Editor’s Note: This article on drop servicing was inspired by writer contributed articles built around a common theme: making marketing and process automation useful to a small business owner. The first concept we saw along these lines that was building websites quickly followed by an idea about Facebook campaigns. And it only grew from there: helping close high ticket customers or scaling up blog content via freelance writing.
What if we put all these ideas together into a single business? We find clients, pitch and close the work, then contract with others to deliver the work? Welcome to the wonderful world of building a drop servicing business. Best of all – it is probably just like the day job that you just left – except you receive the full value of the business you sell and can decide how the work gets done. Sound interesting? Then read on….
Introducing Drop Servicing & How It Creates Value
You’ve probably heard about drop shipping. This is an e-commerce business model where you don’t have to manage inventory and fulfillment. You find customers, collect payment, and tell a dropshipping manufacturer to ship the product directly to the customer. This business model reduces the amount you need to invest to start selling products on the internet.
Drop Servicing adapts this mindset to selling a service instead of a physical product. A Drop Service business finds potential customers, handles customer service and payment, and outsources the actual work to a third party. Ideally you will outsource the work to someone who has a natural advantage in the service, such as low-cost location, better processes, or greater investment in analytics & technology.
There are a couple of key advantages of building a drop servicing business instead of a full-service agency. First, it reduces the amount you’re going to need to invest in the business. You can avoid hiring people and renting office space. Second, it frees up time to focus on potential clients: if you like personal selling and digital marketing, this can be a lot more fun to operate than a traditional agency. Third, this gives you the ability to take a “best of breed” approach to building your servicing business, tapping into the best experts in each service.
This business is also known as service arbitrage in the sense you’re matching high-priced clients with a lower-cost outsourced service provider.
What Does A Drop Servicing Business Look Like
The goal of this business concept is to put you in a position to sell a unique service offering without requiring you to invest in building out and managing a team of employees. For this example, we’re going to use the idea of starting a “done for you” publishing service aimed at helping busy professionals stay engaged with their clients. Imagine running a small accounting office: wouldn’t it be nice to update your blog every month with a fresh article and email it around to your customer list? Of course it would – it might even help drum up some extra business.
Writing the article is an aggravating chore. You’re an accountant, not a writer and a blogger. It will probably take you all afternoon to develop an appropriate and interesting article. Even then, the article is going to look pretty rough. And who knows if it will even do anything? You don’t know anything about SEO. Or email copywriting. In fact, you may not even know how to post it on your WordPress blog. Starting to think you should just go play golf?
But wait! (triumphant hero music) For the low price of $500 per month, We can turn your blog into a solid contributor to your success. We’ll spent an afternoon with you and your team to understand your business and set goals. After that, the magic happens:
- We will lay out an annual calendar of content ideas by month
- We create and post two fresh blog articles each month
- Everything written by a SEO-trained professional
- Best of all, we collect $500 each month
Such value, eh? You get your afternoon back and several high quality client contacts per month to drive business. Best of all, this should grow your organic search engine rankings over the next year or so.
And with a 12 month contract, we just locked in $6,000 per year per client of revenue. With the potential to do some pretty serious up-selling once we’re in the door: increase posting to weekly, longer posts, manage local listings, better graphics and quizzes, etc.
How We Get It Done
So now what? Do we spring into action, hiring a bunch of writers and junior talent? Rent an office space?
Meh. What do you think this is, MadMen? We’re not hiring anyone yet.
We can call the reseller program at “The Hoth“, a large SEO agency in Tampa. We’re going to sign the client up for their blogger service, where we get two fresh 500 word articles each month written by a writer with experience in the industry. They find and pitch topics to me (per our guidance). Everything is well optimized for SEO. We’ll use the Blogger Pro offering, which will cost $160 per month for two 500 word posts. This gets us a writer with experience in the industry. They can post content directly to the client’s blog.
(By the way, while the Hoth is a big player, there are many agencies we can outsource to. Shop around.)
We can’t be totally hands off, of course. We need to manage the outsourced agency and review anything that gets posted. Along with making sure the credit card is charged and the client is regularly updated. Assume this is going to take 2 hours per month.
An honest accounting of our results should include the work we put into selling and setting up the account. The actual set up process itself takes about 4 hours.
My marketing strategy is pretty simple:
- Surf the web for businesses near me with a blog that has no recent posts
- Email and call the business owner to get an appointment
- I think I can get at least one appointment per two hours of prospecting
- The appointment will take two hours door-to-door
- I can close 20% of my face-to-face meetings
All of this math implies that closing and setting up a new account will take 24 hours of work (5 pitches, 2 hours to book the pitch, 2 hours to deliver the pitch, 4 hours to set up a new account). Combined with the two hours per month of client service, that means we’re going to spend 48 hours per account per year. Given we’re collecting $500 per month and paying $160 for the posts, this works out to $4080 for year 1, or the equivalent of $85 per hour. Should we retain the client, this jumps to $170 per hour in year two.
By the way, if you haven’t sold services before, you should check out our free guide to finding consulting clients on LinkedIn. It is also be worth setting up a professional website or blog for your service for additional “legitimacy” in the eyes of the customer. Not to mention spending an afternoon or two polishing your LinkedIn profile and drafting some basic marketing materials. Not only will this help you close more deals, it also helps you command higher rates as a professional in your field.
Anyone getting excited? I know I am…
Phase II: How To Increase Your Profits
But wait – we haven’t gotten to the best part yet.
Any improvements or efficiencies go directly in my pocket. Anyone see opportunities? Because I do…
The $500 is a good “get in the door” price, but I’ve got an even better deal. Why post twice a month when you can post weekly? I’ll even bump one of those posts up to a 2000 word “super-post” on an important topic. This kicks my content cost per month up to $500 but I can easily charge $1000 for the better plan. It’s a pretty good deal: that’s almost four times the content for only double the price. Holy Cow!
We can probably flip at least half of my customers to the better plan. Incidently, with all that extra SEO optimized content we’re posting, there’s a good chance their organic traffic will grow dramatically. That should definitely help us keep more of the high paying customers around for Year 2 (no acquisition costs).
But wait – there’s more. With all that great content coming out with our upsell plan, I can sneak a little bit of filler into the mix. Once a month, lets take one of the smaller articles and send it to a cheaper writing source (TextBroker) with less SEO polish. Maybe keep it focused on basic seasonal content. That will save us about $60 per month per client on the better plan.
Don’t tempt me too much, by the way. Once you control the specifications, you can easily improve the profitability of the overall offering. For example:
- Use content templates and writing formulas to reduce writing time & cost
- Buy or Build an online quiz widget we can recycle across all our clients
- Recycle content by having a freelancer do a cheap re-write. vs. from scratch
- Test cheaper supplier ideas or weaving in low cost AI assisted content.
Anything you can do to use process, technology, specification tweaks, and policy shifts to cut servicing costs is a potential source of incremental profit and a competitive advantage in the market. As long as the client is happy with the quality, you’ve got room to operate.
Did I mention that all of these benefits were going into my pockets?
Phase III: Scaling Up Your Marketing & Lead Generation
Now that we’ve got some business owners buying from us (validates the value) and have built some extra profit margin into the program, let’s grow this thing!
We’ve got two basic channels to get this done. First, we can hire someone to ramp up our outreach efforts so we can get more service appointment selling opportunities. And then there’s the entire world of digital marketing.
Let’s start with the easy part: recruiting a virtual assistant to help ramp up prospecting. You can easily find someone at a freelance marketplace. I’d test having them search for un-maintained blogs and doing outreach for us on our behalf. Even if they generate 1/2 the appointments per hour, We can pay them $15 – $20 instead of using our time to generate leads. Best of all, if you document the process: you can scale up this process using cash rather than your time.
Moving to digital marketing, you have a number of opportunities. You will need a sharp website to get client trust: invest in some decent graphic design and blog content. From there, your next move should be to get a few YouTube videos posted and establish a presence on social media. If you can sell a basic service package, consider setting up an online store or click funnels website to capture leads. If you are targeting a low-priced service offering, take a closer look at Fiverr as a selling platform.
The next level of effort involves investments in content and advertising. Since these attract new visitors to the website, we call these a “traffic source”. A Facebook campaign is a popular option and can be tested fairly cheaply. Google AdWords is another possibility. Organic traffic is generated from search engines and requires a longer term investment in website content and authority building. It’s well worth the effort, however, since there is often a high level of buyer intent if you pick the right topics. Similar to the other channel, you’re able to scale up these marketing efforts using money instead of your time (an increasingly precious resource).
The combination of these two ideas should dramatically reduce our average cost to acquire a new account and free up a bunch of time which we can use to close more new business.
At the same time, we shouldn’t hand off client service, closing deals, and quality assurance. These are all important to finding, winning, and keeping clients and would require a very senior person to replace us in that role. Hold off on outsourcing “client facing” or “key results” tasks until you’ve got a really good grasp of how the process should work and a plan to ensure things stay on track. When you do hire someone to manage these tasks, pay them very well – they are critical to your success. I’d recommend making them a either a full time employee or partners in the business.
Finally, you can make the decision to invest in adding more features and bonuses to your products. Wow, we make a lot more in the second year, don’t we? What if we added a couple of “Year 2 bonuses” into the plan so loyal customers got even more value? Stuff like free social media posting or a press release. I’d be happy to kick in another $1000 worth of services to secure a contract renewal at the upsell plan. I’ll easily make this money back between better retention and moving people to the upsell plan.
Once again, Did I mention that all of these benefits were going into my pockets?
Managing The Risks of A White Label Service Business
This is a business opportunity, not a job. There are some additional risks that you need to be ready to manage.
First, you’ll need to make sure that the service bundle you come up with is competitive in your target market. You can usually get a good read on this in your first couple hours of trying to sell the deal. If prospects don’t get excited, pause and ask a friend to listen to your pitch and give you some feedback. At that point, tweak the pitch or the offer and try again. The good news is you’re losing time instead of money, so you can probably do this for quite a while without going broke.
My next set of concerns would focus on managing the risks associated with your service delivery partner. With a larger organization such as The Hoth you’re probably in decent shape. But work on a plan to have backup vendors and copies of your client specifications and past drafts in the event a key vendor starts to have quality issues. If you’re dependent on independent freelancers (such as my cheap articles example), give yourself additional time.
Finally you need to make sure you’re getting paid and the client doesn’t bolt on you. I like the idea of getting a basic contract in place for the year and charging their credit card before you buy their content for that month.
While building a service arbitrage platform can be highly profitable, I’m a little cautious about recommending it for passive income. There are a lot of moving parts here. The dropshippers discovered this over the past couple of years: customer service can get ugly if you don’t keep a close eye on the suppliers. SEO Affiliate marketing is a better bet for a purely passive business. Drop servicing has similar profit potential as drop shipping (perhaps more) but requires a similar level of focus on execution.
White Label Services: Product Strategy & Competitive Positioning
You can easily apply this idea to a very wide range of services. In fact, while we’re using a digital marketing example, I’d prefer to go target almost anything other than content writing and digital marketing since those are already fairly well served.
Go find some small service niche where the market is a broken mess and build your own custom offering. All you need is a vendor who is willing to sell you their services on a white label basis and a good reason for customers to buy from you.
Think very carefully about your value relative to other potential providers. What sets your version apart? For this to work, the service usually has to be common enough that you can easily hire someone to do it. So why should they work with you? Here are a couple of potential starting points:
- “Done for You” service – reduces the number of things client must manage
- Better knowledge of product; can “buy smart” and manage quality better
- Integrate multiple service providers into a single end-user solution
- Very Good at simplifying the user experience for non-technical buyers
- Creating an online business or app to replace a conventional industry
This business works best from an operational perspective when you can standardize the service offering so you’re selling the same basic package every time. This works for a well defined activity like our blog posting service or setting up a piece of technology. Be cautious about custom services that require client interaction and revision cycles to get it right. Those can quickly become a “time vampire” that sucks up a bunch of unpaid hours, especially if the client decides to get picky about things.
See something that your main competitors aren’t doing? That’s a good place for a new agency to focus. Especially if it will increase your client’s revenue or save them money.
Start there first….
- Landing Your First Client
- Drop Servicing Case Study: Facebook Campaigns
- Drop Servicing Case Study: Small Business Websites
- Using Fiverr to Sell Micro-Services
- A Deeper Look at Fiverr Arbitrage