Every entrepreneur has wrestled with the thought of which business model to start: either the service-based business or the product-based business. Each of these models can be quite profitable. However, there are major considerations to make when choosing the model that suitably works for your start-up. For instance, you are likely to consider running costs, capital, and all required marketing requirements. Additionally, you are likely to evaluate the continuity of business in case of changes in technology and business trends. Notably, we might not define which is easier to start or run but which one works for different individuals and what considerations you need to make before setting up. 

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Running a Service Business

A service business is any company that performs certain professional tasks for commercial purposes. Such services include cleaning, traveling, transport, hospitality maintenance, graphic design, academic tutoring, and consultancy. In a service-based business, one uses their expertise to benefit the customer. Currently, due to technology service businesses can be delivered both physically and on virtual platforms. 

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Advantages of Running a Service Business

Minimum Start-up Capital: In most cases when running a service business the start capital includes only a workforce and overheads. For instance, if you start a cleaning business all you will need is staff members and cleaning supplies. Importantly, you can introduce remote work depending on the type of service provided. Moreover, even as a sole owner working from home, you will notice the first flow of cash as soon as you sign up for the first customer.

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Ready Market: You can easily make a living through a service-based business. The market for services is always there, what each entrepreneur needs to do is find their targeted audience, promote themselves, and be good at what they do. 

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New Opportunities: When you start a service business, there are various industries and niche you can fit in. These endless opportunities make you meet new clients, and you can adopt a befitting routine to serve them better. Interestingly, you can always negotiate your pricing with the customers. 

Disadvantages of Running a Service Business

Hard to Scale: Service businesses work on an hourly basis; whereby the expected revenue is related to billable hours. Therefore, the company might be forced to hire more people to offer more services for the business to grow.

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Limited Creativity: Services are committed to the consumer's requirement. This can limit your creativity. As much as you may have the right direction, you will have to work as the customer wants the service done and follow the specifications.

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Demand Cutback: In delicate times such as during a recession consumers cut on services and pay attention to buying products needed for survival. In such times services are highly looked at as extras. Therefore, when starting a service business, you should place it in a position that every customer regards as a necessity. 

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Running a Product Business

A product-based business is any entity that makes its revenue from primarily selling tangible products such as clothing, furniture, or stationery to consumers. For instance, a business that sells, computer hardware is a product business.

Advantages of Running a Product Business

Easy to Scale: When selling products, it’s easy and very cost-effective to extend them by either increasing the variety of products or improving already existing products. It also doesn’t require a huge number of employees to increase the number of products sold. 

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Continuous Innovation: Every product-based business is guided by innovation; constantly improving goods to meet the client’s requirements. 

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Continuous Revenue: With a product business, you have to get new clients for the products. Also, it requires you to create new products so you have a continuous flow of cash and profits. Therefore, you need high quality products and an efficient sales and marketing team to realize increased revenue.

Disadvantages of Running a Product Business

Highly Risky: Product-based businesses do not guarantee sales.

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Constant Need for Cash Flow: A product-based business calls for continuous investment for its launch and growth, hence the need for cash flow

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Varying Demand: You must be conversant with the latest customer demand as long as your start-up is product-based. This may require you to have storage for your inventory. However, don't have excess products in the store to reduce the storage costs.

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Factors that Determine Which Model to Choose 

Time to Market 

Any of these businesses require time to market. However, as an entrepreneur offering a service-based business, you can provide a service and instantly make money. On the contrary, product-based businesses need you to get funding for the production and promotion of the product. This means product-based businesses require high income for marketing and product advertisements, while service-based businesses need little investment in marketing because they directly contact the clients.

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Business Risk/Entrepreneur Risk

If the choice is to start a service business, you risk losing time if the business does not bring back any value. On the other hand, when starting a product-based business, you will risk spending money on capital, initial invention, and prototypes. In either scenario, it’s essential to identify the risk that you are willing to take. 

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Profit Margin

A service-based business might have fairly profit margins since the start-up costs are fairly low. On the contrary, product-based companies require very high initial costs. Therefore, the key to creating a sustainable business is to evaluate your expertise in offering services or the ability to produce high-quality goods in order to meet customer demands. 

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Parting Shot

You may wonder which of the two; a service-based business or a product-based business is easier to set up. They have some similarities; the goal of satisfying customer needs. However, they have differences too. For example, a product-based business is great for scalability whereas a service-based business is more appropriate if you want to spend less money. Despite the path you take, always strive to keep the direct costs and potential risks as low and low as possible. What’s more, you need to understand your target market properly and set a vision for your business. 

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