seller ordering cheap products from an online business/seller in China and posting them on Amazon for a higher price. The consumer pays the higher price, and the seller pockets the money they earned from marking up the original product’s price.
However, with drop servicing, no physical product is shipped out but designed to sell online products or services. Typically this is done without the client knowing they outsourced the project. Although this might sound dishonest, drop servicing has become a standard method of conducting business that most clients are aware of. Often, clients won’t care how you complete a project as long as the finished product meet’s their standards and meets their deadlines.
Perks of Drop Servicing
Completing a project takes time. To save time and money, many savvy business owners outsource their work through drop servicing. As a seller, you are free to hire as many subcontractors or freelance workers as you need to complete the projects you take on.
A third party completing your work leaves you with more time to focus on other projects or gather more clients. A business that can grow will be set up to satisfy multiple clients and grow according to how in demand they are.
Do More with Less
Doing more with less simple means you are making more money and doing less footwork. By hiring someone to complete a service or produce a good, you don’t have to spend your time completing the project and focus on other tasks. As a service provider, you will still need to ensure the finished product is up to par, or a client won’t want to work with you again.
Cons of A Drop Service Business
Outsourcing can sometimes be a dangerous game. If you’re not creating something yourself, you are dependent on what you receive back from the person you hired. Depending on what type of content you’re outsourcing, you might be able to edit what you receive back, like writing services, web development, creating marketing SEO Facebook ads, or photo/video editing. For some items, you can’t fix them once you receive them back. An approaching deadline might mean you don’t have enough time to fix them again.
With a drop servicing business model, you run the risk of the type of quality you receive. With deadlines approaching, as a seller, you might be forced to submit the work you receive even if the quality isn’t up to standards. This uncertainty leaves a lot of room for disappointing the client and handing them something you’re not proud of. Connecting with a professional and reliable contractor is essential to continue satisfying clients.
Make sure only to sell services you can fulfill through a subcontractor. If you cannot fulfill their wishes from the beginning, be honest about it. Having transparency with your clients is key to building long-term relationships. If you say you’re going to create something for them, doing something other than that is dishonest and breaks mutual trust. Dishonesty between you and your clients sets your business up for failure and isn’t a solid long-term business model.
Unless a client asks you about drop servicing and how you will complete the project, you aren’t required to discuss it with them. If a client asks you directly, be honest. You might find that some clients are fully aware that their finished product isn’t being created by you and care more about the quality and how long it takes you to deliver it.
Common Questions about Drop Servicing
Do I have to tell clients I am using a middle man to complete the project?
No, you don’t have to tell your clients you are outsourcing the completion of the project and marking the price up. Essentially, when a client hires you to complete a task, you act as a matchmaker and are employed to fulfill the need in whatever fashion you want.
The higher price the client pays for the finished result is due to the time and energy you spent overseeing the completion of the project and repackaging the product according to how the client desires. If a client asks you directly about how you plan to complete the finished result, be honest with them.
Is Drop servicing profitable?
When done correctly, yes! You will have to determine the price you pitch to clients vs. the price you pay the subcontractor. If the client pays you $100 to complete a project, and then you turn around and spend $90 to hire a subcontractor to get the task done, the $10 difference you pocketed might not be worth your time.
Depending on the scope and scale of your projects, spending two weeks waiting for a finished product and only pocketing $100 might not be worthwhile unless you’re working with multiple clients. Just like any business, determine your profit margins and keep track of how much you’re making vs. the time it takes to get the finished project back to the client.
Drop servicing is a valuable tool to scale your business and make money off of managing projects. To grow a positive reputation and build your business, you want to develop client relationships on honesty and accountability. Drop servicing can be an ingenious way to save yourself time and grow your business.
You might be surprised at how many services are being bought and sold using drop servicing. When done correctly, this method can save you a lot of headaches. Anyone can start an online business that satisfies even the most complex clients if they find the right people to work with and invest in this business model. If you don’t have marketable skills you can offer clients, but want to start a business, consider drop servicing!