So, is drop servicing an interesting business model?
The Internet is great isn’t it ? No matter what geography you sit in, the Internet has dramatically reduced barriers between customers and suppliers. Suddenly there is no logistical barrier between a customer in the rural midwest of the USA receiving goods from a supplier in Poland (Or Vietnam or Iceland).
However, cultural barriers, the desire of customers to do business with entities in their own geography and language issues can still rear up and impede traction, mis-match expectations or bite the distant vendor in the rear. These factors helped to drive the phenomenon that was non-inventory retailing, dropshipping – Selling third party products without inventory, shipping and delivery – A locally appropriate website with online store, adwords, social media marketing, a set of backed-off supplier arrangements and off-you go. As long as your suppliers perform, so do you. Reap the benefits of the efforts expended in promoting “your” physical product.
It is a fact that Amazon, one of the worlds largest companies, has a number of drop-shipping concepts built into its business model. Of course, they are a traditional online retailer – with their huge and highly automated warehouses. But scratching below what we intrinsically recognise them for, you can see shades of grey. Under the standard pricing, often you can find links for the same item from used (And other new) vendors. Amazon acts as a sales and fulfillment partner for these other vendors. Ok, they are more visible than you would normally expect in a dropshipping relationship, but the foundations are there. Similarly on some items (Particularly the larger items) we often see the small print “Dispatched from and sold by XXXXX” , dropshipping !
What has become clearer and clearer over the last few years, is that the DropX world does not begin and end with Drop-Shipping, Drop-servicing has made an entry into this world bringing with it lots of opportunity for driving new business.
What on earth is “Drop-Servicing” ? Well, here is my overly formal definition :
“Drop-Servicing is a commercial arrangement whereby a buying party (A) purchases a non-physical service item from the selling party (B). B then purchases that service from one or more second tier service providers (C1 -> Cn) who deliver to A either directly or indirectly (Via B)”
That’s a mouthful isn’t it. Let’s pick that baby apart.
First question – what is a “Non-physical service item”?
Some commentators limit the definition to “Digital products”, however my stance would be that that is purely a definition of convenience, and that any service can be drop-serviced. It can relate to anything that people want delivered. Some examples might be copywriting, proofreading, book-keeping, coding, architectural sketches and website maintenance, even online gym, yoga or dance classes. I have seen people offering personalised videos of themselves singing happy birthday in Japanese . . . .play to your strengths.
Second Question – Is drop-servicing easier than drop shipping ?
In some ways it is easier – you need to define the services you think that you can sell in your market and then find freelancers willing to undertake them for less than your market price. One decent e-commerce site later you are in business.
The freelancers may be outside your market (In a geography with a lower labour rate for instance) they may be unemployed and using this as a means to top up their unemployment payments, or they simply be otherwise bored people offering a service as a sideline. Either way you need to locate them. In their eyes, you are providing a service to them for your commission, you are joining them to people who will buy their services.
Now the challenge, Irrespective of who you use to provide services, the buyer will see the drop-servicer as THE SUPPLIER. You therefore have to both guarantee and underwrite the QUALITY of the deliverables, the AVAILABILITY of the service and TIMELINESS of delivery. Picture the scene – your buyer commissions a . . . . painting of their pet. You take the order and pass it on (minus commission) to a new service provider in your stable. The deadline is one week.. . . . .time passes . . . .Two weeks later your client receives this through the post:
Now you have a problem, undoubtedly the buyer will complain. You complain to the artist, who says all is well and their subjective judgement is that the likeness is good !! You are probably going to refund the client. The artist will likely hold onto their payment. You won’t use them again, but you are out of pocket. You give the artist a bad review (If possible) The customer tells all his friends about the bad experience (Late and poor quality). Of course, this is an extreme example, but the same can apply to any service so provided – The concept of complaint, customer care and refunds still apply with services.
Over time the drop-servicer will curate a set of service providers on the basis of mutual trust. The providers get a good source of work and reliable payments. The drop-servicer knows his providers reliably do good work, ontime and for a cost which supports margin. And ALMOST AS IMPORTANT – do not try and cut out the Drop-Service agent by going direct to the client.
Third Question – Direct or indirect
This addresses my final point above. As a drop servicer, you are the selling entity. The buck for delivery stops, unequivocally at your door. You have chosen to put yourself in this position and there is no escaping it. The customer will hold you accountable for the delivery. SO deliver you must. The drop-servicer is accountable for (In no particular order)
- Availability – Selling what is advertised
- Pricing – At the price advertised
- Quality – To an acceptable standard, given the price
- Timeliness – Delivered when promised
And within the above Quality is key. The drop-service agent must ensure the quality of what is being delivered to the end customer. This can either be done on the basis of trust – or inspection, the service provider delivers to the agent who checks it and delivers to the customer only when happy with the quality. This mechanism is also an effective barrier against either the customer directly approaching the service provider or vice-versa in an attempt to cut the drop-service agent out of the transaction.
Fourth Question – Isn’t this just outsourcing/offshoring ?
This is largely a matter of definition. My opinion is that offshoring/outsourcing contracts tend to be less transactional and longer in nature than drop-servicing; taking on entire business processes as an integral part of the customers business for a defined period of time. Drop-servicing transactions tend to be shorter single instance events such as Paint my pet, reconcile this account, correct this manuscript.
Final question – Where do I find the service providers?
The perennial question. Ideally the drop-service agent would be able to deal directly with the service providers with no-intermediary. And it may be that this situation evolves over time. However at the outset, there are a number of service provider aggregators out there who can provide a storefront for the types of resources you will need to acquire. These are large scale examples of drop-servicing models that have succeeded.
- People Per Hour
- HubStaff Talent
Bear in mind, all these entities take commission from the jobs done through their platform – margin on margin arithmetic applies.
So there we go – As well as drop-shipping, drop-servicing is also a thing – the ability to sub-contract service deliveries as well as hardware deliveries. Like Drop-shipping, drop-servicing is more than just a “marketing exercise” you need a fulfillment capability and the ability to manage difficult customers when you subcontractors fail. Delivering a service necessitates is a more “intimate” customer relationship than simply order management for consumer goods. It’s rewarding and can be entertaining, but some complexity lurks below the surface.[The original article was written in English. To other languages it was automatically translated by Google Translate]