Drop Servicing vs Drop Shipping: Which is better?


The 21st century is all about online businesses. People are making money from sitting inside their homes. Blogging, software products, ecommerce, and YouTube are just some of the businesses that have emerged as the big money churners of this century. Amongst these are the two popular business models of drop servicing and dropshipping. These two online business models have made it possible for people to earn in six to seven figures. But, what is the difference between the two and which online business model is better? Let’s take a look.

What is Drop Servicing and Dropshipping?

In order to understand the difference between the two business models, it is essential to first realize what they are and how they help people generate income.

Drop service is a business model that involves people selling services such as social media management, logo designing, article writing, copywriting, etc., for money. However, drop servicing does not involve you doing the work yourself. Instead, you outsource this work to other freelancers who do it for lesser money. The difference between what you pay the freelancers and what the client pays you becomes your profit.

For example, you have found a high ticket service from the freelancing website Fiverr, where freelancers are charging $50 for making a video and product review for certain products. You can then resell this service to customers through your website for $150 per video and product reviews to add up sales and earn more profits. So when a customer buys your services, you place an order on Fiverr from the freelancer for $50, making a profit of $100 in between.

On the other hand, dropshipping is quite similar, but instead of selling services, dropshipping involves the selling of actual products. Dropshipping involves selling products from your website, but the actual product is stored in another place. When the customer places an order for the product, you will ship it to the customer’s destination directly.

To put it simply, dropshipping is a business model where a vendor purchases a particular product, for example, a shirt for $30 from a third party store such as eBay, AlieExpress, Amazon, etc., and then sells it on their own store to a customer for say four times the price of $120. This gives you a profit of $90. Dropshipping has been a huge success in the e-commerce industry, and as of May 1, 2019, the business model has managed to cross 100 percent interest over time.

What is the Difference Between Drop Shipping and Drop Servicing?

The key difference between dropshipping and drop servicing is that dropshipping is used for selling actual physical products, while drop servicing is used for selling online services.

Another small difference between the two is that when you are drop shipping, the retailer does not need to handle the goods, and they are delivered directly to the customer. However, in the model of drop servicing, the retailers have to avail of the service from an outsourced freelancer, after which the final service is delivered to the client.

Pros and Cons of Both Drop Servicing and Dropshipping?

There are advantages and disadvantages to both the business models. Let us look at the pros and cons of each.

Benefits of Drop Servicing

  • Drop servicing is much easier to establish, and it is a straight forward concept. You do not need to have any specialized skills or anything else to begin your drop service business.
  • You do not need to have any initial investment or money to start a drop service business.
  • Drop servicing is not a risky business strategy because you do not need to worry about having to process refunds, returns, or about any kind of product liability and legal measures.

Disadvantages of Drop Servicing

  • You will have to keep customer satisfaction on top at all times. You have to ensure that the freelancers you are outsourcing the work to supply you with high-quality work and are reputed and responsible freelancers to work with.
  • The delivery time frame can vary. Not all freelancers are able to deliver the work on time, and sometimes due to high demand or emergencies, the delivery can get delayed.

Benefits of Dropshipping

  • Dropshipping can be profitable, and many people have reportedly built huge online businesses with this business model.
  • There are many applications that help you automate the dropshipping business, making the entire model a lot easier to run.
  • There is no need to maintain an inventory as you do not need to store the physical products.

Disadvantages of Dropshipping

  • There is a lot of risk attached to dropshipping. The product that you are promoting determines your profit. If you choose the wrong product, it can lead to a huge loss. To minimize the risk of this, it is better to have a general store rather than a store selling a niche product. But then again, there is no shortage of such general online stores today.
  • The shipping time of courier websites such as AliExpress to many places may take over a month, and this can make a huge difference to many customers.
  • There is no guarantee of product quality.
  • Refunds and returns, along with customer satisfaction, can prove to be problematic. Even one bad review can take down the rating of your online store.

Which Online Business Model is Better?

There is no doubt that both the business models of drop servicing and dropshipping can help you earn money. While both these business models have their own pros and cons, drop servicing is the better business model, especially for beginners. Dropshipping is perhaps a better option to consider for those who have experience in other online businesses.

Drop servicing is a relatively new concept and entrant to the online money-making space. The main advantage of drop servicing over dropshipping is that there is no need to deal with returns and refunds, or having to deal with poor product quality.

Remember that drop servicing offers you the chance to set high-profit margins. Even a single sale can guarantee you make a good amount of profit by delivering high-quality work on time to the client. Dropshipping is typically known for having very low-profit margins.

Dropshipping also involves you having to take on a higher risk of running the business.

According to dropshipping experts, you can predict your final income using the following industry averages:

  • 2% conversion rate
  • 20% margin

A working estimate of your profit can then be calculated by the following formula:

(Traffic to your website x 0.02) x (Average order value x 0.2) = Your Profit

However, remember that the industry averages can change according to what industry you are addressing.

Drop servicing also has the pull of having a huge potential of providing you with a recurring income. You can continue to make orders and earn in a consistent fashion, but only by ensuring you deliver high-quality services. At the same time, there is also no need to have any specialized skills or experience to begin a drop service business. You can easily select any niche and set up your drop service business around that since you will not be the one doing the work at the end of the day.

Our final verdict: Drop servicing ensures more substantial earnings, with fewer risks and headaches, and for a longer period of time than drop shipping does. To us, the choice is clear.

Also Check : What is Drop Servicing?

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