A service-based business comes with a unique challenge — in order for it to be scalable, you need to keep adding users (subscribers or customers), which takes time and money. In such a scenario, selling a complementary or standalone product line and turning your company into one that sells products (or at least a combination of products and services) can be a smart move.
There are a number of successful companies that started as small service-based businesses that eventually grew into product corporations. For instance, Michael Dell used to assemble computers for his friends out of his dorm room before founding Dell Technologies, which sold computers. And 3M started as a mining company, then segued into selling sandpaper; today, it sells a number of products including Scotch tape and Post-It notes.
The main difference between the two is that, while a service-based business offers value through its skills, time and expertise, a product-based business sells physical, tangible objects. However, the marketing costs and techniques vary when you’re selling services versus products.
Service- Vs. Product-Based Selling
When selling a service, it’s important to talk about what makes the service personal and distinctive, and how it can meet the needs of customers. Typically, in order to market a service, the business owner needs to build trusting relationships with its clients and customize its offerings as necessary, which may include discounted prices or add-ons to the standard service offered.
On the other hand, when selling a product, it’s crucial to display the item in-store or online for customers to view, and you must also highlight essential features. Often, customers want to touch or try out the product before purchasing, or they may prefer to see it being used in a demonstration via sales teams or online videos.
And, while products are usually designed to meet the needs of customers, they cannot always be customized. However, if a customer is dissatisfied with a product, they can simply exchange or return it for a different one. With products, it’s easier for a customer to establish their value.
Usually, service-based companies are less expensive to operate than product-based ones, mostly because there’s no inventory — and the physical location of the business is often irrelevant (however, this varies based on the type of service offered). However, the pricing for service-based businesses can differ depending on such factors as the industry, the experience of those running the company and the amount of time it takes to fulfill the service.
One unique challenge that product-based businesses face is keeping up with product demand. If they run out of inventory, it can result in dissatisfaction and bad customer reviews; therefore, it’s important to keep track of the manufacturing process, the number of items in stock and what customers are buying so there’s always enough.
It can be challenging to get approval ratings for a service-based organization because it may take some time for a service to take effect or to be completed.
In contrast, a product can be used and evaluated almost immediately.
Further, a bad review for a service can make or break the business. And because a service cannot be exchanged or returned like a product, it’s crucial that companies continually review and evaluate the service they’re offering. Therefore, it’s essential to address customer complaints and queries in a timely manner.
How to Segue
Consider these four tips to help you effectively transition from a service-based business to a product-based one:
Tip 1: Stick to Your Core: Once you know how to successfully sell a service, you can find many creative ways to productize it. However, it’s better to stick more or less to what you know and are good at doing.
Tip 2: Listen to Your Customers: Customers know a great deal about their markets, and new product opportunities often come from problems in need of solutions, as Bill Gates once found out. In its early days, when Microsoft used to develop programming languages for customers, IBM asked Gates for an operating system for a “new” product called a personal computer. And because Gates did not want to sell the source code to them, he instead made IBM pay a licensing fee on a per-unit basis.
Tip 3: Look for Complementary Ideas: The least risky approach is to keep your service business in place to fund product development. This way you can sell products and services that go hand-in-hand. Case in point being Michael Dell.
Tip 4: Find a Partner: In order to pivot from services to products, it might be beneficial to bring a partner onboard who adds a critical skillset required for product development.
While there are many differences between selling a service versus selling a product, one major similarity is that success depends on how well you satisfy your customers.