Every small business owner asks themselves the same question at some point. “Should I sell services or should I sell products?” The battle of services vs. products has no clear victor. In this article, we will discuss the advantages and disadvantages of both options so that you can make an informed decision.
What is a product?
A short while ago, we wrote a post called What is a Product that talked about why this is such a complicated, nuanced question. For the purposes of this article, though, we are going to assume the simplest possible definition.
A product is an item offered for sale, either physical or virtual. Successful businesses often sell more than one product and spend a considerable amount of time creating new ones.
What is a service?
Services, on the other hand, do not involve physical goods. When you buy a service, you buy access to someone else’s “resources, skill, ingenuity, and experience.”
The line between product and service is blurry
Regular readers of this blog knew it couldn’t be so simple. Marketing is more than meets the eye, after all.
We discuss this point at length in What is a Product, but it bears repeating here as well. Products and services are closely intertwined these days, and for many businesses, it is hard to meaningfully separate the two.
The best way to illustrate this is to talk about the concept of “levels of product.” To quote What is a Product:
The core product is the feeling that customers are buying. A wealthy man buying a Lexus may actually be buying status. A hungry woman buying a meal is buying freedom from hunger. The core product is different for every person and every product. Marketers spend an enormous amount of time, money, and energy figuring out what people are actually buying.
The tangible product is exactly what you think it is. If you buy a bike, the bike is the product. The tangible product covers features, quality, style, and packaging. It’s everything that can be touched, seen, or heard.
The augmented product includes any after-sale service, delivery, or installation. This is your Fitbit’s software updates or your video game’s patches. When Home Depot installs your brand new washer and dryer, that’s a good example, too.
Lastly, you have the promised product, which includes potential trade-in value, dependability, and status. Lumen Learning says it best in this quote:
There is no definite promise that a Mercedes-Benz holds its value better than a BMW. There will always be exceptions. How many parents have installed a swimming pool based on the implied promise that their two teenagers will stay home more or that they will entertain friends more often?What is a Product?
The point we’re getting at here is that while reading this post, you must remember that reality is messy. Our pros and cons can point you in the right direction, but your understanding of your own business model must always be more nuanced than any cookie-cutter, textbook material you find online.
Pros of Selling Products
Many entrepreneurs feel the lure of creating products. After all, it fits in beautifully with our society’s stereotype of an entrepreneur in the first place. You have a fantastic idea, you turn it into a physical product, and knock on doors until you make a million bucks!
It’s a bit of a fantasy, but there is a kernel of truth at the core. Products give you complete creative control. You can truly express yourself when you create a product. You don’t have to follow any client’s vision. Instead, you follow your own vision on how best to meet the customers’ needs.
Products scale easier than services do. If you are providing nothing but services, you will eventually run out of time to trade for money. This is not the case with products.
Products make money while you sleep, too. They make money while you’re on vacation, while you’re sick, and while you’re having friends over for dinner. The revenues are much steadier.
If you get really sick of selling products, you can always discontinue them. With services, particularly in specialized professions, it can take weeks, months, or even years to disentangle your interests from your clients.
Cons of Selling Products
It’s not all sunshine and roses with product-based business models. There are some serious downsides that absolutely must be considered.
First and foremost, you need upfront capital. Sometimes you even need a lot of this. Clearing the economic threshhold needed to launch a product-based business can be formidable. You could be looking at anything from hundreds to millions of dollars to get started.
Couple this with the fact that product-based business models are risky. It’s hard to estimate demand in advance. Once you get started, it’s hard to change course if something goes wrong. You can’t un– manufacture goods if they fall out of style.
On top of all this, you have to provide at least some level of customer service, too. That means that even a relatively passive business model, a product-driven one, cannot be totally hands-off. For many, this takes away from the promise of a product-based business in the first place!
Pros of Selling Services
If you want to dip your toe into the waters of starting a business, creating a product might not be the right way to do so. In fact, there are a lot of advantages to selling services that should not be forgotten.
First and foremost, you don’t need much startup capital to sell services. All you really need is know-how and a few critical supplies. That also means the barriers to entry are mercifully low.
Products require a longer time to develop, and even the most run-of-the-mill product requires some amount of explanation. On the other hand, if you sell a service, you can enter right into an existing market without much fanfare.
There are also psychological benefits to getting into the service sector as well. In order to succeed, you will likely need multiple clients. This will keep your responsibilities varied and fresh, where they may grow stale and routine in a product-based business.
Cons of Selling Services
As good as the upsides may look, selling services is no cakewalk. Some of the downsides are real doozies and there is no way around them.
When you sell services, you are selling your time. There is no way around this. By its very nature, the service sector is labor intensive and your bills are often based on your hours and not your output. For this reason, it’s also much harder to scale a service-based model.
On top of that, there are other problems. It’s tough to constantly be working for someone else. You will literally depend on your clients, and when one of them drops, your cash flow can rapidly decline. You may find yourself choosing between stifling your creativity or losing money – and that’s a tough choice for many entrepreneurs to make again and again.
Which one is right for your business?
If you must choose between products or services, do so with an understanding that the particulars of your situation will determine the best path for you. If you’re just getting started in business and don’t have a lot of upfront capital, it’s likely easier to start by selling services. However, if you are more experienced and have some capital to spare, selling products will likely put you in a position to scale your business far beyond what a service-driven business could achieve.