You’ve heard of drop shipping, but have you heard of the drop servicing business model? Today we are going to present the ultimate guide to drop servicing. A drop servicing blueprint if you will.
Just like drop shipping, you can make some crazy profits with drop servicing or as it is also referred to as service arbitrage. I’m talking 2 – 5x your investments.
The drop servicing business model is gaining a bit of momentum, but the great thing about it is it is still not that widely known, which means it’s not overflowing with competition. Which is crazy, because it’s a super simple method to make money online with.
We are going to cover everything you could need to get started with the drop servicing business model and making money.
What is Drop Servicing
So, drop servicing, or service arbitrage, follows a lot of the same theory of drop shipping. In drop shipping you are selling physical products. You take the order, you pass it onto the manufacturer, distributer or other seller. They fulfil the order and you take in the cash. Drop servicing is the same except we are selling services.
By services we are talking about online services. We find a freelancer or company test out there services. If we are happy then we sell on those services to our clients at an increased cost. This works really well with online marketplaces.
Let’s use an example. Your client is after a business branding such as logo design, letterhead and business card design. You go to your provider who charges $50 for the lot. However, you are charging your client $150 (you can charge a lot more!).
Is the drop servicing business model profitable?
Yes. Absolutely. To determine whether drop servicing is profitable all the time we need to be always assessing our process. We can define the profitability of drop servicing simply:
The Price (P) we charge minus any costs (C) to us or P – C
Our costs (C) can vary so we need to understand all of these so we can price accordingly in order to make a handsome profit. Now, the drop servicing business model is the same as any other in one way. A successful business is one that can sustain its success over the long term.
The only way to do that is to offer a good service. We are not trying to cheat our customers; we want to provide value. It is therefore important to review your service providers.
Let’s say we choose a service, like social media management, and our provider charges us $100 and we charge our client $500. We would only need to secure 5 clients to generate a revenue of $2500/month for ridiculously low effort! The profit ratio is ludicrous. Now, think about flipping that site on Flippa or another website brokerage and you could be looking at selling for a markup of 10 months profit depending on how much consistency you show. Now rinse and repeat with the drop servicing business model.
What costs are involved in drop servicing?
As we mentioned our costs, like any business venture, are as important as any other part of the business. If we do not understand this then we won’t understand our margins and we will just be winging it. Some of the standard costs you will have to think about:
- The cost to buy the services
- Hosting your website
- Advertisement costs – generally the best route
- Any SEO costs – if you are looking to rank our website
- E-commerce setup – I lean towards an all in one sales funnel product like GetResponse or ClickFunnels. My preference is to go with these paid approaches as opposed to something free like WooCommerce due to the time investment to get it up, running, and integrated vs a paid-for option that does it all in one place.
- Taxes…yes, you should be paying them!
Check out the free, no obligations trials of the best e-commerce setups below, take them for a trial run and see what works for you:
The website hosting is an interesting one as I would always recommend paying annually for it. You can then spread this cost monthly. This is likely to be relatively cheap and you may even be able to recoup this in one sale!
You may also be thinking I don’t want to pay for a sales funnel package. If you want to start scaling this business model then paying for things like advertisements and tools will be necessary, but you can tweak your prices to cover them, so you don’t lose any money.
This is very much a mindset thing. In order to start making the sums of money that would make a side hustle worthwhile, or even better help you quit your job, require you to invest in yourself and in tools that can aid you.
To help with getting started with sales funnels check out this great guide.
What services can you drop service?
Theoretically any service provided online can be drop services, however some will have a greater audience. Ideally, what the best drop servicing niches are those that will generate repeat customers. Some ideas for niches you could target:
- Logo Design
- Writing Services
- PPC Advertising
- Social Media Management
- Lead Generation
- Video Editing
- Resume Writing
- And many, many more
Where can I find service to drop service?
The best places to find services to drop service are online freelancer platforms or anywhere providing a platform for the gig industry.
The simplest and where you have a good selection of provides is Fiverr. This should be your starting point. for selling services via the drop servicing business model.
Test it out here and then you can look to extend into other platforms such as:
A word of warning, platforms that charge per hour can be more difficult to assess your profitability against. Focus on set fees to begin with at least. What I do find though is that you will often find a higher quality provider in other platforms who you can then strike up a long-term partnership with.
How do you get traffic for drop servicing?
As with most internet marketing business models there is the free way and the paid way. Let’s take a look at both.
Free Methods to get started with Drop Servicing
Free traffic with a website
Create your website and drive free traffic to it. Ensure you have your SEO on point in order to rank and then utilize social traffic, forums, groups, etc to drive traffic. To be honest this method will take far too long and I really don’t advise it.
Become a seller on a marketplace
Add yourself onto a marketplace such as Fiverr and take orders from there. This is a great way to get free traffic and a platform like Fiverr generates huge amounts of traffic. You then take those orders and put them through your providers to deliver yourself a profit.
The trouble with this approach is that you are restricted by the price you can charge on these platforms. It’s not the actual platforms restricting you, but the customers. Fiverr, for example, is a gig economy where customers have a cheap deal. This restricts our profits, which would negate the point of the drop servicing business model.
The second challenge is you need to build up your ranking to hit the first pages and get the work from the more established merchants. This is also a pro as well, because it is the same for all and we can uncover some new entrants who are just as good, but cheaper than their competitors.
Doable, but not recommended.
Paid Methods to get started with Drop Servicing
Drop Servicing with Paid Ads
The other, and the option I highly recommend, is to build your website and then drive traffic to it through paid advertisement. What you have to remember here is you will be making this advertisement cost back 2-3x over so don’t let that put you off.
Once you have customers placing orders you place your order with your favoured merchant. I’d always have a couple of backups as well in case your preferred supplier isn’t available.
On your website you want to have a few different offers available as well as a one-click sales funnel so that customers can add more to their purchase such as fast delivery.
This is the recommended route.
What are the limitations of Drop Servicing?
There are always pros and cons to business models and the drop servicing business model is no different. Let’s list out some of the limitations of drop servicing:
- If something goes wrong, you are the point of contact for the customer so you will need to deal with them (you could outsource it when you scale up). As we said earlier, we want to provide a high-quality service so we can get repeat customers. You could even offer a retainer feature.
- If you are going to do this the right way, then you will need some upfront cash to kickstart things.
- You will need to understand Google Ads and Facebook Ads
I love the drop servicing business model. Yes, you’re a middleman, but that is effectively what all retail is. I prefer to think of it as a consultancy. People need a service and you provide resources who can fulfill that need. As with any business, there will be a mark-up for your time, but drop servicing is legit and completely legal. It offers great profit for limited work.
How does it sound for you? leave me a comment below and feel free to pin the image below so more people can understand the model.