Products vs. Services

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: 

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

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:

Some examples of service-based businesses might be:

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 marketprotect your intellectual property, and more to help you build a successful business with ZenBusiness. 

Product vs. Service FAQs

  1. What is better: A product or service?

    Debating between a product or a service depends largely on the expertise of the entrepreneur. The best business will be the one that you feel confident and capable of providing. Consider where your experience and training lie to begin creating ideas for a business.

    Some other things to consider are:

    • Product-based businesses generally require higher upfront costs.
    • Service-based businesses only make money when actively working, while product-based online retailers can keep making money even during off-hours.
    • Service-based businesses often rely more on trust and relationships with customers.
  2. What are examples of products and services?

    Products and services that small businesses and entrepreneurs offer vary widely. Products can include anything from clothing sold through online retailers to food grown or prepared for local markets. Services can range from legal advice to a personal trainer.

    Whichever you choose, you’ll want to consider your areas of expertise to see what type of business might work best for you.

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