Want a business model with the low startup costs of drop shipping and some decent options for fending off the copy cat crowd? Then drop servicing may be for you.
What Is Drop Servicing?
Drop servicing is a service business where the entrepreneur assumes responsibility for marketing, sales, and product management and outsources the delivery of the services to a third party. After you design your offer, you find customers and close sales. The actual work is outsourced to a third party, operating under your guidance.
You can start a drop servicing business with many of the same skills you used to run a drop shipping store or digital marketing agency. This is a good fit for people who like:
- Digital Marketing (Lead Generation)
- High Ticket Selling / Client Management
- Product Strategy (Software & Services)
- Process Management
Capital requirements come down to the money required to fund your initial customer acquisition efforts and float the receivables for the first couple of orders. You’re also going to need to be able to respond to customer requests in a timely fashion.
So Why Does This Business Need To Exist?
This is the evolution of a concept large companies have been using for years, originally introduced to me at General Electric as “front room, back room” back in the late 90’s. The front room takes care of the customer, the back room focuses on reducing costs.
Except with the evolution of the market for white label service providers and freelance talent, you don’t need to have a billion dollars to go set up your own outsourcing team. All you need is a credit card… and a vision of how you want to split up the work.
Don’t fluff that last part (the vision), by the way – since that is where the magic is…
How Drop Servicing Creates Value (Buy Side)
Once you separate the customer from service delivery, you can move it anywhere.
And with some creative strategy – optimize the schedule to reduce costs.
While I suggest looking outside digital marketing for your own business, we’re going to use a blog management service as an example. We’re going to launch a service where we create and post fresh content to a small businesses’s blog every month. We find the customers, set up their program, and shop the work out to writers behind the scenes.
A traditional local competitor would have to rent an office and hire full time employees. Some fun facts about this servicing model:
- They have to pay rent and salaries regardless of the actual volume of paid work
- As a small agency, they can invest a limited amount in improving their processes
- They can only tap into the local talent pool in terms of writer quality and salaries
So here’s our initial plan:
- We’re going to work out of our basement – “low overhead”
- Instead of hiring employees, we tap into a national agency’s white label team on a per-article basis. They have massive scale and can tap into a national pool of writers to optimize their quality vs. cost.
- Since they write thousands of articles per month, their process has been tuned to perfection
I’m not done yet however… i can squeeze even more cost out of the process..
- Once we have enough work, I can hire my own freelancers (cheaper) and use the agency for overflow
- I can structure the work so some of our writers can work at their leisure (no deadlines) for a lower rate
- This stuff isn’t Shakespeare: there are ways to use templates, processes, and technology to write faster
- We can explore bringing ESL writers onto the team for certain types of content
All of this translates into a potentially massive cost advantage against my local competitor.
How Drop Servicing Creates Value (Sell Side)
What, you think we’re done? I guess you forgot I’m a front room guy, not an operations manager. The marketing and client management team has an entirely different bag of tricks to bring to this party.
First, we’re going to work on getting very close to a couple of specific niche segments within our local market. Freed of the need to manage the back office, we have time to become a real expert in how to market a couple of specific types of customer. We’re going to start with whomever the local agency crowd isn’t doing a good job of serving.
Second, since the full value of our services lies in our ability to bundle multiple items together – potentially across different service providers – we’re going to ramp that up. Need analytics / SEO along with that content? Promotional products? Throw it at me. Our outsourcing management process can accommodate a wide variety of suppliers.
Third, I’d take a very serious look at how we can use technology and content analytics to improve the client experience. A lot of this stuff is available as software and service packages (sound familiar?). We’re going to integrate all of that into our delivery model.
Finally, we’re going to look at remixing the requirements of the services we offer to the client to optimize their costs. Do they need all the flexibility they’re paying for? Can we organize the work to get stuff done cheaper? Would this make them more efficient?
The net result is a highly optimized bundle of services for specific market segment, created by creatively tapping into partner capabilities and optimizing the offering to support on the features the customer will pay for.
Want to compete with me? Great, you’re going to have to come to the exact same thing…
Protecting Your Turf – Erecting Barriers to Entry
Which leads us to our next section: How to fend off copy cat competitors and clients going direct.
The good news about this business model, unlike drop shipping, is you can often hide a good portion of the secret sauce underneath a layer of process and technology. Unlike drop shipping, where everyone and their dog will call your supplier the instant any offer starts working to deal themselves into the game.
Some basics, as a starting point:
- Writers & agencies work through you, operating under a standard creative brief
- Any analytics reports are labeled under your brand (ideally not attributed at all)
- Where possible, split work between vendors and serve as the point of contact
Given a choice, I would bury things further below a layer of some custom software, which gives you additional protections against an employee defecting to a competitor.
I am also very hesitant to partner with local service providers. While there are certainly efficiencies in being able to sit down and meet with your outsourcing partners, they can also easily pursue your employees and customers in the event the two of you break up. Or in the event anyone else wants to sell for them as well. Distance often protects you.
A final point – not all customers and service offerings are created equal in terms of competitive protections. Be ready to walk away from a commodity market if things get crazy; focus your attention on selling unique bundles of services to niche markets that larger agencies don’t have the attention span to truly understand. This business model can easily survive and thrive on small market niches that won’t support a large agency.
Service Management – Controlling Risk & Costs
The risk in this model? You’re on the hook to make sure the work is done on time and accurately. Despite the fact the people in question don’t work for you.
When things go wrong, you’re going to need to own it – and fix the problem, quickly.
Fortunately, there are few ways to manage this:
- Be sparing of any commitments you make around delivery dates (there is a cost)
- Implement a well defined process for managing timelines and quality assurance
- If you have grown to where you can hire staff, one should own quality assurance
- Identify critical client assignments and be ready to hire higher cost freelancers
- All critical vendors should have a backup vendor in place (with some volume)
A little past training in supplier management and process improvement can be very helpful here.
Want To Learn More?
We’ve actually written a fair amount of material relevant to this space. In addition to our larger article on starting a white label service business, we have a couple of case studies:
My last tip is very simple: take these concepts and find a way to use them outside of Internet Marketing. While that space will be saturated in a few years, Main Street will likely remain a highly promising prospect for the foreseeable future.