Drop Servicing vs Dropshipping: What’s Better In 2024?
Last Updated on February 2, 2023 by John Cirelly
When comparing drop servicing vs dropshipping, there are a few very important things to consider.
In this article, will explain the distinctions between drop servicing and dropshipping to help you pick which business matches your goals. Moreover, we’ll discuss the pros and cons of each so that you can know exactly what you’re getting into.
Drop Servicing vs Dropshipping: The Main Difference
With the dropshipping model, online stores can sell goods to customers without keeping any of the goods themselves in stock. As soon as a store gets a customer order, they can have it fulfilled by contacting the product’s supplier, who then ships the goods to the buyer.
Drop servicing is identical to dropshipping, except you’re offering services instead of selling physical goods. Customers will order a service from you, then forward that order to someone else for the fulfillment, while you maintain the relationship with the customer.
The main distinction is that dropshipping sells physical products, whereas drop-servicing sells services. Your choice depends on what you want to sell and how much you can invest.
In almost all cases, drop servicing costs less to start, is easier to learn, and provides better margins than drop shipping. The downside is that drop servicing is harder to manage and maintain at scale.
What is Drop Servicing?
Drop servicing is a business strategy similar to dropshipping, where you sell goods without carrying out the tasks yourself. As soon as a client places an order, you can have the freelancer get to work on fulfilling that order.
Drop servicing has grown recently because of platforms like Upwork and Fiverr. These sites have a wide range of talented freelancers that can fulfill your work. All you need to do is bring the customer. Here’s how drop servicing works:
- Find a service you want to offer (preferably something you’re familiar with)
- Make a list of reliable freelancers that can do the work.
- Find a client that is looking for that work.
- Sell that service for at least twice what you paid.
- Ensure your freelancer delivers quality work on time.
The best part of drop servicing is that you don’t need to worry about doing the work, only finding clients and managing your team. Since the client is paying you first, you can use that money to hire your freelancer for fulfillment.
Drop servicing is similar to running a digital agency. However, your clients are typically other businesses looking for freelancers versus businesses expecting to work with an agency.
In a typical drop servicing scenario, the client is under the impression you are doing the actual work. This can make scaling, communication, ethics, and quality control a real challenge.
Pros of Drop Servicing
1. Broad services
Drop servicing allows you to provide a wider variety of services to clients, making it simpler to establish a niche in the market.
2. No previous experience is required
Drop-servicing businesses can be started by anyone with no previous knowledge. While it’s better to understand the service you’re providing, it’s not mandatory. On the other hand, dropshipping requires extensive knowledge about your customer, product, and competitors in order to be profitable.
3. No or little investment
Drop servicing requires very little initial investment, if nothing at all. Drop servicing only requires marketing your services, and processing payments.
In contrast, dropshipping can have a low startup cost but require hundreds, if not thousands in paid advertising to drive traffic to your store.
4. A low-maintenance budget
When compared to dropshipping, the running costs of drop servicing are lower because it’s not necessary to keep an inventory of products that are being sold by others; instead, your primary expenses will be related to marketing, purchasing the product, and promotion.
Cons of Drop Servicing
1. Quality control
The main problem with drop servicing is that quality needs to be ensured. Since you aren’t handling the work directly, you have no control over how efficiently it gets done.
Since you’re working with freelancers rather than employees, you have less control over how and when the work gets done.
2. Morality issue
When it comes to drop servicing, there is always a moral question. This is because there are unethical businesses out there that employ undisclosed contractors and workers. Thus, the client believes the person they are communicating with is accountable for the task.
What is Dropshipping?
Dropshipping is a form of business where you sell goods without keeping stock. Once a customer orders, they simply place an order with your dropshipping supplier, and the supplier delivers the products to the customer. Due to the accessibility of e-commerce platforms like Shopify and DSers, dropshipping has grown in recent years.
Start-up costs for a dropshipping business are low, and there are no recurring expenses, which makes it an appealing option for new entrepreneurs. The supplier will take care of shipping and handling, so you won’t have to make any effort.
For a realistic breakdown of what it costs to start a dropshipping business, check out the video below.
Pros of Dropshipping
1. Simple to start off
To start a successful dropshipping business, you don’t need to know anything about your chosen field or have any experience.
2. No responsibility for shipping and fulfillment
Shipping and fulfillment are not your responsibility. This can be a great advantage if you have yet to gain any past knowledge or training in this field. To further save you time and money, the supplier handles all deliveries.
3. Low overheads
Expenses are kept as low as possible in other areas. Unlike traditional retail, dropshipping eliminates the need to keep any inventory on hand, saving you money on both storage and delivery.
4. Variety of products to choose from.
Quite a few products in a variety of categories. Because dropshipping makes it possible to sell almost anything, you may quickly identify a niche that suits your interests and skills.
Cons of Dropshipping
1. No direct control over stock
You are not in charge of the inventory of your products. When you dropship, you have a supplier who delivers the products you’ve sold directly to your customer. If they run out of stock or decide to discontinue a product, you may be unable to fulfill the customer’s order.
2. No control over shipping
Your shipping is beyond your control. Both the shipping price and the delivery time are the responsibility of the drop shipper. There is always a cost involved, even if a dropshipping company advertises free shipping. Customers are likely to be unhappy if they place an order on Tuesday and it arrives on Friday.
3. Reliance on suppliers
Your reputation depends on how good your supplier is. Dropshippers place their trust in their suppliers to deliver high-quality products on time. It would be bad for business if customers saw that you relied on an unreliable supplier. Before starting a project with someone, ensure your suppliers are reliable and have backup suppliers on standby.
4. High competition
Considering there are practically unlimited online stores, the competition for buyers can be intense. This makes it tough to earn a profit, particularly if you’re competing against established businesses with deeper pockets.
Final Words
Drop servicing and dropshipping are both valid side hustles. However, their differences can have a great impact on the business you end up running. Dropshipping has the ability to scale, but can require a larger investment over time. Drop servicing requires almost no startup capital, but can be difficult to scale.
Still stuck? Test out our free side hustle quiz for more curated side hustles!
