Service Business vs. Product Business

When you decide to start a small business you must decide whether you want to run a business that is product-based or service-based. If you are buying a business, consider the type of business you are buying. Service businesses are based on the service or task you perform for a fee. If you start a product-based business, you will be selling a product, either online or in your store.

If you start a service business, your service might be food services, provided in a restaurant or a personal trainer service provided in a gym. You could buy and drive a taxi, providing transportation to your clients, or visit and care for your client’s health in the confines of their home.  

If you are starting a business to sell products, you might be selling your products online in an auction site or on your own web site or you might rent and manage a storefront to sell shoes, sweaters, children’s clothes, electronics, books or gifts. 

Some businesses are both product-based and service-based businesses. Let’s look at several examples. If you start a small business to sell custom built computers, your business might stock and sell computer components, and accessories like adaptors, cables, speakers, mouse pads and web cameras.  

The business services you provide would include the custom configuration of the computer system. If you were selling standard computers with factory installed features, you would not need to provide these business services. But remember you are opening a ‘custom’ computer store, so you will need to provide staff to build the machines from the ground up, installing memory, software and cards to provide your clients with the specific features and function they purchase.

Your business services might also include extended service for the computers you sell. Your staff might visit the client’s home to handle computer problems or even provide training.   

If you sell flat screen televisions, your product-based business is based on your storefront, where you show and sell plasma TVs, DLP televisions and LCD TVs. Your service business might include the custom installation and service of the television units in the client’s home.  

While product-based businesses require some staff skills in the form of product knowledge, service businesses require more skilled labor and these skills will probably cost you more. If you make and sell muffins, you depend on your own skills to provide the product. If you open a restaurant, you have to pay a highly skilled chef to make many dishes and make sure the dishes are served at the same time and with the quality your clients expect.  Both product businesses and service businesses have pros and cons. Consider them carefully before you decide to start a business.