Most businesses provide either products or services to their customer base. When starting your business, deciding what you’re going to offer to your customers is essential.
Let’s jump in and consider some of the factors that affect products and services.
Considering your options...
Choosing between offering products or services is a crucial decision when starting a business. It involves considering factors such as time, costs, and revenue generation.
Product-based businesses require time for sourcing, creating, designing, and testing goods. These goods need to be sold in sufficient quantities to cover their costs before generating a profit, which also takes time. However, with successful sales, the customer usually pays upfront for the products.
On the other hand, service-based businesses can start offering their skills almost immediately, often with minimal setup costs, especially if you’re providing the service yourself. However, if additional training or specific equipment is required, it will take more time and investment. Additionally, customers in the service industry typically expect to be invoiced after using the service, resulting in a wait for payment.
Alternatively, you may choose a dual product-service business. However, it’s advisable to perfect one model before taking on the other, ensuring you can effectively manage both aspects.
The dual product-service model
In some cases, entrepreneurs may choose to adopt a dual product-service approach, offering both tangible products and intangible services. This approach allows businesses to diversify their revenue streams and cater to a broader range of customer needs.
However, managing a dual product-service business can be more complex as it requires expertise in both areas. It’s important to ensure that each aspect of the business receives proper attention and resources. It’s recommended to establish a strong foundation in one area before expanding into the other, as it allows for better focus and resource allocation.
By offering a combination of products and services, businesses can provide a comprehensive solution to their customers, delivering tangible goods alongside the value-added benefits of specialized services. This approach can help differentiate the business from competitors and create additional opportunities for growth.
Careful planning and strategic execution are crucial when adopting a dual product-service approach. It’s essential to identify synergies between the products and services, ensure operational efficiency, and effectively communicate the value proposition to customers.
Remember, regardless of whether you choose to offer products, services, or both, understanding your target market, their needs, and the competitive landscape is vital to developing a successful business strategy.
Scope for growth
Ensuring scalability is a critical aspect of any business’s long-term success. Scalability refers to the ability of a business to increase its sales without incurring proportional increases in costs. When considering products and services, they often exhibit different patterns of scalability:
Products generally have high scalability. Once a product is developed, it can be reproduced and sold in unlimited quantities with minimal additional costs to the business. For example, a gaming app can be downloaded by numerous users without significantly impacting the production or distribution costs.
Services typically have lower scalability due to the time and resources required to deliver them, especially if additional personnel need to be recruited. Scaling a service-based business often involves expanding the range of services offered as upsells or complementary offerings, providing more opportunities for growth.
Factors affecting product sales:
Products allow customers to physically see and evaluate them before making a purchase decision. This visual aspect can influence customer buying behavior and help build trust in the product.
Managing product inventory is crucial. Constant replenishment of inventory is an ongoing cost and requires efficient inventory management to avoid overstocking or stockouts. Perishable goods add an additional challenge, as they must be sold within a specific timeframe to prevent spoilage.
Products necessitate storage and fulfillment logistics, which can account for significant costs in a product-based business. Expenses such as warehouse rent, wages for warehouse operatives, inventory storage systems, and third-party logistics (3PL) services must be considered and managed effectively.
Understanding the scalability and associated challenges of products and services is essential for making informed decisions about your business model. Careful planning, cost management, and efficient inventory and fulfillment strategies are crucial for success in a product-based business.
Need to knows...
A 3PL (third-party logistics) service is a valuable resource for product-based businesses as it provides storage, fulfillment, and inventory management solutions. By outsourcing these logistics functions to a 3PL provider, businesses can benefit from their expertise and infrastructure. Here are some key points to consider about 3PL services:
A 3PL can handle storage and warehousing of your products, allowing you to focus on other aspects of your business. They have the necessary facilities and systems in place to efficiently store and manage inventory.
Fulfillment services offered by 3PLs involve picking, packing, and shipping orders on behalf of the business. This saves you time and resources, as the 3PL takes care of the entire fulfillment process.
Utilizing a 3PL can help streamline your operations and improve efficiency. They have established systems and processes to handle inventory management, order tracking, and shipping logistics.
One advantage of working with a 3PL is their widespread geographic coverage. They may have multiple fulfillment centers located strategically across the world, allowing for faster and cost-effective shipping to customers.
The cost of using a 3PL varies depending on factors such as the volume of products, storage requirements, and shipping destinations. It’s important to consider these costs and assess the benefits and convenience provided by the 3PL services.
Factors affecting selling services:
Services are intangible, which means customers rely on trust and confidence in the service provider to deliver a satisfactory experience. Building a strong reputation and establishing trust is crucial in the service industry.
Many service offerings have competition, making it essential to differentiate yourself from others in the market. Providing unique value propositions, exceptional customer service, or specialized expertise can help you stand out from the competition.
In the service industry, there is a risk of non-payment from dissatisfied customers. Unlike products, where payment is often made upfront, services are typically invoiced after they are provided. Ensuring clear communication, managing expectations, and addressing any concerns promptly can help minimize the risk of non-payment.
Depending on the type of service you offer, it may require continuous training or certification to stay up-to-date with industry standards and advancements. Investing in professional development and acquiring relevant certifications can enhance your credibility and expertise in the market.
By understanding and addressing these factors, service-based businesses can effectively navigate the challenges and create a strong foundation for success. Providing exceptional service, maintaining good customer relationships, and continuously improving your skills and knowledge will contribute to the growth and reputation of your service-based business.
Major things to be aware of...
- AVOID running out of stock, this causes product-based business “downtimes” where they cannot make money and still have fixed costs to pay. It is a problem that has paralyzed many of my product businesses and meant that my cash flow was very negative. A good inventory management system and a high-quality supplier will help to reduce your risk of “downtime”.
- DO NOT expect your product or service to sell itself. You’ll need an attractive sales and marketing funnel that reaches your customers in a place where they are ready to purchase your product or service.
- COMPARE your products, prices, quality of service, and unique selling points against your competitors every 3-4 months.
- MAKE SURE your products and services are always compliant with all regulations set out by your local government.
“Quality in a service or product is not what you put into it. It is what your customers get out of it.”
Peter Drucker,
US Management Consultant
