Drop servicing is a business that sells services to clients and hires external contractors, such as freelancers or agencies, to complete the work.
If you’re a freelancer, switching to a drop-servicing business model has benefits. If you’re efficient, it can be less time-consuming than handling all client work on your own. Of course, managing other freelancers comes with its own share of challenges. This guide explains how drop servicing works and shows you how to start a drop servicing business.
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How Does Drop Servicing Work?
As mentioned, drop servicing involves selling services to clients, outsourcing the work to other service providers, and keeping a portion of the profit.
For example, you may have people ghostwrite articles or develop websites, but you submit the finished product. In the case of freelance writing, you may still be able to have your name published as the byline. If the customer pays $500, you might keep $200, and the freelancer receives $300.
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Understanding the Drop Servicing Process
Here is a step-by-step look at a basic drop servicing model:
- Your customer purchases a service from you.
- You outsource the project to an independent contractor or agency to complete the work.
- Once completed, you review the project and make minor adjustments.
- You send the finished project to the customer for final review.
- You receive payment from your client and send a portion to the freelancer(s).
If the arrangement is set up properly, it can be a win-win situation for everyone involved. As the face of the business, you can expand your brand, take on more clients and larger projects, and earn more revenue. You may even reduce your individual workload. Your clients will appreciate your increased capacity. And the freelancers you hire can get more work without looking for their own clients.
Drop Servicing Examples
The beauty of drop servicing as a business model is that you don’t have to acquire, store, produce, or ship physical goods. As a result, it’s easier to work from anywhere and there can be fewer startup costs.
Some drop servicing ideas include:
- Data entry
- Digital downloads
- Lawn care
- House cleaning
- Game, app, and chatbot design
- Graphics and logos
- Copywriting
- Search engine optimization (SEO)
- Podcast productions
- Pool cleaning
- Transcribing audio and video
- Social media management
- Website design
If the numbers make sense, you can apply a drop-servicing business model to many different services. For example, you must charge enough to pay your contractors and have enough money left over for yourself.
Depending on the business niche, this can be easier said than done. After all, you need to hire quality contractors, and they may not come cheap. Remember that your reputation stands behind the final product. Your customers trust your experience level and work samples and expect similar service quality.
Dropshipping vs. Drop Servicing
Many entrepreneurs are familiar with a popular e-commerce business model known as dropshipping. But dropshipping should not be confused with drop servicing as the two are quite different.
Dropshipping involves selling a product through an online store. Rather than holding inventory, the manufacturer handles product fulfillment, shipping the item(s) to the customer directly from its factory or warehouse. After covering the manufacturer’s costs, the drop-shipper receives a share of the profit. Many large online marketplaces, including Amazon, offer dropshipping as a business model.
The major difference between dropshipping and drop servicing is that with the former, you are dealing with physical products being sold to individual consumers, and with the latter, you are usually selling a service to another business.
One similarity between dropshipping and drop servicing is that both involve outsourcing. With dropshipping, you are outsourcing product fulfillment, including storing inventory. With drop servicing, you are outsourcing a percentage of the workload. Because of the amount of outsourcing, you don’t get to keep as much of the profit with both business models. That is something to consider with both dropshipping and drop servicing.
| Drop Servicing | Dropshipping | |
| Product | Services | Physical goods that ship directly from a warehouse |
| Costs | Outsourcing contractors, advertising, payment processing, software fees | Product acquisition, shipping costs, warehouse storage fees, seller fees |
| Potential Risks | Smaller margins, contractor’s submitted work may not meet expectations, outsourcing may violate a freelancer platform’s terms and conditions | Smaller margins, less control over fulfillment, items may not sell quickly |
| Customer Profile | Businesses and individual consumers | Businesses and individual consumers |
Is Drop Servicing Legal?
Yes, in most cases. However, you should review local laws and a freelance platform’s terms and conditions. You may also want to consult with a lawyer to draft contracts and provide legal advice to ensure you comply with customers and contractors.
Drop Servicing Pros and Cons
Drop servicing can offer several advantages, but it also has potential drawbacks. Here is our list of pros and cons.
Pros
- Minimal startup costs and ongoing fees
- Provides an opportunity to scale a business
- You may be able to earn more income while reducing your workload
- You can offer multiple services (depending on your skills and team size)
Cons
- More complex than a one-person business
- Income from client work must be sufficient to pay you and any assisting freelancers
- It can be challenging to find reliable service providers
- Must be knowledgeable about the services you offer
- It’s not completely passive income
How to Start a Drop Servicing Business
Below are detailed steps to start and build your own drop service business.
1. Come Up with a Drop Servicing Idea
First, you will want to determine which service you are skilled in and feel confident outsourcing to freelancers.
Ideally, you already freelance and can start sending some projects to others to complete by charging potential customers a higher rate.
However, consider completing the following tasks if you’re starting from scratch.
- Research market pricing and your income potential
- Identify in-demand services
- Join freelancer platforms (i.e., Upwork, Fiverr, 99designs)
- Create a business website
- Open a business bank account
- Consult with accountants, lawyers, and business consultants (if necessary)
Most importantly, know your break-even point so you know how much to charge customers and the most you can pay freelancers.
There are not as many legal hurdles as with a brick-and-mortar business, but you should be familiar with any relevant laws to avoid issues once you’re generating drop-servicing income and paying freelancers.
Also, established drop servicers have already accomplished what you’re trying to do, so don’t be afraid to reach out for advice.
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2. Find Freelancers for Hire
Once you’re ready to scale, it’s time to hire freelancers and virtual assistants to complete the outsourced projects.
Contact freelancers through online marketplaces such as Upwork and Fiverr. These services have built-in payment platforms that make it easy to assign prompts and send payments, especially when they live overseas.
You can also look through your existing network. Asking colleagues for freelancer recommendations is also helpful since word-of-mouth referrals are powerful, even in today’s digital age.
It may seem weird to pitch to freelancers, but I periodically receive work invitations through my various online profiles.
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3. Pitch Clients
After lining up your team, it’s time to find drop servicing work. You may send cold-pitch emails, or they may reach out to you via your website, freelancer profiles, or social media platforms.
With existing clients, consider handing off easier assignments that a freelancer can quickly complete. This will free you up for specialized projects that are not worth the effort of outsourcing or that require your specific expertise.
4. Perform Work
Once a customer orders a service, it’s time to get to work and meet the project deadline. Remember to give your freelancers clear instructions to help the process go smoothly.
Depending on the necessary work, you may review the draft before sending it to the customer. The client may assume you are doing the work so a final review is critical to ensure quality control.
In time, you may be able to spend less time with oversight once the freelancer learns the system for easy-to-complete tasks.
Consider incorporating business management software into your workflow as your drop-servicing business grows. Apps such as Bonsai offer customizable contract templates, invoicing software, and project management tools to smooth your workflow saving you precious time.
Platforms like Bonsai can also make establishing and maintaining relationships with potential clients and subcontractors easier.
5. Collect Payment
After submitting the final project, you ensure the customer likes the results. If payment isn’t due upfront, now is the time to send an invoice. After collecting payment, ensure that you pay the freelancer their agreed-upon rate.
The easiest way to send funds to freelancers is through an online money transfer system, such as PayPal. However, there are cheaper alternatives, especially if you need to send funds internationally. Apps like Wise and Payoneer are ideal for transactions that require foreign exchange and are much more affordable than PayPal.
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The Bottom Line
A successful drop-servicing business can be financially rewarding and provide more free time than a one-person freelance business. It’s a great way to leverage other people’s skills to increase your productivity and help your business grow.
But drop servicing has its challenges. Working with multiple contractors adds complexity, and you need to ensure that you receive enough money at the end of the day.
While a drop servicing company isn’t for everyone, it’s more scalable than gig economy jobs that require constant effort and time to complete.