I saw a technique for setting Z on the internet 《and therefore it must be true) wherein the operator lowered the spindle close to the stock and then, instead of using a piece of paper to set the Z, the user loosened the collet, let the rod fall to the top if the stock, and then tightened the collet while the rod was in contact with the stock.
Considering the source of the technique and that I have never seen it suggested on this site, I have been wondering wh it is a bad idea.
The idea would work but with a BitZero and BitSetter why go to all that trouble. The idea would work if you do not drop the bit too far. On trim routers you need to have the bit up inside the collet at least at the top of the collet. For instance if your collet is .75" long your bit should be up inside at least .75" to get the best grip on your bit. The bit can be inserted more but never bottom out a bit in the router shaft. The reason is during tightening the collet is forced up an inclined plane inside the router shaft. The collet and bit must move up slightly to get a good grip on the bit. If the bit were already at the top of the router shaft it has no where to go and would likely not be fully tight and may come loose during running.
As long as you get close to the spoilboard and/or material the dropping of the bit would work as long as what I stated above conditions are met. After dropping the bit you would go in and zero the z setting.
Working up under the router for me is not as easy as using my BitZero and BitSetter. If you dont have those accessories your dropping bit method would work. Just make sure the bit drops all the way down to the spoilboard/material or you will have depth problems. That would likely mean really loosening the collet to get the bit to drop easily. There are many ways to skin a cat but in the end you have a skinned cat. 
I would say if you’re experienced using this method, use it. If not, you probably shouldn’t.
First is the need to ensure the bit is in the collet the correct amount. Not inserted enough can lead to unwanted stress on the collet, collet nut and bit, potential vibrations/chatter. Too far in and it can stress the collet, collet nut and bit if there is no expansion space above the bit. If the router/spindle has a defect the bit may not align itself correctly in the collet/nut assembly and cause runout or vibration issues.
I personally pre mark my bits by fitting them into the collet/nut assembly while off the spindle/router. This allows me to ensure correct seating depth of the bit. I use this method in all of my routers. Quick sharpie mark and done. If I need more depth for something then I can readjust if needed.
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