Previous Next Running a Service based Business — Pros and Cons All of us have our own set of skills and areas of expertise—all you really need to possess is the drive, dedication and the desire to turn your skills into a revenue generating opportunity. A service based business is difficult to start and continue simply because in essence, you will be basically selling yourself and not a product. And in a consumer conscious world, your biggest challenge as a service based business owner will be in building and providing a tangible experience of your services to a customer.
Written by Cynthia McCahon Have you ever considered the various businesses that participate in putting on a Major League Baseball game? While the "businesses" that get the most attention are the baseball teams, there are many other businesses that handle the food concessions, the shops that sell jerseys and other team paraphernalia, the company that manages the stadium, and the list goes on and on.
In order to properly forecast financial results, it is important to distinguish whether the company is essentially a "manufacturer" or a "service provider".
In this article, I will discuss the differences between these two types of companies and explain how these differences affect their financial forecasts. The simple, straightforward difference between manufacturers and service providers is that a manufacturer sells a tangible product while a service provider supplies "useful labor".
It is important to see how this difference works in practice and its impact on forecasting costs and the necessary amount of financing. Manufacturers purchase raw materials and incur labor and overhead costs to prepare products for sale.
Continuing with the baseball game example, let's consider one of the teams. Although you might think that the company has an inventory of players from which to select the line-up, the team is actually providing a service. Players' "useful labor" earn money by entertaining the patrons who pay to watch them play I mean, "work".
Like many service companies, the majority of the teams' expenses relate to salaries. As a result, future costs are comparatively easy to estimate. A manufacturer has a more complicated forecast as the company has to estimate changing production-related costs.
At a ballpark, an example of a manufacturer would be the food concessions. Just like any other restaurant, the company's employees labor make use of food ingredients raw materials to manufacture food items or meals.
The company has to estimate the most efficient number of employees during times of peak production before the game and between innings. To put together a good forecast, the manufacturer has to consider changing raw materials costs, labor costs at different levels of production, and the optimal level of inventory to keep on hand.
Money is required to produce or purchase inventory so manufacturers usually require more financing than service providers. Some companies are both service providers and manufacturers.
Let's say that a rock star is hired to sing the national anthem. After singing, she sets up a booth near the concessions, takes pictures with fans, and sells her CDs. In this case, the singer provides a service when she is paid to sing the national anthem.
She is also acting like a manufacturer when she sells a tangible product, the music CD. To produce the CDs, the singer would have incurred costs to purchase blank CDs, paid for time in a recording studio, and paid producers to produce the singer's product.
All of these costs incurred to produce the CD would be included in the costs of the CD inventory. In the real world, there are many companies that sell both services and products.
One type of company that is tricky to classify is a software company. Consider the programming that goes into those scoreboard races that have become so famous. For example, when there is a downtime at a Washington Nationals game, the scoreboard displays a footrace between Presidents Washington, Jefferson, Lincoln, and Teddy Roosevelt.
There is a lot of computer animation by programmers required to put together this entertainment. Is the programming a "tangible product" or a "useful service"? Programmers spend hours putting together a product, but often they don't have a physical product that sits in warehouses. Is a software programmer a service provider or a manufacturer?
It really depends on whether the company continues to incur significant costs when the software is being distributed. Can the costs incurred be matched with the particular items sold?
Would the distribution of the software result in significant additional costs to the company? If almost all of the costs were originally incurred, it is easier to consider the sale of the software as a service.
If the software is sold on CD's and the costs can be allocated to the CD's like in the case of the anthem singerthen the programmer could be considered a manufacturer.But don't try to move the trademark to B, a product trying to deliver new benefits to a new market, in a single step.
-- Tom Richman "You test market by getting into the business. And then there's the problem of the buyer who offers a royalty for a license, then does nothing with the patent. You make no money. And, on the other hand, there's also the chance that you try to.
A business plan doesn’t have to be elaborate, it just needs to explain your plan for your business. To help you get started we’ve created an example business plan for a service based business.
Our example is for a tutoring company, but the principles apply to any service based business. Product vs Services Startups: 6 key factors you should consider before making up your mind.
By Andreas; – A product-based business requires you to reinvent the wheel once; and then, With a service-based model, you need to mould your solution in . The business world revolves around products, services and, oftentimes, a combination of both.
Services are always intangible, and although you might assume that products are always tangible, in some cases they're not. Also, products and services can both be perishable. Dec 13, · Learn exactly how to start a business that makes money from month one in this ultra-practical, no buillshit tutorial You can also check out the full article.