As an entrepreneur you have basically two routes to follow: you can
either provide services or products (providing both at the same time is
also an option, but very few people manage to do it effectively, so
let’s not consider this option for the sake of simplicity).
By “services” I mean work you’ll do on behalf of your clients. They
give you some money, and in exchange you perform a certain task for
them. Examples include web design, SEO consulting, hair cuts, car
washing, software development, electronics repairing, house painting and
so on.
By “products” I mean selling something the clients will use
themselves. They give you some money in exchange for something tangible
they can use to perform a certain task. Examples include ebooks, shoes,
computers, courses, bread, mobile apps and so on.
Both models can be profitable, and there are millions of companies
around the world on each of those camps. However, the money you can make
using a product-based business model is orders of magnitude larger than
with a service-based model.
Why? For a simple reason: the potential revenue of a service-based
model is limited on the supply side. That is, your earnings will be
limited to how many hours you (or your staff) can work, and there are
only so many of them in a day/month/year. The potential revenue of a
product-based model, on the other hand, is limited on the demand side.
That is, the earnings will be limited to the amount of people who are
willing to buy the product.
Let’s compare two companies. Company A offers house painting
services, while company B produces and sells paint. The revenues of
company A will be limited to the number of painters the company has on
staff, and to how many hours each painter can work in a day/month/year.
The revenues of company B, on the other hand, are limited to how many
people are willing to buy its paint, which is potentially everyone in
the world.
One could argue that company A can keep hiring/firing painters to
match the demand, limiting its revenues exactly to the demand as well.
But that is not viable in the real world. Hiring and managing people is
far more complex and expensive than managing the process of creating
products.
Obviously money is not everything, and some entrepreneurs will prefer
to run a service-based company. That’s fine. On many cases, however,
both models will be equally rewarding to the owner, and switching to a
product-based one will increase the profits and give you more
flexibility at the same time. I find this to be the case especially with
small businesses.
Suppose you are a web designer, and you charge $100 per hour of
design work. You work 30 effective hours per week, so 120 hours per
month, with revenues of $12,000 per month or $144,000 per year. Not too
shabby. Now suppose you switch to a product-based model, and you spend
your next two months creating a WordPress theme. You price it at $49 per
license, and during the first month you sell 100 copies, so $4,900
during that month. Over the next 10 months, however, sales grow 30% per
month. By the end of the year you will have sold over 4,000 licenses,
pulling a total of $208,602. Not only that, you’ll be able to keep
profiting from that product for years to come.
Bottom line: you can have a viable business model
either offering services or products, but the latter tends to be much
more profitable, so evaluate your current strategy to make sure you are
not leaving money on the table.
An article from http://www.dailyblogtips.com
Services vs. Products: Are You Focusing on the Wrong Side?