Products vs. Services: The Key Differences Small Business Owners Should Know

Products and services are two offerings that businesses can deliver for their customers to answer some type of pain point. While businesses that sell products and services want to engage with customers and create an outstanding customer experience in both situations, there are fundamental differences in how these organizations conduct business. 

An effective product marketing campaign, for instance, isn’t necessarily going to follow the same strategy as a services marketing campaign. A product could be something for one-time use, such as a new supplement, whereas a service could offer a more intangible product, like a plumber offering water line repairs. 

Understanding these differentiations is important for your small business — particularly when outlining your business model and figuring out your price point. In this guide, we’ll identify the key differences between product- and service-related businesses so that you’re on the right track to success.

What is the difference between a product and a service?

The main difference between selling a product versus selling a service lies in the tangibility of what you sell. A tangible product is something manufactured, advertised, and sold to the customer. In response, the customer will like the product or decide to return it if it doesn’t meet their needs.

On the other hand, a service is an intangible product — it can’t be touched. The service is something that the business does for their customer, using their expertise to help the customer in a particular way. Services have a greater opportunity for customization to ensure they meet the customer’s needs. However, while contracts can be canceled, the service can’t be returned in the same way as the product.

Since the setup of these two types of businesses differs, there are benefits and drawbacks to each. Service-based businesses provide entrepreneurs with the ability to start providing services and making money almost immediately. For example, a copywriter can produce content for clients nearly as soon as they open their business. On the other hand, an entrepreneur who wants to sell a physical product must secure the funding to produce the product and promote it before making money.

Conversely, the service-based business will only bring in income so long as you actively work. However, selling a product online allows you to keep your business running 24/7 without having to actively man a physical location the entire time. You can make money while sleeping or on vacation and log in to run marketing campaigns and fill orders at the hours that work best for you.

In terms of securing funding, there’s no real benefit for either type of business. A bank or lender will require a strong business plan regardless of your offering to demonstrate that your product or service has a market and that you’ve done your market research to differentiate your business for prospective customers. 

Product Businesses

Selling a product requires careful consideration of what will meet the need of the average customer who faces a particular pain point. Entrepreneurs interested in developing product-based businesses need to consider the types of products on the market and their shortcomings to target the appropriate customers.

Building a product-based business creates some important considerations for prospective entrepreneurs, specifically: 

• Quality of a product: Because the result for customers is whether the product they purchased met their needs, it’s easy to evaluate if the purchase was worthwhile. They can gauge if their investment matched what they received. Therefore, creating products that align well with customer needs and interests while also hitting a price point that aligns with market rates is important.
• Harder to personalize customer experience: Products can’t be personalized or individualized as much as services. Therefore, sellers have to be prepared for more returns and exchanges. 
• Variability in demand: You also have to carefully balance keeping up with product demand and finding room to store inventory. You don’t want to have excessive products in storage — which will increase storage costs — but you also don’t want to run out of inventory for customers. Therefore, careful tracking of your production rates and buying patterns will be an important part of the process.

There is a wide variety of product-based businesses that entrepreneurs can pursue. Some include:

• Consumer products: From clothing to toys, these products usually serve a specific use. 
• Technology products: Think apps, tools for automation, etc. 
• Agricultural products: This could be a new food, beverage, or supplement.

Service Businesses

Service-based businesses focus on using expertise to provide an important service for a customer. These businesses generally require significantly fewer startup costs, as you won’t have to invest in producing and manufacturing products to sell. Instead, you only need the materials that equip you to provide a service for your clients. 

For service businesses, there are a few key points that entrepreneurs should remember:

• Variability in pricing: Pricing for service-based businesses often reflects your experience and expertise, which means pricing can increase as you become more experienced. Pricing also needs to take into account the time needed to complete the job.
• More touch points with clients: Services often require more back-and-forth with clients, as they receive your service and work with you to learn how to get the most out of it.
• Higher need for trust: Service-based jobs generally include building yourself as an expert in the minds of potential clients, which means that the marketing strategy often focuses on creating trust.

Some examples of service-based businesses might be:

• Home repair and maintenance: These include electricians, plumbers, and construction workers.
• Creative services: Think copywriters, website developers, graphic designers, etc.
• Health care services: This includes physical therapists, nutritionists, and personal trainers.
• Professional services: This can include anyone from marketers to accountants.
• Personal care: These services meet a direct human need, like a life coach, manicurist, or massage therapist.

Certain types of business may also combine elements of product- and service-based businesses. For example, a car dealership may also offer maintenance services. Other entrepreneurs might sell healthy, organic food and complement the sales by offering life coaching sessions.

Offering this type of hybrid relationship can benefit businesses. Some find that maintaining their relationship with customers by providing a service helps to remain in touch with customer needs and more easily pivot when they change. Nurturing this relationship also helps build professional trust, which can position the business for more upsell or resell opportunities moving forward.

Learn how to start a product or service small business

Selling products and services requires some differences in the mindset of entrepreneurs. Creating products requires detailed knowledge of the gaps in products on the market and what customers want to satisfy their pain points. You must then invest in the development and production of products. Service-based companies require knowing about intangible services that customers desire and then having — and marketing — your expertise to fill this need. 

Both types of businesses require a solid understanding of the target market and a business plan that will help you meet this demand. You can get started by learning how to analyze your market, protect your intellectual property, and more to help you build a successful business with ZenBusiness.