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Salt Lake City Bookkeeping Blog

Differences Between Service and Product-Based Businesses

Posted by Alex Viau on Oct 5, 2016 9:00:00 AM

Differences_Between_Service_and_Product-Based_Businesses.jpgSure, a product business sells stuff and a service business sells useful labor. But beyond this basic definition, product and service business owners differ widely in how they sell and how they manage their enterprises. Learn more about the key differences between product and service businesses, and examine your own practice to identify areas where improvements are necessary.

The Marketplace

You make widgets — but not just any widget. Your manufacture the highest-value and most innovative widget known in the industry. You want the world to know about your widgets. So what do you do? You launch a website, create some buzz through interviews and social media, let some important thought leaders test your widget and you’re off to the races. When you’re the owner of a product business, the world is your marketplace. You just have to reach the right customers.

Now imagine you’re an attorney, or maybe a physician. People come to you because they need your expertise. And if you’re among the elite of the elite, maybe customers come to you from across the country. But mostly, service providers target customers from a range of zip codes near their office locations. Local connections and word-of-mouth, accompanied by an excellent reputation, are the most effective ways to attract new customers.

Product Quality vs. Customer Experience

Awareness is essential for product and service businesses, but ultimately, the quality of the product is what drives customer loyalty in a product-focused business. In a service business, the customer expects in-depth expertise and an outstanding experience. Product buyers expect value, while service buyers expect relationships. And while relationships and value matter to every kind of customer, the priorities are different for each.

Price

The next time you patronize your favorite shoe store, try asking for a discount. Not because the shoes you want are on sale. You just want a discount for being you. Chances are, most shoe store owners will smile and decline. But with a service business, negotiation is commonplace and sometimes expected. From realtors to graphic designers and consultants, the price of a service is often up for discussion.

Financial Management

Product manufacturers and resellers have a lot more on their plate when it comes to financial management. There is inventory to consider, plus changing supply costs, shipping and storage. Products sold are often taxable. The bottom line is that products have many more moving parts when it comes to finances.

Services are much easier to budget for and forecast. Service providers usually have much lower overhead than a typical products business. Trimming expenses is easy. When a service provider charges a fee, it’s for time and expertise — not a tangible item that costs money to produce.

Office Needs

Many service providers are lucky enough to work at home if they choose — or wherever they happen to be. This incredible flexibility, enabled by cloud-based computing, makes it simple for service providers to stay dialed-in, even when they’re checking in — to a hotel on vacation, that is.

Although product and service providers use different approaches when growing their businesses, they share the same goal: customer satisfaction. So, no matter which type of business you run, make sure you’re putting your customers’ needs first.

Topics: Service Based Business, Service Business, Product Based Business