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Product Vs Services – Which one to choose for your online business?

November 30, 2011

Last Updated on - April 20, 2014  

minutes read

Online business

This is a guest post by Misheal on what to pick – a product or, a service for you online business. You can check out the guidelines for guest posting on our write for us page. 

What does your online business provide to its customer -a product or a service? A very basic question that business owners seldom reflect on. These are two distinctive terms that entrepreneurs never really focus on and end up making wrong business strategies. In layman terms, a product is an object, a tangible item that is sold and bought with a claim to ownership. On the other hand, a service is an intangible item, an activity that provides benefits to the customer, with no claim to ownership.

What should be your online business?

Anyone with ample amount of capital can set up a product based business, while not everyone can set up a service based business. You need different type of experience, skills, knowledge, tools, strategies and monetary investment for both of them. It would be unfair to label one better than the other, because they have their own plus and minus. However, if you are considering to set-up a business, knowing about the pros and cons will help you make a better decision.

Start up Requirements

With products, you need ample amount of capital investment, along with a proper infrastructure where stock items can be stored. You will need to establish an invoice system, a buying/selling system and good connections with distributors. You must also make sure that products are updated and that customers are getting the latest items the market has to offer. A business that offers tangible commodities often has to start off with good capital, good venue and good promotional/convincing powers. This is something that is applicable to an online business as well.

Services require experience, skills and expertise. It doesn’t need huge monetary investment; however it needs a proper infrastructure and business model. You have to plan on services offered, their stages and service cost/charges. Sites that offer SEO and content writing services, web and graphic design services are some of the best examples of a business that works on the service model. As can be seen, services usually require experts to be at the helms of affairs; someone who knows the industry well enough to provide customers with the best solutions at the most affordable rate.

A look on mere startup requirements will portray tangible items as an easier business model that can be adopted by anyone who has a good starting capital. While services can be provided with zero capital, as long as you have the expertise.

The decision as to what to offer in your online business will also depend upon how much you wish to invest. This investment can be in product development, website management, back end sales management etc.

Running Costs

The cost of running a tangible product based business is more than the service based business. Businesses, including an online business often face big losses when their products cross a certain limit and are no longer purchased. The items then have to be sold off at a very cheap rate. Inventory management is the most important factor that leads to high running costs. Add to that, shipment costs, worker wages, transportation costs, maintenance costs and you have a high bill to look at every month.

With services, there are minimal running costs, and there is not much to worry about. You can be a one man team and still be able to offer services at the cost of pennies.

It is because of this low running costs that services is the most preferred option by any online business.

Profitability – 

Here comes the most important and the deciding factor for most businesses. The bad thing about services is that in most cases, it can take a very long time to bring in good income. Till then you might feel dejected and at loss. However, the good part is that you have nothing to lose. You didn’t start with any heavy cash investment, so even if you decide to shut it down, it won’t cost you a dime.

The reason of failure may lie in many factors; including poor research, lack of patience, not targeting the right audience, or not doing enough marketing, not satisfying the customer or simply not being able to meet your client’s expectations. To get the clients, you need to have a portfolio as a proof of your skills. And for all this to happen, you have to do rigorous marketing.

Internet can come handy to establish yourself as an expert; you can reach out to national and international clientele using social media, start a blog, and use other online marketing tactics. This is where services score over products for an online business.

The profitability in products is a simple measure of the difference in selling and purchase/production price. Are customers ready to buy products at the rate at which you are selling and does that offer a good profit margin? If the answer to this question is in “yes” then your business will succeed. However, you should remember the costs like marketing, and delivery. Delivering the products to customer’s doorstep is a sizeable cost for an online business and you must keep that in mind, because it will have a serious dent in your overall profitability. Still, if you can discover the right equation, a product based business can turn out to be much more profitable than a service based business.

What should be the choice for your online business?

Most online business owners have no difficulty in picking services as the choice for their businesses. Since managing and running a service based business is much easier as compared to a product, internet entrepreneurs go with this obvious choice.

But the fact is that, product if developed such that they address the problems of a starving crowd, can do extremely well in an online business. Just because most of these products are to be created once and be sold over and over again, since it does not involve a physical product as in a conventional business, they can become a set-it and forget-it option.

About the Author:

Our guest blogger today is Misheal Rome, an internet marketing expert by profession. Currently, she’s working for a UK based website that features restaurants in Plymouth and restaurants in South Wales. We thank her for this post on choosing the best thing for your online business.

About the author

These posts are submitted by our Guest Bloggers. We accept guest posts on topics that are relevant to our blog like blogging, internet entrepreneurship tutorials, affiliate marketing, social media etc. You can read more about how to submit guest posts by visiting our write-for-us page.

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