Product vs Service: Which of These Is Good for You?

This is Post No. 8 in How to Start a Business Series.

Whether to start a product based business or one driven by service – is the choice that many 1st time entrepreneurs need to make.

Majority of the businesses in the world are service businesses. This is because the startup cost and time for a service business are less than that for a product based business.

product-service business

Product Vs Service

Let us see the good and bad about both.

Good Things About Running a Product Business.

It is easier to scale (grow). You can make a product once and sell it over and over again. It is true for both physical or digital products (software, information products).

Product business is not without challenges. Here are some.

Product Business: Challenges

  • It takes time to build a quality product.
  • It takes more money to start than a service business.
  • You need a better understanding of the market than you need in a service business.
  • In case of a physical product you need to stock stuff and need storage space or office.

Service Also Has Its Own Advantages.

Here are some challenges you face when you run a service business.

Service Business: Challenges

  • You need to be there to serve your customer and it is hard to maintain consistency in service.
  • You need to deal with the quirks of the customers because there may be a mismatch between the expectations of customers and business owner.

Because of these reasons I prefer a product based business.

If you are just starting out, it makes sense to start with a service business; because it is easy to start and need less capital and time to get going.

Later you can productize your service business. Here is how?

How to Productise Your Service Business

You can enjoy the benefits of running a product business, while running a service business. This can be done by productizing your service business.

You can productize your services by creating service bundles and charging a fix prices for these bundles.

If you run a graphic design business – you can create three packages.

  • Silver – only logo (2 revisions) – $49 [any one out of logo, tagline, facebook cover]
  • Gold – logo + tag line (2 revisions) – $79 [any two out of logo, tagline, facebook cover]
  • Platinum – facebook cover image + above  – $99 [all three – logo, tagline, facebook cover]

If you do not want to miss on the customers who want to get a customized solution, you can offer a customized solution option also.

Here is a strategy that you can use to make sure that you get more orders for your service bundle than you do for customized option. For this, price of customized solution should be at a slight premium to the bundle — so that people are encouraged to take the bundle. This means if a person buys a bundle which offers a logo, tagline and facebook cover graphic separately, the price should more than when these are bought in a bundle. [Your honest logic (and response) can be – that when customer orders a bundle you can use same brand elements elsewhere and save on effort, and also that customer interaction time increases in customized option.]

You can also turn your products into services. This is relevant for those who are already running established businesses and want to grow new revenue streams.

Action for today: Think about all these challenges and advantages when you think about product vs service, look at your resources and when do you want to launch. Based on this decide whether you want to go with a product or service.

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