Are you looking to start a new business and are wondering what services vs products business models entail, their difference and how to know which one is best for you? Then, this guide is just what you need.
It compares services vs product business models so you can easily determine which one is best for you. So, first of all, let’s see what the service and products business model actually means.
Services Business Model
This is a method of business where an entrepreneur offers a service or performs a skilled task for customers and gets paid instead of selling physical goods.
For example, a car repairer, hair stylist, house cleaner, plumber, etc., are all service providers and do not offer any tangible product for sale. This business model emphasises exceptional customer experience and strives to build a consistent relationship with customers.
Advantages of a Service Business Model
- You do not need inventory; you will be ready for business anytime without buying and selling products.
- Since you can develop a service-based business with your expertise and skills, you can also easily expand your business by gaining more expertise in your field of interest.
- A service-based business requires smaller start-up capital because you only need to buy the necessary equipment to provide your services.
Disadvantages of a Service Business Model
- As your business grows, you will eventually have to duplicate yourself, which means you will have to hire people or train them so they can provide the same services you already offer.
- People can easily cut back on services during difficult economic situations; they buy the products they need the most and find a way around other things, including many services.
Product Business Model
As the name implies, a product business model sells physical items or products such as clothes, shoes, jewellery, food items, etc. This type of business focuses on meeting customers’ demands and always striving to provide high-quality products to satisfy their customers’ expectations.
Advantages of a Product Business Model
- Products are more scalable than services; the growth of your product-based business will not necessarily depend on adding more staff, overhead costs or office space. Also, with increased capacity comes increased revenue.
- Once you have a balanced business operation, you can easily project your sales with the help of an expert sales and marketing team.
- A product-based business enjoys more customer loyalty because, even in tough economic situations, there are products people cannot do without, and unlike services that customers may sometimes attempt to provide for themselves, it is more difficult for customers to try to manufacture a product.
Disadvantages of a Product Business Model
- It is more expensive to start a product-based business, and you will also spend a lot more on marketing and advertising. Also, even when your business startup is successful, you will still have many expenses to deal with daily before you start enjoying significant revenues from the business.
- There is a constant change in customers’ tastes and trends of products in the market, so you may find yourself spending more and investing more into following the market trends and scaling through the high competition.
Key Differences Between Services VS Products Business Models
| Products | Services |
| People can easily access the quality of a product before purchasing it since most products are usually visible, touchable and countable. So if you run a product-based business, your customers can carefully examine what you sell before buying it. | A service is not something your customers can feel or rate before paying for it, so it is impossible to evaluate its quality until you finish your task, making it difficult to satisfy your customers. |
| When buying a product, customers will know the exact specifications and design of what they are buying, so they can buy the same thing repeatedly, and nothing will change about the product. This can easily help them build trust with your brand and create recurring revenue for your business. | On the other hand, with a service-based business, customers can hardly get the same service experience twice. A business owner will deal with various customers separately, and there will definitely be some slight difference in the quality of service. |
| A product-based business will risk losses and wastage from perishable goods. For example, a restaurant owner will need to know the concept of waste reduction to avoid losses in his business. | On the hand, services are not tangible, so they do not have expiring dates. Therefore, you can provide your services whenever you are ready and still offer the best quality to your customers. Also, you can keep providing the same service for many years, and there will be no reduction in its value. |
Should you Start a Service or Product Based Business
Having explained the difference between services vs products business models, are you interested in any of these business categories? It would help if you kept some essential things in mind to help you determine which is best for you.
No Business can Succeed Without Work
This is the first thing you should know when choosing services vs products for your business. The grass isn’t always greener on the other side, so whether you go for a service-based or product-based business, you will still need to put in a lot of work for the business to succeed.
For a product-based business, you will need to do thorough market research to develop a product in demand. You will also spend a lot of money on marketing the product and ensuring you satisfy your customers’ needs.
While for a service-based business, you still need to develop a sellable skill and ensure you are good at what you do. Also, you will need to market your skills, train other people to help you in your business, and take time to expand your knowledge and gain more expertise so you can flow with the latest market trends.
Therefore, you can now see that no business model is easier to run than the other; you must do your best to ensure you succeed at whatever you choose.
Do What you Love
When starting a new business, a lot of people put many things into consideration and often, they neglect their passion and interests. People tend to do what is trending and bring the most profit, but it shouldn’t always be so. If you are wondering how to choose between services vs products business models, you should also consider what you love.
Suppose you have a skill that gives you utmost satisfaction; in that case, you should consider a service-based business model rather than a product-based one. Still, if you are passionate about creating your own exceptional product or satisfying a need in the market, you should consider a product-based business.
Don’t Just do it for the Money
If you plan to start a business and think developing a product will be an easier way to make it big, you need to rethink. If you are looking for easy and fast ways to make money, then a business is not for you because you may easily give up at the slightest challenge you face.
While making a profit is the primary motive of every business, you should consider a long-term profit margin and invest in your business accordingly. So you do not need to rush your decisions based on money, do what you are passionate about and be patient enough to make it work.
Consider the Current Market Demand
Whether you are a big or small business owner, your customers will always differentiate their needs according to either services or products, so it is essential to define where your business belongs clearly. To easily determine whether to do services vs products business, you should do market research and find out the recurring need your business can satisfy.
Aside from thinking of what you feel you can offer, it would also help if you considered what your targeted audience expects you to offer. So think of that common problem for which you can provide a lasting solution with your services or products.
You can do Both
Yes, this is the amazing part of starting a business; while considering whether to go into services vs products business, have you ever considered doing both? Yes, it is possible to invest in a service and product business; this way, you can sell items related to the services you render.
For example, if you own an automobile workshop for repairing cars, you can also sell spare parts and other items necessary for the repair of vehicles.
This business model will be more expensive to start up, but it has its benefits and will yield more profits as well. You can render your services more efficiently and provide better customer satisfaction.
Read also: 10 best side business ideas for ladies
While choosing between services vs products business models is vital for starting your business, there are very few differences between the two. So whichever one you choose, you will still need maximum effort and commitment to make it work.
However, now that you know the main differences between services vs products business models, their advantages & disadvantages and how to choose the right one, you should take your time to determine what suits you best and put in the work to make it successful.
